Locke Lord QuickStudy: CARES Act: How Does It Affect Multifamily Owners and Borrowers?

On March 27, 2020, the President signed into law the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is aimed at helping individuals and businesses that have been affected by the 2020 coronavirus pandemic.  The CARES Act includes several provisions that affect multifamily owners and borrowers. The CARES Act distinguishes between 1-4 family dwellings (which are not treated as multifamily properties) and multifamily properties (5 or more dwelling units). The rules applicable to 1-4 family dwellings are different in some instances and not covered by the discussion below.  

Loan Forbearance. 

Section 4023 of the CARES Act allows multifamily owners that have a Federally backed multifamily mortgage loan (defined below) to seek forbearance because of a financial hardship due, directly or indirectly, to the “COVID–19 emergency”, for thirty (30) days, with the right to extend the forbearance period for two additional periods of thirty (30) days each. Multifamily borrowers who seek loan forbearance are subject to certain renter protections (discussed below) during the forbearance period. 

Forbearance; Request for Relief. During the “covered period” a multifamily borrower for an “applicable property” with a “Federally backed multifamily mortgage loan” that was current on its payments as of February 1, 2020 may submit a written or oral request for forbearance.   

• Upon receipt of an oral or written request from a multifamily borrower, a servicer shall document the hardship and provide the forbearance for up to 30 days; and
• Extend the forbearance for up to 2 additional 30 day periods, provided that the borrower must request each extension 15 days prior to the end of the then current forbearance period. 

Federally Backed Multifamily Mortgage Loan. The term “Federally backed multifamily mortgage loan” includes any loan (other than temporary financing such as a construction loan) that—

• is secured by a first or subordinate lien on residential multifamily real property de-signed principally for the occupancy of 5 or more families, including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property; and
• is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by any officer or agency of the Federal Government or under or in connection with a housing or urban development program administered by the Secretary of Housing and Urban Development or a housing or related program administered by any other such officer or agency, or is purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.

Renter Protections during Forbearance Period.  A multifamily borrower that receives a forbearance under Section 4023 of the CARES Act may not do the following during the forbearance period:

• evict or initiate the eviction of a tenant from a dwelling unit located in or on the applicable property solely for nonpayment of rent or other fees or charges; or
• charge any late fees, penalties, or other charges to a tenant described in the preceding bullet point for late payment of rent.

Special Notices. A multifamily borrower that receives a forbearance under Section 4023 of the CARES Act: 

• may not require a tenant to vacate a dwelling unit located in or on the applicable property before the date that is 30 days after the date on which the borrower provides the tenant with a notice to vacate; and 
• may not issue a notice to vacate until after the expiration of the forbearance.

Covered Period. The term “covered period” means the period beginning on March 27, 2020 and ending on the sooner of: 

• the termination date of the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act ; or 
• December 31, 2020.

COVID-19 Emergency.  The term “COVID–19 emergency” means the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act.

Moratorium on Exercise of Remedies. 

Section 4024 of the CARES Act imposes a temporary moratorium on evictions and the exercise of certain other remedies by owners of covered properties, irrespective of whether the owner has requested loan forbearance under Section 4023, as discussed above. Covered properties (defined below) include properties that participate in the Section 8 Housing Choice Voucher Program, HOME properties, Low-Income Housing Tax Credit properties, and any property that is insured, guaranteed, supplemented, protected or assisted in any way by HUD, Fannie Mae or Freddie Mac (i.e., Federally backed multifamily mortgage loans, as defined above). As detailed below, the owner of a covered property may not charge late fees to its tenants during the moratorium period, nor may an owner initiate an eviction action based on non-payment of rent during the moratorium. Additionally, the owner of a covered property may not issue a notice to vacate until after the expiration of the moratorium nor require a renter to vacate until 30 days after a notice to vacate has been issued.  If a rental property is not a covered property under the CARES Act, a landlord may still initiate eviction actions for non-payment of rent, subject to the restrictions currently imposed by the state or local governments and/or courts where the property is located. In Texas, the Texas Supreme Court has issued a moratorium against most residential evictions.

