Is Mortgage Forbearance A Good Option For Me?
Post-Shelter-In-Place: A Primer For Landlords – Part 4 in a Four-Part Series
The ill-effects of the Coronavirus pandemic and subsequent Shelter-in-Place orders are becoming more and more apparent as they continue to trickle further down through our economy. Tenants unable to pay their rent are creating financial hardships for landlords working to pay their mortgages.
If your rent collections are significantly impaired, you may want to consider exploring mortgage forbearance options with your lenders.
For federally insured multifamily loans, Section 4023 of the CARES Act allows a borrower to pause or reduce mortgage payments, for a limited time, without penalties or added interest. The “covered period” begins on March 27, 2020 and ends on either December 31, 2020, or when the national emergency ends, whichever comes first.
You may qualify for such forbearance if you are experiencing a financial hardship due to the COVID-19 emergency, and if your loan:
- was secured by a mortgage on property designed for 5 or more families;
- was made, insured, guaranteed supplemented or assisted by any agency of the federal government; or
- was made in connection with a program administered by HUD; or
- was purchased or securitized by Freddie Mac or Fannie Mae; AND
- was current on its payments as of February 1, 2020.
- Requests under Section 4023 are granted in 30-day increments, for up to three 30-day periods. You’ll need to make additional requests for each 30-day period, and each new request must be made at least 15 days prior to the expiration of the forbearance period then in place. All in all, the forbearance period may last up to 90 days. Keep in mind that you may have to pay your lender a fee for preparing the forbearance agreement(s).
As well, if your request for forbearance is accepted, you cannot, for its duration, evict or initiate the eviction of a tenant for nonpayment of rent, or any other fees or charges. Additionally, you may not charge late fees, penalties or other charges for late payment of rent.
Regardless of whether it is a loan covered under the CARES Act or not, if you choose to move forward with a forbearance request, here are some things to keep in mind:
- Prompt communication with your lender is critical;
- Careful record keeping is essential;
- Be prepared to show your lender how the pandemic and imposed shutdowns have hurt your collections;
- Gather accurate and clear data showing your collection numbers;
- Obtain information and documentation from your tenants with regard to their hardships;
- Make reasonable efforts to enforce the terms of your tenants’ leases and keep good records of those efforts; and
- Share and discuss these matters openly with your lender and consider all workout options;
While forbearance options can provide great relief, the process can be cumbersome. For more than 25 years, our experienced professionals have been helping clients navigate the intricacies of forbearance and loan modifications. If you’re interested in learning more, call Erwin Law at 773-525-0153. We’d be happy to guide you to a loan arrangement that best suits your situation and needs.