As a result of COVID-19, significant legislation, executive orders, and local ordinances have been issued greatly affecting lenders in general, as well as lenders that specialize in lending to specific sectors of the economy. For example, recent developments arising from COVID-19 have both direct and indirect impact on multifamily lending. In fact, the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act”, signed into law on March 27, 2020, has at least two separate sections that may directly impact multifamily lenders. The following is a very condensed summary of the recent legislative and executive actions arising in response to COVID-19 that may be of great interest to multi-family lenders, beginning with relevant sections of the CARES Act.
Relief for residential mortgage loan payments (Section 4023 of the CARES Act). This section provides forbearance of residential mortgage loan payments for federally backed multifamily mortgage loans commencing on March 27, 2020, the date of the enactment of the CARES Act, and terminating on the later of the date that the declaration of a national emergency is terminated, or December 31, 2020. A multifamily borrower with a federally backed loan that was current on payments as of February 1, 2020 may submit to its loan servicer an oral or written forbearance request affirming the borrower’s hardship due to COVID-19. Servicers will be required to document the hardship and provide a forbearance for up to 30 days and extend that forbearance period for up to two (2) additional 30 day periods. A “multifamily borrower” is defined for purposes of Section 4023 as “a borrower of a residential mortgage loan that is secured by a lien against a property comprising 5 or more dwelling units.”
A multifamily borrower that receives a forbearance under this section may not, for the duration of the forbearance, among other things, evict or intimate eviction proceedings against any tenant for nonpayment of rent or other fees or charges, or charge any fees, penalties, or other charges to the tenant related to such nonpayment of rent.
Eviction Moratorium (Section 4024 of the CARES Act). Section 4024 further imposes a temporary moratorium on eviction filings for a 120 day period beginning on the date of the enactment of the CARES Act, regardless of whether such lessor is the subject of any forbearance granted under the Act. This section prohibits, during the time period between March 27, 2020 and July 25, 2020, a borrower of a federally backed multifamily mortgage loan, from either filing with a court any eviction proceedings against a tenant for nonpayment of rent or other fees or charges, or charging fees, penalties, or other charges to the tenant related to such nonpayment of rent.
Further, a borrower of a federally backed multifamily mortgage loan, may not require the tenant to vacate the covered dwelling unit before the date that is 30 days after the date on which the lessor provides the tenant with a notice to vacate, or issue a notice to vacate under paragraph (1) until after the expiration of the 120-day period March 27, 2020 and July 25, 2020.
State and Local Measures Impacting Lenders Holding Loans Secured By Multi-family Properties. What may be of greater interest to multifamily lenders are recent executive orders and local citywide or countywide measures, because these directives are typically not limited to federally backed loans. For example, Executive Order No. N-28-20, issued by Governor Gavin Newsom on March 16, 2020, “requests” that all financial institutions in California holding home or commercial mortgages implement “an immediate moratorium on foreclosures and related evictions when the foreclosure or foreclosure-related eviction arises out of a substantial decrease in household or business income, or substantial out-of-pocket medical expenses, which were caused by the COVID-19 pandemic, or by any local, state, or federal government response to COVID-19.” Because this “order” is phrased in terms of a request, it does not appear to be a prohibition against foreclosure, but may create business concerns for lenders, when deciding whether or not to proceed with foreclosure (by contrast, the CARES Act provides express prohibitions applicable to federally backed loans as described above).
This same executive order also authorized local governments to halt evictions for renters and homeowners. However, this executive order did not place an actual moratorium on residential or commercial evictions. It merely provided support to residential moratoriums already issued by certain municipalities in the State, including Los Angeles, and has encouraged other municipalities to consider similar measures and to expand them to commercial evictions. As a result, when dealing with a tenant in the wake of the crisis caused by COVID-19, the landlord must determine whether the local government agency for the locale of the property has issued an eviction moratorium, and if such a moratorium has been issued, interpret its meaning.
Measures Adopted By The City Of Los Angeles. On March 17, 2020, the City of Los Angeles extended its residential moratorium to commercial tenants in the City of Los Angeles “if the tenant is able to show an inability to pay rent due to circumstances related to the COVID-19 pandemic. These circumstances include loss of business income due to a COVID-19 related workplace closure, child care expenditures due to school closures, health care expenses related to being ill with COVID-19 or caring for a member of the tenant’s household who is ill with COVID-19, or reasonable expenditures that stem from government-ordered emergency measures.” This moratorium currently only lasts until March 31, 2020, but will likely be extended.
Contrary to some reports, this moratorium does not prevent a landlord from taking steps to evict any tenant in the City of Los Angeles. Rather, it provides a tenant with an affirmative defense to an eviction if the tenant can prove that its inability to pay rent was caused by COVID-19—which may not be difficult, especially for restaurant, bar, nightclub and certain retail tenants, or employees of such establishments.
Executive Order No. N-37-20. On March 27, 2020, Governor Newsom issued Executive Order No. N-37-20, which extends the time period for a defendant tenant to respond to an unlawful detainer (eviction) complaint if the tenant provided prior written notice to its landlord of its inability to pay rent due to circumstances related to the coronavirus.
Current Court Closures. The more effective—but less discussed—moratorium on evictions is the current court closures. For instance, California Chief Justice Tani G. Cantil-Sakauye recently suspended and continued all civil and criminal jury trials for a minimum of 60 days. The Los Angeles Superior Court recently announced that access to all of its courthouses shall be restricted to “judges, commissioners, court staff and authorized persons until further notice.” Because unlawful detainer lawsuits are not included in “time-sensitive, essential matters,” the Court closures have effectively created a moratorium on unlawful detainer trials—the last step of an eviction—in Los Angeles until sometime after April 19, 2020.
We will continue to closely monitor developments in this arena. Please feel free to contact us if you have any questions or require any assistance. If you would like to receive our Real Estate Updates and/or our Labor & Employment Updates, please let me know. In the meantime, please stay safe.
