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The CARES Act: What Multifamily Owners with Federally Backed Mortgage Loans Should Know

In response to the COVID-19 outbreak, the United States, like many states has reacted by providing certain multifamily landlord and tenants with economic benefits during this unprecedented global pandemic. On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Section 4023 of the CARES Act contains several provisions that assist borrowers of federally backed multifamily mortgage loans due to the COVID-19 outbreak. Section 4024 of the CARES Act provides multifamily tenants with economic relief, to the extent subject property involves a federally backed mortgage loan.

Forbearance of Residential Mortgage Loan Payments for Multifamily Properties with Federally Backed Loans

Section 4023 of the CARES Act provides multifamily borrowers and with certain protections and rights for forbearance of loan payments under federally backed residential mortgages for residential multifamily properties predominately designed for the residency of five (5) or more families: (i) purchased or securitized by Fannie, Freddie; (ii) made in connection with a program administered by HUD; or (iii) insured by any agency of the federal government. For the purposes of Section 4023, loans for temporary financing such as a construction loan are not eligible for forbearance.

 In order to be eligible for the above economic protections, a borrower must: (i) submit an oral or written request for forbearance affirming that the borrower is experiencing financial hardship; and (ii) the borrower must have been current on its payments as of February 1, 2020. Notably, Section 4023 of the CARES Act does not define “financial hardship” for the purposes of requesting forbearance, nor does it outline the type of diligence that is to be provided to the servicer, thus it is unclear as to whether servicer’s may exercise discretion in granting the forbearance.

 The initial forbearance period is for 30 days, which can be extended for up to two additional 30 day periods, so long as the extension request is made 15 days prior to the expiration of the then-current 30-day forbearance period. A borrower’s right to request the above initial forbearance and an extension of the initial forbearance period expires on the earlier of: (i) termination of the national emergency concerning COVID-19; and (ii) December 31, 2020. A borrower may discontinue the forbearance at any time.

 During the period of forbearance, the borrower may not: (i) evict or initiate the eviction of a tenant solely for nonpayment of rent or other fees or charges; (ii) charge any late fees, penalties or other charges to a tenant for late payment of rent; or (iii) issue a notice to vacate. Following expiration of the forbearance, a borrower that receives a forbearance may not require a tenant to vacate before the date that is thirty days after the date on which the borrower provides the tenant with a notice to vacate.

 Temporary Moratorium on Eviction Filings

Regardless of whether a landlord has requested a forbearance under Section 4023 of the CARES Act, landlords in multi-family properties that have Fannie and Freddie or other federally backed mortgage loans cannot, within 120 days of the date of the CARES Act, institute an eviction action based on non-payment of rent or of other charges or fees due to landlord or charge fees, penalties or other charges related to such nonpayment of rent. Following the expiration of the 120- day moratorium, the landlord also cannot issue a notice to vacate during such period or require a tenant to vacate until 30 days after the landlord gives the tenant a notice to vacate. 

 The interpretation and implementation of the CARES Act is evolving. We will continue to update as necessary, but please contact one of the authors of this article with questions.

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Authors

Robert G. Koen

Member / Chair, Mintz Real Estate Finance Practice

Robert Koen is a Member in the Mintz Real Estate Transactions Practice. He focuses on commercial real estate, including real estate acquisitions, finance, and complex restructurings.
Nadine L. Ebersole is a Mintz attorney whose practice focuses on representing real estate developers and owners in construction transactions, commercial developments, and other real estate matters.