Foreclosures & Eviction Protections Under The CARES Act

As Americans struggle to cope with the financial uncertainty caused by the Covid-19 pandemic, the United States Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Among other things, the CARES Act protects borrowers of federally backed mortgage loans from foreclosure. This article will discuss the foreclosure protections, moratorium on evictions, and other mortgage relief implemented by the CARES Act.

Coronavirus and the Cares Act

In early 2020, the United States and many other countries were hit with a flu-like coronavirus now known as Covid-19 that forced people throughout the country to wear masks, practice social distancing and stay home. In many states stay home orders were issued by state governors prohibiting individuals from going to work or leaving their home for anything other than essential needs. In response to this unprecedented effort to slow the spread of Covid-19 the United States Congress passed the Coronavirus Aid, Relief, and Economic Security Act now known as the (CARES) Act.

In addition to economic stimulus payments sent to every American, small business payroll loans, and extra unemployment benefits, the Act also enacted strong foreclosure protections for homeowners and a moratorium, or temporary pause, on evictions for renters. 

According to the Consumer Financial Protection Bureau (CFPB), under the CARES Act a federally backed mortgage loan is any loan that is insured by the Federal Housing Administration or the National Housing Act. That is guaranteed under the Housing and Community Development Act, guaranteed by the Department of Veterans Affairs or the Department of Agriculture. And any loan that is made by the Department of Agriculture or purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.

Foreclosure Provisions of the Cares Act

The CARES Act provides three principle protections for homeowners affected by the Covid-19 pandemic. A forbearance period, pausing monthly payments for up to one year during the Covid-19 emergency, a prohibition against imposing late fees or negative credit reporting as a result of individuals taking advantage of the forbearance period, and a moratorium on sheriff sales and enforcing judgments of foreclosure.

Forbearance Period

Under the CARES Act, any borrower of a federally backed mortgage loan can request forbearance from having to make mortgage payments for a period of up to one year. Federally backed mortgages include mortgages backed by Fannie Mae, Freddie Mac, USDA, FHA, and the VA. To obtain the mortgage forbearance you must make the request directly to your lender, but you are not required to provide any proof or documentation of financial hardship. Forbearance will be granted in three-month increments with an additional three-month extension available for up to one year. Depending on how badly the pandemic has affected you, you may request as little as three months or the entire year. While not required under the CARES Act, many other mortgage loan servicers not servicing federally backed mortgage loans are also offering similar forbearance terms to their borrowers during the pandemic.

Other Foreclosure Provisions

In addition to its forbearance provisions, the CARES Act also provides that a mortgage servicer may not impose late fees or submit negative credit reporting on borrowers who take advantage of the CARES Act’s foreclosure provisions. Despite this, it is important to understand that the CARES Act does not ‘excuse’ or ‘cancel’ your mortgage payments. The forbearance merely excuses your obligation to make your mortgage payment during the forbearance period. The CARES Act does not regulate how your lender can recover the missed monthly payments after the forbearance. You should ask upfront about how the payments will be recouped. Typically, lenders will either request a lump sum payment, capitalize your missed payments, extend your home loan terms, or pro-rate your missed payments into your remaining loan payments. 

A lump-sum payment means all the payments you missed during the forbearance will be due in one large lump sum at the end of your requested forbearance period. Capitalized missed payments means that all the payments missed during the forbearance will be added to your loan balance. If your loan terms are extended your missed payments will be added to the end of your existing loan amortization. And if your lender elects to prorate your missed payments, a portion of the missed payments added to some or all of your remaining loan payments. For example, if you missed ten $1,000 payments and your lender elects to prorate your missed payments over your next ten mortgage payments, you would have to pay an additional $100 with your mortgage payment each month for the next ten months. But remember your lender is not required to let you pick the repayment plan you prefer, so be sure to ask your lender how they intend to recoup the missed payments. Since you will eventually have to make up the payments you miss, if you’re able to resume your payments early, call your lender and ask to do so.

Sheriff Sales And Foreclosures Judgment Under The Cares Act

Another significant protection provided under the CARES act protects homeowners who were facing foreclosure or being foreclosed on when the pandemic hit. According to the Act, a lender servicing a federally backed mortgage loan, except for vacant or abandoned property, may not: initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment, order a sale, or execute a foreclosure-related eviction or foreclosure sale. 

This is a blanket moratorium and is not limited to Covid-19 financial hardships. Initially set to expire on May 30, 2020, the moratorium was extended to June 30, 2020, for all federally backed mortgage loans, and for Fannie Mae and Freddie Mac mortgages it has now been extended to August 31, 2020. 

A judicial foreclosure is a foreclosure that is initiated with a formal lawsuit and resolved through traditional court proceedings. A non-judicial foreclosure is usually referred to as a sheriff sale and is a private foreclosure proceeding that ends with the property being sold at a public auction by the local sheriff or court officer. Under the CARES Act, both are prohibited during the foreclosure moratorium including any proceedings that might arise as a result of them, such as requesting for a foreclosure judgment, ordering a sale, or executing a foreclosure-related eviction.

