Note:The following is a general discussion on the specified topic or issue and may not be relied on as legal advice in any specific case or matter you encounter. You should review any applicable case, or matter with counsel experienced in this area of law and should not generally rely on the discussion in this Alert.
Date: March 17, 2020
To: All Scheer Law Group Clients and Affiliates
From: Spencer Scheer
Subject: Initial Thoughts: Executive Order N-28-20 (Eviction and Foreclosure Moratorium)
On March 16, Governor Newsome issued Executive Order N-28-20 (“Order”), in response to the COVAD-19 emergency. The Order can be found at https://www.gov.ca.gov/wp-content/uploads/2020/03/3.16.20-Executive-Order.pdf A copy of the Order is attached.
Note:The following is a general discussion on the specified topic or issue and may not be relied on as legal advice in any specific case or matter you encounter. You should review any applicable case, or matter with counsel experienced in this area of law and should not generally rely on the discussion in this article.
On March 16, Governor Newsom issued Executive Order N-28-20 (“Order”), in response to the COVAD-19 emergency. The Order can be found at https://www.gov.ca.gov/wp-content/uploads/2020/03/3.16.20-Executive-Order.pdf
Clearly, the Order will impact all lenders in California and there is a lot of uncertainty. It is too early for definitive guidance, but the following are my initial thoughts.
The Governor clearly has emergency police powers to enact such an order. Doing so under the auspices of Pen. Code § 396 is somewhat questionable, as the clear purpose of the statute was to stop specified service providers from price gouging and taking advantage of consumers or businesses affected by emergency conditions. In essence, the Governor unilaterally used the statute (Pen. Code § 396) as a lever to incorporate rent control, foreclosure and eviction statutes i.e. Civil Code §§ 1940, 1954.25, CCP 725 and 1161. Likely, there will be comprehensive and targeted regulations in the near future that will more clearly address the specifics of relief afforded in each specific area of law and the conditions to obtain such relief.
Apart from issues related to statutory construction, there is an emergency. The Governor has asked the Department of Business Oversight to coordinate tools or processes to provide further relief. Industry standards will be developed. All financial institutions in CA should consider how to respond, balancing needs to afford relief in applicable and appropriate circumstances with the need to enforce default rights and remedies when there are defaults not within the purview of the Order.
What about Existing Evictions? The Order requests that lenders also implement a foreclosure moratorium, but there is nothing in place as of this time restricting foreclosures. In addition, the Order specifically references Penal Code § 396. It can be argued that Penal Code § 396 (f) makes the Order only applicable to evictions that are not already in process based on the following language in Penal Code § 396 (f):
“It shall not be a violation of this subdivision for a person, business, or other entity to continue an eviction process that was lawfully begun prior to the proclamation or declaration of emergency.”
While this may be a gaping loophole, allowing continuation of evictions already in process before the Order, the clear intention of the Order is to provide immediate relief to affected consumers and businesses and allow a breathing space. I suspect that a further Order or regulations will be issued protecting businesses and consumers who are now facing an existing eviction and who are impacted by COVAD 19 as provided in the Order. If not, many courts will likely grant a stay in line with the Order moratorium.
The Order (Par. 5)specifically addresses a request to all lenders to implement a moratorium foreclosures and related evictions when the foreclosure or eviction arises out of a substantial decrease in household or business income, or substantial medical expenses incurred by result of the COVID-19 pandemic or by a local, state, or federal government response to it. This clearly allows great latitude to any business or consumer raising this to support a hardship claim. However, this language also clearly does not include hardship claims that arose solely before the impact of the COVID-19 crises took hold. While I cannot give a date to “start the clock” on covered claims, it is clear that the most prominent negative financial impact started at the beginning of March, resulting in a significant downturn in the U.S. stock market and the implementation of state and federal regulations and emergency orders, including the Order.
Clearly, specific businesses, or consumers (especially those tied to import and export businesses), or those who actually contracted the virus or lived with those who do, prior to March could claim the same impact. While a case by case review should occur in conjunction with any mandated or voluntary policy, it is clear that every lender should be prepared to have a consistent response, compliant with applicable laws and be able to clearly articulate such policies. Failure to do that will result in endless claims and disputes and lawsuits, akin to what happened shortly after the mortgage melt-down, when lenders were flooded with loan modification requests.
Again, the Order immediately provides an eviction moratorium, not a foreclosure moratorium. A voluntary foreclosure moratorium is requested under the Order. Some lenders will immediately comply. Others will wait until they are required to. Planning your response is key.
The restrictions under the Order and applicable law are only effective until May 31, 2020, but can be extended. You can be certain that they will be if the crises continues. Again, targeted regulations will likely be implemented. Getting a head start on this is recommended.
Again, these are my impressions only. The issues and governing law are developing by the day and must be reviewed carefully with your legal counsel before taking any action.
Please call or email if you have questions.
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