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COVID Update 8/17/20

Federal Unemployment Benefit Has Expired as Negotiation On a New Relief Package Has Stalled

The Federal $600 A Week unemployment benefit, created by the CARES Act, has been a lifeline for many Americans struggling financially due to the COVID-19 Crisis. That important benefit expired as of July 31, 2020 and both Democratic and Republican negotiators have been unable to reach a deal on continued coronavirus relief efforts. Republican senators have proposed a lowering of the supplemental benefits to $200 a week for two months until state agencies can implement weekly unemployment benefits equal to 70% of a workers’ prior wages. This has been flatly rejected by Democrats who have said that initial $200 a week offered “does not meet the needs” of Americans right now.

Republicans had attempted to pass a one-week extension of the $600 benefit as negotiations continued on a more complete stimulus package, but they could not get enough votes in the Senate in order to pass it on to the House. Republicans later raised their offer to a $400 a week benefit which would last until Dec. 15, but still no deal has been reached. House Majority Leader Steny Hoyer has signaled that Democrats are “willing to compromise” on the $600 benefit but as of the publication date of this update, there has been no deal reached to extend or modify the CARES Act unemployment benefit.

The President Takes Unilateral Action in Response to Stalled Negotiations on Coronavirus Relief

On August 8, 2020, the President has signed a series of executive orders intended to provide additional coronavirus relief: a federal eviction advice, a payroll tax suspension, relief for student borrowers and $400 a week for the unemployed.

Federal Eviction Advice
The memorandum that the President called “a moratorium on evictions” did not actually revive the federal moratorium on evictions that has now expired. Instead, it states that federal policy should minimize evictions during the pandemic and that officials should identify statutory ways to aid both homeowners and renters.

Payroll Tax Suspension
The President signed a memorandum that retroactively suspended the payroll tax from Aug. 1 through the end of 2020. Please note this order is only a deferment on the payment of the taxes. The taxes would still be owed. These taxes fund Medicare and Social Security. The President has previously vowed not to cut Social Security. Many economists believe that this executive order is unlikely to add any additional money to workers’ paychecks because it is only a delay in tax liability. Companies are likely to continue withholding the taxes in order to remit them when the tax becomes due.

Relief For Student Borrowers
The student loan relief included in the CARES Act was slated to expire on September 30, 2020.  The August 8, 2020 executive order suspends student loan payments through December 31, 2020 and specifically references “continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education.” This only covers federal student loans.

$400 A Week For The Unemployed
The President claimed that his action would provide $400 weekly in enhanced unemployment benefits, $200 less than unemployed workers had been receiving under the CARES Act. Of the $400 a week, the Federal government will pay only $300 and states are being directed to pay one quarter of the benefit, $100 of the $400 a week benefit. It is unclear how quickly states will be able to adjust to this new system, or whether they will have the money available to supplement a new benefit. Many state unemployment insurance systems had already been overburdened by the record numbers of new jobless claims. The “$400 A Week” memorandum is unlikely to deliver additional cash to laid-off workers any time soon.

Given that Congress controls federal spending, the “power of the purse,” it is not clear whether the President had the authority to act on his own on these measures or what effect these measures will have. The announced aid may not materialize if lawsuits are filed challenging their legality. However, the President told reporters he would be open to continuing the discussions on a broader relief package.

The Foreclosure and Eviction Moratoriums

On May 7, 2020, New York Governor Andrew Cuomo issued Executive Order 202.28, which provided further temporary relief from the enforcement of both residential and commercial foreclosure and eviction actions. The order directly impacts mortgage borrowers, loan holders and their servicers as it bars the commencement of certain residential and commercial mortgage foreclosures until August 20, 2020. It states there will be: “no initiation of a proceeding or enforcement of either an eviction of any residential or commercial tenant, for nonpayment of rent or a foreclosure of any residential or commercial mortgage, for nonpayment of such mortgage, owned or rented by someone that is eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic for a period of sixty days beginning on June 20, 2020.”