Under Section 4024 of the CARES Act:

• Moratorium. During the 120-day period beginning on the date of enactment of the CARES Act (March 27, 2020), the landlord of a covered dwelling may not:
  • make, or cause to be made, any filing with the court of jurisdiction to initiate a legal action to recover possession of the covered dwelling from the tenant for nonpayment of rent or other fees or charges; or
  • charge fees, penalties, or other charges to the tenant related to such nonpayment of rent.
• Special Notice. The landlord of a covered dwelling unit:
  • may not require the tenant to vacate the covered dwelling unit before the date that is 30 days after the date on which the landlord provides the ten-ant with a notice to vacate; and
  • may not issue a notice to vacate under the preceding bullet point until after the expiration of the moratorium period.
• Covered Dwelling. The term “covered dwelling” means a dwelling that is: 
  • occupied by a tenant
  • pursuant to a residential lease; or
  • without a lease or with a lease terminable under State law; and
  • on or in a covered property.
• Covered Property.—The term “covered property” means any property that:
  • participates in:
    • a covered housing program as defined in the Violence Against Women Act of 1994; or
    • the rural housing voucher program under section 542 of the Housing Act of 1949; or
    • has a Federally backed mortgage loan or Federally backed multifamily mortgage loan.
    • The Violence Against Women Act of 1994 (VAWA) lists most federally assisted rental housing programs, including the following:
    • HUD Programs
    • Public housing (42 U.S.C. § 1437d)
    • Section 8 Housing Choice Voucher program (42 U.S.C. § 1437f)
    • Section 8 project-based housing (42 U.S.C. § 1437f)
    • Low-Income Housing Tax Credit (LIHTC) (26 U.S.C. § 42)
    • Department of Treasury Programs
    • Section 202 housing for the elderly (12 U.S.C. § 1701q)3
    • Section 811 housing for people with disabilities (42 U.S.C. § 8013)
    • Section 236 multifamily rental housing (12 U.S.C. § 1715z–1)
    • Section 221(d)(3) Below Market Interest Rate (BMIR) housing (12 U.S.C. § 17151(d))
    • HOME (42 U.S.C. § 12741 et seq.)
    • Housing Opportunities for Persons with AIDS (HOPWA) (42 U.S.C. § 12901, et seq.)
    • McKinney-Vento Act homelessness programs (42 U.S.C. § 11360, et seq.
    • Department of Agriculture Programs
    • Section 515 Rural Rental Housing (42 U.S.C. § 1485)
    • Sections 514 and 516 Farm Labor Housing (42 U.S.C. §§ 1484, 1486)
    • Section 533 Housing Preservation Grants (42 U.S.C. § 1490m)
    • Section 538 multifamily rental housing (42 U.S.C. § 1490p-2)
• Dwelling.  The term “dwelling”:
  • has the meaning given the term in section 802 of the Fair Housing Act, which defines a dwelling as any building, structure, or portion thereof which is occupied as, or designed or intended for occupancy as, a residence by one or more families, and any vacant land which is offered for sale or lease for the construction or location thereon of any such building, structure, or portion thereof; and
  • includes houses and dwellings described in section 803(b) of the Fair Housing Act, which includes:
    • dwellings (as defined above) owned or operated by the Federal Government;
    • dwellings provided in whole or in part with the aid of loans, advances, grants, or contributions made by the Federal Government, under agreements entered into after November 20, 1962, unless payment due thereon has been made in full prior to April 11, 1968;
    • dwellings provided in whole or in part by loans insured, guaranteed, or otherwise secured by the credit of the Federal Government, under agreements entered into after November 20, 1962, unless payment thereon has been made in full prior to April 11, 1968; provided, that nothing contained in this bullet point or the preceding bullet point shall be applicable to dwellings solely by virtue of the fact that they are subject to mortgages held by an FDIC or FSLIC institution; and
    • dwellings provided by the development or the redevelopment of real property purchased, rented, or otherwise obtained from a State or local public agency receiving Federal financial assistance for slum clearance or urban renewal with respect to such real property under loan or grant contracts entered into after November 20, 1962.

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