I. Introduction
On Wednesday March 25, 2020, the U.S. Senate passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, and the U.S. House passed the bill on Friday March 27, 2020; President Trump signed the bill into law hours later. Included in the CARES Act (hereinafter the “Act’) are several provisions which directly affect mortgage loan servicers, which go into effect immediately. The applicable portion of the Act affects those in the collections industry not only in Wisconsin, but nationwide.
With respect to Wisconsin specific default mortgage related activity, on March 27, 2020, Governors Evers signed Emergency Order #15—Temporary Ban on Evictions and Foreclosures. The limitations contained in Wisconsin Emergency Order #15 further limit allowable default mortgage related activity.
This below highlights the requirements and prohibitions of both the Act and Wisconsin Emergency Order #15, providing guidance to mortgage services and those in the default mortgage industry servicing mortgage loans in Wisconsin.
II. Cares Act
a. Applicability
Section 4022 of the Act directly impacts servicing of any and all Federally backed mortgage loans. The Act defines the term “Federally backed mortgage loan” as including the following:
any loan secured by a first or subordinate lien on residential real property, including individual units of condominiums and cooperatives, designed principally for the occupancy of one- to four-families that is:
· Insured by the Federal Housing Administration (FHA) under title II of the National Housing Act;
· Insured under National Housing Act section 25
· Guaranteed under Housing and Community Development Act of 1992 sections 184 or 184A
· Guaranteed or insured by the U.S. Department of Veterans Affairs;
· Guaranteed or insured by the U.S. Department of Agriculture;
· Made by the Department of Agriculture; or
· Purchased or securitized by Federal Home Loan Mortgage Corporation (Fannie Mae) or Federal National Mortgage Association (Freddie Mac).
Servicers should be aware of whether any defaulted mortgage loan is within the definition of “Federally backed mortgage loan” before engaging in any default related servicing, so as to ensure compliance with the Act.
Further, for servicers of loans sold to either Fannie Mae or Freddie Mac, the Act replaces any prior notifications to such servicers or their approved legal counsel which addresses the same COVID-19 related relief procedures, requirements and prohibitions, but only to the extent that the requirements of the Act are more stringent than any such notifications. Servicers of Fannie Mae and Freddie Mac should consult their respective legal counsel to determine the requirements of servicing such loans.
b. Duration
The requirements and prohibitions of Section 4022 of the Act remain in place during the “covered period.” While the Act references various definitions for the phrase “covered period” throughout, Section 4022 does not contain a definition of “covered period” sufficient to calculate with certainty exactly for how long mortgage servicers must comply.
However, the immediately subsequent section of the Act, Section 4023, entitled “Forbearance of Residential Mortgage Loan Payments for Multifamily Properties with Federally Backed Loans” does specifically define “covered period” as “the period beginning on the date of the enactment of this Act and ending on the sooner of a) the termination date of the national emergency concerning the novel coronavirus disease (COVID-19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq); or b) December 31, 2020. Further, as the prior version of Section 4022 did contain the exact same definition of “covered period” as does the enacted version of Section 4023 set forth above, it is reasonable to conclude that the same definition applies to the requirements and prohibitions contained in Section 4022. Unless and until further clarification is provided, this is the best definition available.
Finally, as further described below, the moratorium on foreclosure related actions in connection with Federally backed mortgage loan spans a shorter time frame, running only for 60 days. Pursuant to the Act, the 60 days began running on March 18, 2020 and terminates on May 17, 2020. As May 17th is a Sunday, full default related servicing can commence, at least with respect to the Act, on May 18, 2020.
c. Requirements.
The Act requires certain actions by servicers of Federally backed mortgage loans. The requirements of servicers under the Act mainly involve certain relief which must be provided to borrowers, upon request.
1. Forbearance Plans
The Act requires servicers of Federally backed mortgage loans, during the covered period, to grant a request that a borrower be permitted to temporarily halt payments to said servicer. The request must be from a borrower experiencing a financial hardship due (directly or indirectly) to the COVID-19 related national emergency. Should the Borrower affirm that the financial hardship is so related, the Act requires the servicer to grant the request for a forbearance plan for up to 180 days. Further, the Act permits the same borrower to request an extension of the initial forbearance period for up to an additional 180-day period at any point during the initial term. Borrowers may request this relief regardless of delinquency status. Either the initial or extended forbearance plan term may be shortened or immediately suspended, at the borrower’s request.
