Thursday, April 30, 2020

Help for borrowers and tenants in arrears

The Hampshire Gazette newspaper has published on Op-Ed from Mary Olberding, the Hampshire County Register of Deeds, that explains recent legislation at the state and federal level intended to assist tenants and home owner/borrowers who are in financial distress due to the Covid-19 emergency.

Here's the article:


Guest column by Mary Olberding, register of deeds: Help for those who can’t pay mortgage or rent

Published: 4/29/2020 3:35:52 PM

During these unprecedented times, federal and state legislators are working on relief packages for those financially impacted by COVID-19, including protections for those struggling to make their mortgage or rent payments.

At the federal level, the $2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES) includes a moratorium on foreclosures and allowing forbearance for mortgage payments of up to one year. Massachusetts’ version approved last week puts a moratorium on evictions and foreclosures during the crisis.

These are steps that property owners and renters can use for direct assistance, but consumers need to know what these bills do for them.

In Massachusetts, no evictions or foreclosures can take place for 120 days after the bill was enacted on April 20, or 45 days after the state of emergency has been lifted, whichever is soonest. And, if necessary, the governor can extend the expiration date.

Renters, either small businesses or residential tenants, cannot be evicted for nonpayment of rent except in cases of criminal activity or for health and safety reasons. Nor can tenants be charged late fees. The law does not forgive payments or prevent landlords from later recovering monies owed. Rather, tenants must notify landlords in writing of their COVID-related circumstance no later than 30 days after a missed payment. Landlords may access deposit payment of tenants’ last month’s rent to meet their property-related expenses.

For homeowners, it is important to note that the federal CARES Act only covers mortgages that are federally guaranteed like Freddie Mac and Fannie Mae, while the law in Massachusetts applies to all mortgages. The federal CARES Act moratorium began on March 18th and extends for 60 days. Notably, the federal moratorium includes a halt to foreclosures initiated prior to the act, where state law is more ambiguous on this point.

In all of these cases, creditors are prohibited from reporting delinquencies to credit agencies and the request to miss any payment obligations rests with the debtor. Both laws allow for a period of forbearance for residential property up to 180 days. Forbearance is a suspension of payments, not forgiveness of debt.

There are some critical distinctions between these laws:

CARES allows borrowers to request a second forbearance of up to 180 days, where the Massachusetts law stops with only one 180-day forbearance period.

■CARES does not prohibit balloon payments, meaning someone may owe all of their missed payments at one time.

■Massachusetts law specifies that additional interest or fees beyond what is initially owed in the forbearance period are not allowed and payments subject to forbearance will be added to the end of the term of the loan.

■Better still, Massachusetts law provides for the opportunity to enter into alternate payment plans for those subject to forbearance. That means homeowners can negotiate how they want to make the missed mortgage and interest payments. For example, they can spread it over the life of the loan, make interest-only payments or prepay loans when the economy returns.

How difficult it is to obtain forbearance remains an open question. Banks and other mortgage servicers appear to have sole authority to grant the forbearance and for how long. The Consumer Finance Protection Bureau suggests that homeowners able to pay their mortgage should do it. Those that can only pay part should contact their lender.

Much of the financial fallout from COVID-19 is unknown. We can use the housing crisis of 2007-2012 as a guide to prevent some unnecessary turmoil. During that time, banks did not have proper documentation before initiating foreclosures and they were therefore unlawful. Many safeguards have been since put in place, but none of the current legislation requires documentation for forbearance of mortgage payments by either borrower or lender. That opens both parties up for disputes of the agreed upon terms and conditions and possible default action later by the mortgagee.
I strongly encourage anyone seeking forbearance to put all requests in writing — and get it from a lender too. I am also advocating for legislation at the state and federal level for more reporting and accountability by mortgagees.

One remedy would be a notice of default sent to the borrower, much like that required now by the Servicemembers Civil Relief Act, to give people an opportunity to prove their COVID-19 hardship. They would have a prescribed number of days to respond to the notice and could make an appearance in court to demonstrate the forbearance to avoid foreclosure. The lender would bear the burden of recording that order at the Registry of Deeds and providing public notice. Not only would this prevent unnecessary and unlawful foreclosures, it would give clear chain of title for the property for future sale, either by mortgagor or mortgagee.

Already, the Registries are seeing an uptick in foreclosure-related activity. The moratorium prevents mortgage banks and servicers from taking any action on foreclosures, but with no penalty or enforcement provisions in the legislation, outside of legal action, there is no remedy for homeowners that the moratorium is designed to help.

I have contacted Congressman Jim McGovern’s office, our state legislators and the Consumer Protection Division of the Massachusetts Attorney General’s office to work on increased protections.
In the Great Recession, we learned how devastating it can be to property owners and to the economy if banks are not accountable for complying with protections. There is potential for the pandemic to cause long-term financial hardship. Unlike the foreclosure crisis of 2008, which largely effected homeowners, the current crisis also impacts renters, landlords and small businesses — anyone with a mortgage.

Here are some resources:

■The CARES Act can be found at financialservices.house.gov
Information about obtaining a forbearance and CARES can be found at consumerfinance.gov

Mortgage information may be found at MassLandRecords.com

Please note: While this is a summary of new legislation, it should only be used as guidance and not as financial or legal advice. Contact a professional financial advisor, attorney, or other expert for individual advice.

Mary Olberding is the Hampshire Register of Deeds.

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