Disclaimer: The following outline contains general review legal issues that cannot be applied to every case. Some issues covered are subject to developing case law and legislation that cannot be forecast or predicted with certainty. In the event that you encounter issues covered in this outline, you should review the appropriate response with counsel experienced in this area of law and should update the status of any legislation mentioned. Entire presentations could be given on any number of subjects in this outline. The intention is to give an overview of the issues covered and to highlight trends that are emerging, not to provide advice applicable to any particular case. No permission for the general public to use this Outline is granted by SLG.
March 25, 2020
From: Spencer Scheer
Re; COVID -19 CRISES AND LEGAL UPDATES
Overview: The COVID-19 crises (“C-19″) will pass. A question on everyone’s mind is when will there be a return to normal and what “normal” will look like? No one knows the answer. However, it is clear that the impact on lending and servicing will be dramatic both after the immediate crises and likely for years thereafter. The impact of the “mortgage meltdown” in 2008 may provide some guidance on the likely climate facing lenders and servicers and investors as the industry struggles to digest a likely onslaught of local, state and federal regulations, and to balance them with a compassionate response that still maintains accountability.
However, it is clear that the magnitude and scope of the C-19 crises will dwarf prior recessionary events and that the impact will be felt throughout the world for years to come. SLG’s goal is to provide its clients with ongoing updates on the legal issues as they develop and impact lenders, servicers and investors. Our hope is that these updates will provide an overview, so you can integrate these legal requirements and consider specified “hot button issues” in a manner that will allow you to operate effectively. The following are issues and discussion that we deem relevant to your interests. We will update you as more laws and regulations are imposed. We remain committed to providing you with effective and efficient service to help you during this crises.
A. Where are We Going, What are the Trends?
We have no “crystal ball”. We do have over 30 years experience, bridging the time from the oil industry collapse and recession in 1985, to the present. We have effectively represented our clients over this time, helping to navigate uncertain legal climates.
We have over the last fifteen years followed closely the advice and recommendations of A. Gary Shilling, who has almost presciently forecasted real estate and stock market booms and busts during this time. Strikingly, in January of this year, Shilling called for a recession before the C-19 crises appeared on the scene and correctly forecast that the economic recovery was likely on its last legs. He correctly called for a recession based on exhaustion and futility of traditional economic stimulus or an unexpected shock such as a trade war. No one, not even Mr. Shilling saw the C-19.
Deflation or Inflation? Mortgage rates have initially begun to slide because of C-19. However, counter-forces are also at work. Already, the first ripples of uncertainty are playing out. On March 15, 2020, Federal Reserve restarted quantitative easing by purchasing $500 billion dollars in treasuries and $200 billion in mortgage backed securities. In effect the Fed is acting as a backstop to the world, instead of relying on traditional buyers of treasury and mortgage debt i.e. China, lenders, GSE etc. It is questionable whether the “world” will keep lining up for promises of the US government to pay 3% or less for thirty years, or whether there will be a loss of faith and the need for the Fed to increase the rates to attract buyers, leading to inflation, lots of inflation. For those who remember the 80s when the combination of high oil prices and a recessionary environment resulted in stagflation and treasury bill rates nearing 20%, this is not a pretty picture.
What this means is that we are in uncharted territory. Smart lenders, investors and services will be ahead of the curve, developing their own opinions and acting prudently to hedge, promote effective workouts and to minimize lawsuits so they can survive and thrive. We are here to help. We also recommend Mr. Shilling as a reliable resource to consider.
B. California State Regulation and Guidance.
B.1 State Wide Eviction Moratorium. Executive Order N-33-20 (“Order”) Issued on March 19, 2020. Order can be found at: https://www.gov.ca.gov/wp-content/uploads/2020/03/3.16.20-Executive-Order.pdf
- Statewide Moratorium on evictions.
- Governs both residential and commercial eviction. Must show hardship i.e. decrease in household or business income based on C-10 crises and be able to document the hardship.
- Applies to all new evictions. Can be argued that it does not apply to evictions that already were in place prior to the order (Penal Code §396(f), but this is not certain as of this date.
Note: Foreclosure Moratorium? No official moratorium per the Order, but a request for lenders to use available “tools” to provide relief to defaulting borrowers (Order, Par. 5). See also discussion below re regulatory oversight on the issue.
B.2 Additional CA Local Restrictions:
⦁ San Francisco: Moratorium on residential evictions related to financial impacts caused by COVID-19. It requires tenants to (1) give notice of their inability to pay rent due to COVID-19 related financial hardship within 30 days of missing a rent payment, and (2) to provide documentation within seven days of giving notice. The San Francisco policy allows a tenant up to six months to pay back the missed rent. If a covered commercial tenant fails to pay rent that was due on or after March 17, 2020, the landlord may not recover possession of the unit due to the missed payment until the landlord first provides written notice to the tenant of the violation and provides an opportunity of at least one month to cure
⦁ In addition: A temporary moratorium preventing small to medium-sized business from being evicted due to a loss of income related to lost revenue or other economic impacts caused by the COVID-19 pandemic. This order applies to commercial tenants registered to do business in San Francisco making less than $25 million a year, based on the 2019-tax year.
⦁ Los Angeles: Moratorium on landlords evicting residential tenants during the emergency period if the tenant is able to show an inability to pay rent due to circumstances related to the COVID-19 pandemic, including loss of income due to a COVID-19 related workplace closure, child care expenditures due to school closures, health care expenses related to being ill with COVID-19 or caring for a member of the tenant’s household who is ill with COVID-19, or reasonable expenditures that stem from government-ordered emergency measures. Tenants will have up to six months following the expiration of the local emergency period to repay any back due rent.
⦁ Sacramento: City Council has adopted an emergency ordinance to establish a temporary moratorium on evicting tenants unable to pay rent due to a loss of income caused by COVID-19, that will end once the Governor’s Executive Order terminates on May 31, 2020, unless it is extended. Sacramento’s ordinance does not prevent a landlord from evicting a tenant who failed to pay rent when due before the ordinance was adopted or for any other lease violation.
Note: At this time, neither the state or local moratoriums relieve a tenant’s obligations to pay rent. Instead, landord’s rights to evict teants who have shown a C-19 hardship is suspended.
B.3 State Regulatory Guidance.
Department of Business Oversight (“DBO) issued guidance to financial institutions on a C-19 response, in accordance with the Order. See: https://www.bcsh.ca.gov/coronavirus19/dbo_banks.pdf. Some highlights are to adopt the following practices:
⦁ Waive certain fees: such as ATM Fees, overdraft fees, late payment fees on credit cards and other loans; early withdrawal penalties on time deposits.
⦁ Offering Payment Accommodations: such as allowing borrowers to skip or defer some payments or extending payment due date to avoid delinquency and negative credit reporting caused by C-19 problems.
⦁ Note: relaxed DBO examiner review when regulated institutions enter into loan modification agreements based on C-19 hardships.
⦁ Relaxed Loan Origination and Loss Mitigation Guidelines: to encourage continued lending and to avoid defaults:
C. Federal Regulatory Guidance:
FNMA Guidance (Lender Letter LL-2020-02, March 18, 2020). See
Provides the following guidance to Servicers:
⦁ Expanded Forbearance Plan Eligibility
⦁ Clarification of when Modifications can and should be provided after initial forbearance plan completed.
⦁ Credit Bureau Reporting Suspension.
⦁ Suspension of Foreclosure sales for 60 days.
AND BEFORE YOU GO:
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