If you are currently involved in a foreclosure, depending on what stage of the proceedings you are in, you may be able to speak with your lender about how they intend to move forward after the moratorium. If your lender has turned your foreclosure over to a law firm and you are represented by an attorney, consult your attorney about how the moratorium will affect your proceedings. If you are not represented by an attorney, you should seek legal advice for your specific situation.

Finally, your state governor may have issued specific executive orders pertaining to foreclosure proceedings in your state, or your state legislature may have passed specific legislation that you should also look into.

Eviction Restrictions

If you are a renter, the CARES Act also provides a moratorium on evictions for nonpayment of rent. Originally, this was set for a period of 120 days from the Act’s enactment or June 30, 2020, but it has since been extended to July 25, 2020. In addition, many state governors have issued executive orders suspending eviction proceedings. A state by state list of eviction moratoriums has been published by the National Housing Law Project.

Should I File Bankruptcy During the Pandemic?

Your right to seek protection under the bankruptcy laws of the United States has not been affected by the CARES Act. However, if you are considering filing bankruptcy as a result of the Covid-19 pandemic, it may be in your best interest to postpone your bankruptcy while you take advantage of the protections afforded you under the CARES Act. A decision that will largely depend on whether you are a homeowner or a renter.

If you are a Homeowner

If you are a homeowner and are unable to pay your mortgage as a result of the Covid-19 pandemic bankruptcy is not going to solve your pandemic based problems. Bankruptcy provides relief to individuals who can no longer afford to pay their bills by discharging their obligation to repay those bills. You may either file a Chapter 7 or a Chapter 13 bankruptcy. 

A Chapter 7 bankruptcy is known as a liquidation. In Chapter 7 bankruptcy the non-exempt property of the filer is sold to pay creditors. In exchange, the filer receives a discharge relieving them of the obligation to repay any of the debts included in their bankruptcy and prohibiting their creditors or anyone else from attempting to collect payment on those debts again. 

A Chapter 13 bankruptcy is known as a reorganization. In Chapter 13 bankruptcy all of your debts are consolidated into a plan designed to repay some or all of the debt over a period of three to five years. You are not required to sell any of your property in a Chapter 13 bankruptcy but you are also not allowed to create any new debt. In exchange, your creditors are not allowed to continue or initiate any proceedings against you to collect on those debts. Chapter 13 is particularly appealing to homeowners who have a lot of equity in their home and cannot exempt it all in a Chapter 7 bankruptcy.

Whether you file a Chapter 7 or Chapter 13 bankruptcy, when you file bankruptcy something known as an automatic stay will take effect. An automatic stay prohibits all your creditors from taking any actions to collect any debts you have with them and terminates or suspends any collections already in progress including lawsuits and garnishments. 

Because the moratorium provisions of the CARES Act are separate and distinct from those afforded in bankruptcy, if you own your home it may be best to use your full year of forbearance before seeking relief in bankruptcy. Otherwise, you may exhaust months of your forbearance in bankruptcy when the lender could not have foreclosed on you anyway. On the other hand, if you are not working and believe you will be able to return to work when the pandemic is over, it may be in your best interest to file bankruptcy now while your income is low enough to qualify for the relief provided in a Chapter 7 bankruptcy. For more information on bankruptcy as a homeowner and how the CARES Act might influence your decision whether or not to file now, talk to a competent bankruptcy attorney in your area.

If you are a Renter

If you are a renter and have been relying on the anti-eviction provisions of the CARES Act to protect you from being kicked out of your home, then filing bankruptcy during this pandemic may make more sense. Many of the anti-eviction provisions of the CARES Act were initially set to expire on June 30, 2020 but have since been extended through July 25, 2020. And while many states have enacted their own anti-eviction proceedings, many of them will expire when those states reopen.

Even if the CARES Act’s anti-eviction provisions are extended in the next stimulus bill, it may come too late if you are already several months behind on rent and your landlord is in the early stages of evicting you. Filing bankruptcy will allow you to suspend those proceedings provided an order of eviction has not already been entered against you. As a result, it may be urgent that you file your bankruptcy now in order to put its automatic stay in place. Once in bankruptcy, you will have the option of assuming your lease agreement and resuming your regular payments or rejecting the lease agreement and using the money and time you save in bankruptcy to find another place to live. For those who qualify, Upsolve’s free web app helps those who can’t afford to hire an attorney to file bankruptcy on their own.

Conclusion

The Covid-19 pandemic has literally impacted the entire world and the full extent of the financial and personal damage caused by it may not be known for many years to come. Congress has passed the (CARES) Act in an attempt to deal with the most immediate and most pressing financial repercussions of the pandemic. Whether you are a renter or homeowner there are provisions in the Act that may help you through the worst of this crisis. If not, bankruptcy is always a legal option you can take advantage of to deal with the financial effects of Covid-19 now and in the future.