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Commercial Litigation

Creditors Beware: Pitfalls Lurking in the CARES Act and Local Orders

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides, among other things, for eviction and mortgage foreclosure relief, as well as associated fees and penalties associated with nonpayment of rent and/or mortgage payments.

The CARES Act protection for rental properties includes “covered dwelling(s)” which include properties that specifically include “covered housing programs” as defined by the Violence Against Women Act, participants in the rural housing program of the Housing Act of 1949, or have a federally backed mortgage.

The CARES Act protection for mortgage payments relates to mortgage loans insured, guaranteed, supplemented, or assisted with a program administered by HUD or is purchased or securitized by Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage Association (“Fannie Mae”).

The CARES Act provides for a moratorium on evictions and mortgages of the “covered dwellings.” While mostly consumer in nature, it is conceivable that some multi-family landlords accessed federally backed funding and therefore, could be covered under the CARES Act.

In Florida, on April 2, 2020, Governor Ron DeSantis executed EO-20-94, extended to July 1, 2020, by EO-20-137, providing temporary relief to Floridians with single family mortgages and single family residential tenancies. The goal, according to the Orders, was to provide “targeted temporary relieve to single family mortgages” and “residential tenancies.” Again, the state moratorium only suspends and tolls evictions and foreclosures related to nonpayment; it does not prohibit evictions, foreclosures, or other actions for non-monetary default.  Further, while a moratorium currently exists, nothing relieves tenants and mortgagees from their obligations to pay these obligations. Most states have similar moratoriums.

What does this mean for landlords and mortgage holders?

Well, after the foregoing Orders, from April 1, 2020 to June 5, 2020, the filings in Orange County,  Florida for evictions and foreclosures were 142 and 176, respectively. But a recent Order in Washington provides caution to overzealous creditors, or, perhaps, those just caught in the regular “manner” or “routine” of processing claims.”

In Washington state’s first coronavirus eviction moratorium lawsuit, the Washington Attorney General Office alleges that JRK Residential Group, a property management company, sent unfair, deceptive, and harassing communications by serving notices to tenants and tacking actions in the eviction process with 14-day “pay or vacate” notices, correspondence which stating “we will not waive any late fees,” “no state is allowing rent abatement or forgiveness.” In addition to the federal CARES Act, Washington State Governor Jay Inslee issued emergency proclamations, including a moratorium on residential evictions. Nowhere in the notices did JRK mention the Governor’s Proclamation. Pursuant to the consent decree entered May 27, 2020, JRK is required to forgive or pay back April rent for the 14 tenants who received notices at the Boulders at Puget Sound, pay $256,000.00 to 1,441 other tenants, and pay $50,000.00 in costs and attorney’s fees to the AG’s office within 5 business days.   

What are landlords/mortgage holders allowed to do?

  • You are allowed to provide borrowers or tenants an accounting.
    • You are not allowed to assess or claim to assess late fees and penalties related to non-payment.
  • You cannot send a Notice to Vacate.
  • You cannot send a Motion or Notice For/Writ of Possession.

Landlords and mortgage holders should seek legal counsel to determine if the CARES Act or state or local law apply to the property.  Landlord and mortgage holders should examine their standard correspondence regarding default as well as the notice and any acceleration provisions of the applicable contract.  Documentation of policy changes related to non-payment default as well as application fees and penalties should be maintained. Before resuming non-payment defaults and assessments of fees and penalties, creditors should again consult extensions of the CARES Act and state and local law.   Landlords, lenders, and their counsel should also consult their local administrative orders and court procedures related to post-CARES act proceedings.  

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