It is very important for both servicers and borrowers to be aware of the fact that principal and interest payments are not “deferred” or “forgiven” during a forbearance plan, and such payments are considered delinquent if not paid or addressed further with the servicer at the expiration of the forbearance plan period. Although the Act does not specifically require certain loss mitigation activity by a servicer prior to the expiration of a forbearance plan period (prior versions of the Act did contain this requirement, but such requirements were omitted from the enacted version), servicers must remain mindful of their loss mitigation related obligations under Regulation X under the Real Estate Settlement Procedures Act (RESPA). Finally, it is important for servicers to note that there is no requirement that the servicer notify any borrowers of their rights under the Act.
d. Prohibitions.
The Act contains specific prohibitions of actions of servicers of Federally backed mortgage loans, both related to foreclosure specifically, and servicing in general.
1. Prohibitions Related to Foreclosures
Section 4022(c)(2) of the Act specifically prohibits a servicer of a Federally backed mortgage loan from the following actions until May 18, 2020:
· initiating any judicial or non-judicial foreclosure process;
· move for a foreclosure judgment or order of sale, or execute a foreclosure-related; eviction or foreclosure sale; or
· execute a foreclosure-related eviction or foreclosure sale
2. General Mortgage Servicing Prohibitions
Throughout Section 4022, the Act prohibits the following servicer action:
· a servicer may not require documentation from a borrower, other than an affirmation that the borrower is experiencing a financial hardship related to the subject national emergency, as a condition to agreeing to allow the borrower to enter into a forbearance plan
· a servicer may not, during any forbearance period, charge additional fees, penalties or interest, “beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract...”
· a servicer may not provide negative credit reporting in connection with a borrower not making payments under a forbearance plan
III. Wisconsin Emergency Order #15
Wisconsin Emergency Order #15 (hereinafter the “Order”) contains significantly less prohibitions and requirements as compared to the Act. Rather, the Order appears to apply the same polices which generated the Act to situations in Wisconsin that would not otherwise be covered by the Act.
a. Applicability
While the Act applies only to Federally backed mortgage loans, the Order applies to all “Mortgagees” in Wisconsin (as well as landlords). Generally, a Mortgagee is an individual or entity that has been granted a mortgage interest in real property otherwise owned by the borrower for the purposes of securing the indebtedness obligations contained in a related promissory note.
b. Duration
The Order is effective as of the date of its execution, March 27, 2020. By its terms, the Order remains in effect for 60 days. As a result, the prohibitions contained in the Order shall expire on May 26, 2020.
c. Prohibition
The Order does not require a Mortgagee from providing the same forbearance related relief as does the Act. However, with respect to the foreclosure moratorium, the Order prohibits the following activity by a Mortgagee:
· Commencing a civil action to foreclose upon real estate
· Requesting or scheduling a sheriff’s sale of the mortgaged premises
· Evict any individuals from real property
However, none of the above conduct is prohibited in connection with abandoned property as set forth in Wis. Stat. § 846.102.
Further, Sheriffs are prohibited from conducting sheriff’s sales of mortgaged premises or from acting on any order of foreclosure or executing any writ of assistance related to foreclosure.
Finally, the Order expressly provides that “no provision in this order should be construed as relieving an individual of their obligations to pay rent, make mortgage payments, or any other obligation an individual may have under a tenancy or mortgage.” Just like the express provision of the Act stating that principal and interest payments will be due at the expiration of a forbearance plan, the Order likewise does not execute payments not otherwise made during the term of the effectiveness of the Order.
DISCLAIMER: The information contained herein is not intended to constitute legal advice or any other professional advice upon which the user should rely. The user should consult with a licensed legal professional in connection with all matters discussed or set forth herein. It is important for the user to understand related specific circumstances, communicate those circumstances to a legal professional, and follow the advice of said legal professional, rather than relying on the information contained herein.