This article is Part I in a series explaining the legal assistance offered to individuals impacted by the novel coronavirus (COVID-19), relating to real estate and the housing market. Check in next week for an explanation of legal assistance available to independent contractors.
Updated April 26, 2020.
CARES Act for real estate
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law at the end of March 2020 and provides nearly $2 trillion in stimulus to individuals and businesses affected by the novel coronavirus (COVID-19).
The CARES Act helps homeowners by:
- creating a mortgage forbearance program for federally-backed mortgage loans;
- protecting borrowers’ credit scores from negative reporting during the crisis; and
- allowing financial institutions to temporarily suspend some requirements related to troubled debt restructurings (TDRs).
It also provides assistance to small businesses in the form of forgivable loans and paycheck protection. Read on for more details.
Homeowner assistance
Under a mortgage forbearance program, the property owner who is unable to make mortgage payments come to an agreement with their servicer to temporarily forego exercise of the servicer’s rights on a default to foreclose, while the owner takes steps to bring their mortgage payments current.
To be eligible for mortgage forbearance under the CARES Act, the mortgage modification needs to be:
- for a mortgage owned or backed by a federal entity, including:
- Fannie Mae;
- Freddie Mac;
- the Federal Housing Administration (FHA);
- the U.S. Department of Veterans Affairs (VA); and
- the U.S. Department of Agriculture (USDA);
- related to COVID-19;
- executed on a mortgage no more than 30 days past due as of December 31, 2019; and
- executed between March 1, 2020 and the earlier of:
- 60 days after the end of the declared national emergency; or
- December 31, 2020.
In return for giving homeowners and commercial property owners a temporary pass on mortgage payments, these property owners may not evict any tenants unable to pay rent during the crisis.
Property owners unable to pay their mortgage need to contact their servicer to find out if they are eligible to enter a forbearance program. Read more about COVID-19 mortgage forbearance here.
Small business assistance
Thousands of small businesses have been impacted by COVID-19 shutdowns, including many real estate brokerages. To that end, the CARES Act sets aside $350 billion to assist small businesses.
The CARES Act instituted some measures to provide loans and grants to small businesses, including the Paycheck Protection Program (PPP) and extending the Economic Injury Disaster Loan (EIDL) grants program to businesses impacted by COVID-19.
However, both programs ran out of money in mid-April. There is talk of increasing these programs’ budgets though, so brokers in need of additional funds to stay afloat ought to keep watch in case more funds become available.
Update: On April 24, 2020, the Small Business Association (SBA) announced additional funding for the PPP. Therefore, beginning April 27, 2020, the program will resume accepting applications. Learn how to apply here.
The PPP helps businesses continue to pay their employees during the COVID-19 crisis. The assistance is structured as a loan, which will be forgiven as long as the money is used as intended: to keep all employees on payroll for eight weeks and to pay rent, mortgage interest or utilities.
Eligible entities include:
- sole proprietors;
- independent contractors;
- self-employed individuals;
- small businesses (including franchises) with 500 or fewer employees; and
- larger businesses in key, identified industries.
For brokers who employ both employees and independent contractors, they only need to account for payroll of their employees since independent contractors may apply for the loan on their own behalf.
The EIDL program is a program regularly offered by the Small Business Administration (SBA) in response to past disasters. However, during the COVID-19 crisis, the SBA is also offering EIDL forgivable loan advances of $10,000, which may be granted within three days of receiving the loan application.
While these two programs are both out of funding at the time of this writing, there is a possibility that more funding will be extended.
More information is available at the SBA website.
Buyer, seller assistance
Real estate was recently declared an essential business at the federal level. But that doesn’t mean that agents and brokers can go about their practice as usual.
Here in California, laws regulating how agents operate during the COVID-19 crisis vary by locale. For example, open houses are still banned since they can attract large crowds. However, some cities allow photographers to take listing pictures and some do not, making new homes especially difficult to list in these areas.
For an extensive list of county-by-county orders on buying, selling and moving, see this Redfin map.
Related article:
At the national level, the federal government is attempting to move along the closing process by loosening their appraisal requirements.
As the impacts of COVID-19 first began to rock the real estate scene, many lenders began to accept appraisals conducted remotely. Now, appraisals may be deferred for up to 120 days following the close of a transaction for residential and commercial transactions. Excluded from the appraisal extension are loans related to new residential and commercial construction, as these loans present higher risks.
While the in-person appraisal may be deferred, each financial institution is expected to make their best effort to create a valuation on the property based on data available. This temporary rule is good for transactions closed between April 17, 2020 through December 31, 2020.
Related video:
Renter assistance
One-third of renters did not pay rent on time in April, according to the National Multifamily Housing Council. Job losses and reduced incomes threaten homelessness for millions, but federal and state laws are now in place to protect renters from evictions in 2020.
Here in California, renters impacted by COVID-19 may not be evicted due to an inability to pay rent through May 31, 2020. To avoid eviction, the tenant needs to notify the landlord in writing of their inability to pay due to COVID-19 no more than seven days after the missed rent payment.
But this order doesn’t let the tenant off the hook. When the moratorium is lifted, the tenant will be responsible for paying back the missed rent. This will be extremely difficult when the economy is in the depths of recession. Tenants unable to pay missed rent payments will face eviction come June 1.
As discussed above, a longer, 120-day eviction moratorium is in place for landlords with federally-backed mortgages.
At the local level, many cities and counties have also enacted longer moratoriums and extended periods of time to repay missed rent. For example, in the city of Los Angeles, tenants have up to a year after the city’s emergency declaration expires to repay missed rent.
Landlords and tenants: visit your city’s website for information on which protections are available.
Read the statewide executive order here.
