COVID-19: Forbearance & Foreclosure For Small Landlords In California
The unemployment and reduction in income for millions of Americans in the wake of the COVID-19 crisis has threatened homeowners and renters across the country. The extension of the moratorium on evictions continues to evolve, with President Biden likely to extend protections even further into the new year. But what about the landlord? For landlords with just a few properties, even a single tenant unable to pay rent could cause the property to go into foreclosure. Landlords may not be able to evict tenants hurt by the crisis, but foreclosures on rental properties will hurt both landlords and tenants alike. Foreclosure relief is limited, especially for rental properties. However, if you have a federally backed loan, you may have more options.
While California’s “Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020” (TRA) largely protects tenants from eviction, it also includes provisions to extend protections for homeowners and “small landlords” (typically landlords with 1 to 4 covered residential units). The TRA adds new accountability measures to the federal CARES Act and extends protections under California’s Homeowner Bill of Rights (HBOR) to small landlords.
Under the CARES Act, homeowners with a federally backed mortgage can attain a forbearance of up to 180 days, with the ability to request another 180 days’ extension. The process simply requires the borrower to affirm financial hardship due to the COVID crisis and request forbearance from your federal loan servicer within the “covered period.” That’s it; no other document is required or can be requested.
For homeowners, the “covered period,” in short, is the period from March 27th, 2020, until the president officially terminates the national emergency. However, what counts as a “covered period” is not defined for small landlords, so it depends on which federal agency is backing your loan. At the moment, most of these deadlines extend until at least February 28th, but these deadlines may change as the situation develops. (One exception to the February deadline is loans secured by Fannie Mae or Freddie Mac, which haven’t issued any information clarifying when the covered period will end.) Consult with your real estate attorney for the latest deadline information.
Under the TRA, if a loan servicer denies a small landlord’s request for forbearance, the servicer must now provide a written explanation explaining the reason(s) for the denial and any curable defects in the request, potentially allowing the landlord to amend the request and receive the forbearance. If the borrower was current on mortgage payments as of February 1st, 2020, these protections apply until April 1st, 2021.
Homeowner Bill of Rights
The TRA also extends many protections under the HBOR that were previously available only to mortgages for owner-occupied properties, i.e. homeowners, to small landlords whose tenants are unable to pay rent due to the COVID crisis. (At least one tenant must be delinquent on rent and make a declaration of hardship: see “Eviction under COVID-19.”)
These protections include the right to a foreclosure avoidance assessment at least 30 days before the lender can begin the foreclosure process, and within 5 days of recording a notice of default, the lender must provide the homeowner or small landlord with information regarding options to terminate the foreclosure. Furthermore, small landlords are now protected from “dual tracking,” meaning that lenders cannot start or continue the foreclosure process while they are considering a borrower’s application for a foreclosure avoidance option, such as a borrower’s loan modification application.
The CARES Act prohibits accruing any fees or penalties during forbearance: you owe all missed mortgage payments due eventually, depending on who guarantees your loan and the payment options they make available. The CARES Act also prohibits negative credit reporting during the forbearance period, so long as you were not already delinquent at the time of the agreement. However, some servicers are reporting mortgages as current while adding a notation that the loan is in forbearance. While it won’t directly affect your credit score, you should be aware that this notation could make it difficult to take out a new loan or refinance for a while.