Multifamily Relief and Rental Protections under the CARES Act

QUESTION
We specialize in multifamily lending and servicing. 

The CARES Act provides for mortgage and rental relief based on the type of property. 

A recent internal audit showed us that we do not have adequate procedures in place to implement the relief provision of the CARES Act. So, we are particularly interested in knowing about multifamily relief and rental protections. 

In counseling your multifamily clients, what are some of the guidelines that you recommend with respect to procedures for mortgage and rental relief?

ANSWER
In conducting internal audits for our clients, we may show a finding for weakness in CARES Act procedures for both single and multifamily properties. This is not unusual, given the many new regulatory requirements in response to the COVID-19 pandemic. If you would like us to conduct an internal audit that targets such pandemic response regulations, or a full internal audit review, please contact me HERE.

The Coronavirus Aid Relief and Economic Security Act (CARES Act) indeed contains several provisions that are addressed at mortgage and rental relief. These provisions are in addition to existing sections 1024.39 through 1024.41 of RESPA. The type of relief available depends on the type of property involved.

One-to-Four Family real estate is covered in Section 4022 (Foreclosure Moratorium and Consumer Right to Request Forbearance) of the CARES Act, where it grants forbearance rights and protection against foreclosure to borrowers with a federally backed mortgage loan. Multifamily real estate - five or more families - are addressed in section 4023 of the CARES Act.

Let’s look at the Multifamily. Then, I will discuss rental protections.

Multifamily relief provisions apply to federally backed multifamily mortgage loans. These include any loan (other than temporary financing, such as a construction loan) that:

• Is secured by a first or subordinate lien on residential multifamily real property designed principally for the occupancy of five or more families.
• Is made, in whole or in part, or insured, guaranteed, supplemented, or assisted in any way by any officer or agency of the Federal Government or under or in connection with a housing or urban development program administrated by HUD, or is purchased or securitized by Fannie Mae or Freddie Mac.

Multifamily borrowers with a federally backed multifamily mortgage loan experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency may request forbearance. The loan must have been current on its payments as of February 1, 2020. The request for relief must be submitted to the borrower’s servicer, and such a request may be verbal or written.

Upon receipt of an oral or written request, the servicer must:

• Document the hardship.
• Provide forbearance for up to 30 days.
• Extend forbearance for up to two additional 30-day periods, upon the request of the borrower, provided that such request is made during the covered period (viz., the covered period begins upon enactment (March 27, 2020) and ends on December 31, 2020, or, if sooner, the termination date of the COVID-19 national emergency as declared by the President); and at least 15 days prior to the end of the original 30-day period.

The borrower can discontinue forbearance at any time.

Now, let’s discuss rental protections.

A multifamily borrower receiving forbearance may not, for the duration of the forbearance:

• Evict or initiate the eviction of a tenant from a dwelling unit within the applicable property solely for nonpayment of rent or other fees.
• Charge late fees, penalties, or other charges to such tenant on account of the late payment of rent.
• Require a tenant to vacate a dwelling unit on the applicable property on fewer than 30 days’ notice (and such notice may not be issued during the forbearance period).

A related provision of the CARES Act provides a temporary moratorium on eviction in certain properties, including those that have a federally backed multifamily mortgage loan. The moratorium imposed by this provision applies irrespective of whether the borrower has sought or is granted forbearance relief.

Under this provision, during the 120-day period beginning on March 27, 2020, the lessor may not:

• File any action to recover possession of the covered dwelling on account of non-payment of rent or other fees or charges.
• Charge the tenant for fees, penalties, or other charges related to nonpayment of rent.

Also, the lessor may not require a tenant to vacate a dwelling unit on fewer than 30 days’ notice, and such notice may not be issued during the 120-day period.

Jonathan Foxx, Ph.D., MBA

Chairman & Managing Director

Lenders Compliance Group