The deadline created by this executive order, August 20, 2020, is rapidly approaching. The COVID-19 crisis has not abated, nor has there been an economic recovery. On August 5, 2020, Governor Andrew Cuomo signed a new executive order (Executive Order 202.55) which will “continue the directives” in the various Executive Orders 202, including 202.28, for “another thirty days through September 4, 2020.” The new executive order did not specifically address the eviction or foreclosure moratoriums and only gives an additional 30 days of relief. The next day, the Governor said that “no one has to worry about eviction or foreclosure during the coronavirus crisis.” The Office of Court Administration has yet to issue guidance on the latest executive order.

Mortgage Forbearance for Homeowners Affected by COVID-19

Many lenders are offering forbearance options for borrowers who are experiencing financial difficulty due to COVID-19. Here in New York, Senate Bill 8428 establishes requirements for banking institutions and mortgage servicers that are subject to regulation by the New York State Department of Financial Services to grant forbearance and post-forbearance relief to borrowers suffering from a COVID-19 hardship. If the mortgagor claims a hardship due to COVID-19, a regulated institution must grant a forbearance for 180 days with an option to extend the forbearance for an additional period of up to 180 days.

Under the CARES Act, loans that are federally-backed mortgages, which are loans that are owned, insured, and guaranteed by FHA, VA, or USDA have similar mandatory options. Specifically, federally backed mortgages provide forbearance rights to delay payments for 6 months with the right to delay for an additional 6 months. Unfortunately, the law does not provide relief for the 30% of mortgage loans with private lenders who are not covered by either state or federal guidelines. Some banks that are not chartered in New York and do not have federally-backed mortgages are offering only 90-day forbearances. This is a large disparity in options, 90 days vs. 1 year.

The provisions in the law were made effective retroactively to March 7, 2010 and will continue until the cessation of all COVID-based limits on commercial activities in the state.  During this period, the covered entities are supposed to make applications for forbearance “widely available” to both borrowers in arrears and to borrowers who apply for loss mitigation.

There is also the question of how loan servicers will handle balances that are owed at end of the forbearance period. Whether it’s through the CARES Act or pursuant to New York State law, borrowers with federally backed mortgages loans or subject to regulation by the State of New York will have four options at the end of the forbearance.

  1. extend the term of the loan for the length of the forbearance;
  2. pay off the accumulated arrears on a monthly basis during the remaining term of the loan;
  3. negotiate a modification; and
  4. if the parties cannot reasonably agree to modification terms, the accrued arrears will be converted to a non-interest bearing lien (balloon payment) due at the end of the loan term or at payoff.

Borrowers that are not protected by federal or New York State law, will owe any mortgage arrears balance in full (and would need to apply for a loan modification if they are unable to pay), others may be offered repayment plans, and others will be allowed to put the balance onto the back of their loans. The options available depend on what type of mortgage a borrower has and what the options being offered by their loan servicer. This patchwork of options is confusing and places large burdens on some borrowers and not others. Any borrower who is being impacted by COVID-19 and is unable to make their payments should contact their servicer to see what options are available to them. These forbearance options are not automatic, and borrowers should not assume they will automatically qualify.

To find out what forbearance options you have, the best course of action is to contact your mortgage servicer.  If you are being told by your servicer that you will have to pay the full amount owed at the end of a forbearance period, you should contact our offices immediately to review your options. One option that may be available, if a borrower is unable to repay the full amount in forbearance, is Chapter 13 Bankruptcy. In a chapter 13 bankruptcy case, a borrower can pay back any unpaid mortgage payments over a 60-month, interest free, court-ordered payment plan.

If your household income has been affected by the COVID-19 crisis and you are struggling with credit cards, personal loans or mortgage payments, please feel free to contact the Law Offices of David I. Pankin, PC at 888-529-9600 or by using our easy online contact form. We have been helping debtors get a fresh financial start since 1997!

 

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