CARES Act Sections 4022 and 4023 – Mortgage Forbearance
New York State on Pause is the official executive order signed by Governor Andrew Cuomo that outlines a 10-point plan to shut down non-essential businesses and services. The order also closed schools and mandated social distancing to mitigate the spread of the Novel Coronavirus, which causes COVID-19.
Widespread Unemployment is Leading to People Not Being Able to Pay Their Rent or Mortgage
These shut-downs in every state and around the world, are designed to relieve the stress on overburdened hospitals and healthcare workers. Unfortunately, shutting down all non-essential services and businesses has led to widespread unemployment. Many people are finding it difficult, if not impossible, to pay their rent or mortgage.
For residential and commercial renters, New York State has issued a moratorium on evictions, which has been extended until August 20. Initially set for April 19, then extended to June 6, then June 20, an executive order by Governor Cuomo this month extended the date to August 20. This extension is not across the board, but rather for renters who can show evidence of experiencing a financial hardship directly related to COVID-19. The latest extension put the onus of proof on the tenant.
The issues of rent are a significant issue in New York, especially in New York City, where nearly two-thirds of residents are renters.
Homeowners Are Struggling to Pay Their Mortgage. So are Building Owners to Depend on Rentals
Renters are not the only people who are struggling. Homeowners are struggling to pay their mortgages. Those who own property, homes they rent to others, or multifamily dwellings, such as apartment buildings, are not able to pay the mortgages on the properties they own since they are not collecting rent.
President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020. The CARES Act was a significant move by the Federal Government to help Americans get through this crisis. Included in the CARES Act is Section 4022, which is a Forbearance and Foreclosure Moratorium for homeowners with any federally backed mortgage loan. Section 4023 is a forbearance of residential mortgage loan payments for multifamily properties with a federally backed loan.
What is Forbearance?
It is important to define some of these terms. A forbearance is an agreement between a lender and a borrower to suspend debt payments temporarily. Lenders could decide not to allow a forbearance, instead opting to foreclose on the property. However, foreclosure is an expensive process, and with the suddenly high unemployment rate due to the pandemic, the number of foreclosures would be staggering.
A forbearance is generally only an option for homeowners who are experiencing temporary financial difficulty. For those who have suffered permanent changes to their financial situations, forbearance is not usually a viable option. They would need to request a modification to the loan to make it more affordable, or they may lose the property.
Which Loans are Federally Backed?
A federally backed loan is when a mortgage is with one of several federal agencies. These agencies include:
United States Department of Housing and Urban Development
United States Department of Agriculture
Federal Housing Administration
United States Department of Veterans Affairs
These provisions in the CARES Act do not cover borrowers with a mortgage that is not backed by one of these federal agencies. These borrowers would have to call their servicer directly.
Section 4022 of the CARES Act is for Homeowners with Federally Backed Mortgages
Section 4022 allows for homeowners with a federally backed mortgage to request forbearance if they are experiencing hardship with is directly or indirectly related to COVID-19. The forbearance period is for 180 days, and the borrower may ask for an additional 180 days. During the period of the forbearance, the lenders may not assess additional fees, interest, or penalties. Lenders are also not allowed to request any evidence or documentation other than the necessary information initially required.
Section 4023 of the CARES Act is related to Multifamily Dwellings
Section 4023 is related explicitly to owners of multifamily dwellings of five or more units. 4023 differs from 4022 in many ways, including the forbearance period. Section 4023 allows for a forbearance of 30 days with two additional periods of 30 days apiece.
In return for the forbearance, property owners are not able to initiate eviction proceedings or evict any residents solely for nonpayment of rent. They may also not charge any late fees or penalties for late payment of rent.
Officials at the state and federal level are very concerned about so many people falling behind on rent and mortgage payments. Different laws and executive orders have been put in place to help those who are struggling through this time. However, as we have seen with the latest extension of Governor Cuomo’s executive order, these moratoriums are going to end eventually. Those that owe rent or have a mortgage are going to have to start to pay what is owed, or they are going to have to begin to make some tough decisions.
Contact Kamini Fox for a free video consultation
If you have fallen behind on your payments, you may have options. Over time, there may be fewer options as laws and executive orders expire. Kamini Fox is offering video consultations so you can discuss your issues and concerns without the stress of going into an office. Contact Kamini Fox, PLLC at 516-493-9920, to schedule a consultation. We never sit in judgment, and as we always say, bankruptcy is not the end. It is an opportunity at a new beginning.