As both residential and commercial land owners see decreased income during the COVID-19 pandemic, it is increasingly likely that mortgage defaults will rise. However, federal and state governments have put restrictions in place to limit some foreclosures during the short-term response to the crisis. This article provides a brief summary of the federal and state of Michigan restrictions.
The first federal agency to take action relative to mortgages was the U.S. Department of Housing and Urban Development (HUD). On March 18, 2020, HUD issued a notice which announced a 60-day moratorium for foreclosures and evictions, effective immediately.1
The moratorium is applicable to properties secured by FHA-insured single-family mortgages and Home Equity Conversion Mortgages (also known as HUD reverse mortgages). On the same day, the Federal Housing Finance Agency (FHFA) announced a 60-day moratorium for foreclosures and evictions for properties secured by Enterprise-backed mortgages (i.e., mortgages held or securitized by Fannie Mae or Freddie Mac).
This guidance appears to have been superseded, however, by the federal Coronavirus Aid, Relief and Economic Security Act (CARES Act), signed on March 27, 2020. It suspends foreclosures on “federally-backed loans” from March 18 to May 17, 2020. This includes the following types of mortgages:
- HUD Reverse Mortgage
- Fannie Mae
- Freddie Mac
Pursuant to the CARES Act, a servicer of one of these types of loans may not:
- Initiate a foreclosure process (judicial or nonjudicial).
- Request a judgment of foreclosure in an existing case.
- Seek a sale order.
- Conduct a foreclosure-related eviction.
The restrictions are not limited to those borrowers who have or can demonstrate a pandemic-related hardship. Foreclosure actions against all mortgages
of these types is restricted.
Also under the CARES Act, homeowners with federally backed mortgage loans who are affected by the pandemic can request and obtain a forbearance of up to 180 days. This can be followed by an additional 180-day forbearance. During these periods of forbearance, only standard interest can be assessed – no additional fees, penalties or default interest can be applied. The time period in which to request a forbearance is the earlier of either the end of the emergency declaration or December 21, 2020.
Neither the CARES Act nor the federal guidance which preceded it applies to commercial mortgages. Nor do the foreclosure restrictions in the CARES Act apply to mortgages with private banks (if the loan is not federally-backed). However, a number of national and local lending institutions are establishing their own relief programs – for both residential and commercial mortgages. As the terms and availability of these programs differ greatly, a best practice would be for borrowers to contact their lenders directly to see what options are available.
State of Michigan Restrictions
Through executive orders, the state of Michigan has also placed some limitations on foreclosure actions. In Executive Order 2020-54
, parties are barred from executing evictions based on leases. However, it does not reference or address post-foreclosure evictions. Whether this order is applicable to such actions remains an open question. These provisions are in place until May 15, 2020 at 11:59 p.m.
Executive Order 2020-14
temporarily suspends the tax sale redemption deadline from March 31, 2020, until the later of (a) May 29, 2020, or (b) 30 days after the termination of the state of emergency. A number of Michigan counties have also stated that they will not seek foreclosure based on unpaid taxes.
Finally, while not a direct restriction of foreclosures, the state’s Stay Home, Stay Safe Executive Order places a number of practical restrains on proceeding with foreclosures. These actions are unlikely to be considered critical by courts and consequently put on the back burner. Process servers and lender staff may not be able to operate during the lockdown. Nor are county recording offices or the locations and staff for holding sheriff’s sales generally available at this time.
Please contact Adam Bruski
for questions concerning real estate foreclosure restrictions.
Mortgagee Letter 2020-04