$484 Billion Interim Emergency Funding Bill
Congress and the Trump Administration have announced a deal on the $484 billion “interim emergency” relief package (the Paycheck Protection Program and Health Care Enhancement Act), which includes: (a) $310 billion for the Paycheck Protection Program ($30 billion reserved for community-based lenders, small banks, and credit unions, and $30 billion reserved for mid-sized banks and credit unions); and (b) $60 billion for the SBA’s disaster fund ($50 billion for Economic Injury Disaster Loans (EIDL) and $10 billion for EIDL grants). The bill was passed in the Senate on April 21, 2020, the House on April 23, 2020, and the President signed it into law on April 24, 2020.
Massachusetts Adopts Moratorium on Evictions/Foreclosures
This week, Massachusetts issued a temporary moratorium on non-essential evictions of residential and small business tenants, as well as a temporary foreclosure moratorium and forbearance relief for residential mortgagors. The temporary moratoriums began on April 20, 2020 and continue until the sooner of (a) August 18, 2020, or (b) the date that is 45 days after the COVID-19 emergency declaration has been lifted. The governor may extend each moratorium period by 90 days, as long as the moratorium does not extend beyond 45 days after the COVID-19 emergency declaration has been lifted. The time periods for any eviction actions that were filed before the moratorium was enacted will be tolled while the moratorium is in effect.
Additional information may be found here.
Banking Agencies Defer Appraisals and Evaluations During COVID-19
Last week, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued an interim final rule that provides a 120-day deferral of appraisal and evaluation requirements for all transactions secured by commercial or residential real estate during the COVID-19 pandemic. The deferral expires on December 31, 2020, unless extended. The deferral does not apply to acquisition, development or construction loans, nor does it revise any existing appraisal exceptions or other requirements. The interim final rule allows regulated lending institutions to close a real estate loan (other than acquisition, development or construction loans) without an appraisal or evaluation, as long as appraisals or evaluations are obtained within 120 days after closing. Even without appraisals, lenders are expected to use best efforts and available information to develop a credible, well-informed estimate of the properties before closing.
Additional information may be found here.
IRS Guidance on COVID-19-Related Loan Forbearances
Last week, the Internal Revenue Service issued Rev. Proc. 2020-26. The revenue ruling permits loans that are subject to certain qualified forbearances and modifications resulting from the pandemic to be contributed to, and held in, REMICs and grantor trusts without jeopardizing their tax status. Among other things, the revenue procedure: (a) does not require the loan’s loan-to-value ratio to be re-tested as a result of “qualified forbearances” to determine if it is eligible to be held by a REMIC; (b) provides that a qualified forbearance of a loan held by a REMIC of grantor trust does not result in a deemed reissuance of the REMIC regular interests; (c) provides that a qualified forbearance before a loan is contributed to a REMIC does not restrict the REMIC from foreclosing on that loan; and (d) interest shortfalls and special servicing fees incurred as a result of a qualified forbearance do not cause a REMIC’s regular interests to fail to so qualify.
Additional information may be found here.
Landlords Voice Frustrations at Tenant Relief Measures
Multiple state and local governments have passed various tenant relief programs, which typically include some form of rent deferment, eviction moratorium and/or freeze on rent increases, in each case, for a certain period of time. While most jurisdictions have only provided such relief to residential tenants, some are also affording similar, but often less robust, protections for their commercial tenants. Some landlords have voiced their concerns over tenants applying for relief under these programs when they really don’t need it. In response, many landlords are being more stringent when reviewing tenant requests for COVID-19-related relief and placing the onus on the tenant to present their case. Landlords have been requesting financials, PPP loan status, and other proof to determine whether the tenant has a genuine need for relief.
Property owners have also complained about what they consider to be a growing stigma against landlords, which they claim has resulted in people being less empathetic to their needs during these difficult times. After all, landlords have their own obligations, which include property taxes, mortgage payments, insurance and maintenance. Jay Martin, the executive director of the community housing improvement project (CHIP) in New York recently stated “[tenants] are seeing this as an opportunity, as opposed to asking for help and relief . . . to inflict damage on the landlord as some sort of a class warfare.”
Suspension of Evictions in Virginia
The Virginia Supreme Court has ordered a Declaration of Judicial Emergency suspending all non-essential proceedings, including all residential and commercial evictions, from March 16, 2020 through May 17, 2020 (the “Period of Judicial Emergency”). This is the third time the Court has extended this order, which provides that the Virginia General District Court will not issue new evictions and the Sheriff’s Office will not execute any pending evictions, in each case, through May 17th. The order also provides that all statutes of limitations and case related deadlines are tolled during the Period of Judicial Emergency. Virginia law does not permit landlords to lock out tenants, remove their belongings or cut off the tenants’ access to essential services, such as heat, water, gas, or electricity without going through legal proceedings.
Rent Increase Freeze in Montgomery County, Maryland
While there is no statewide rent freeze in place in Maryland, on April 23, 2020, the Montgomery County Council unanimously passed the COVID-19 Renter Relief Act, which (1) prohibits rent increases in excess of 2.6 percent under residential leases, and (2) requires landlords who previously notified a residential tenant of a rent increase in excess of 2.6 percent to either provide such tenant with a notice, (a) cancelling the rate hike, or (b) lowering the rent increase to 2.6 percent or less. The rent freeze will be in place during Maryland’s coronavirus-related state of emergency, and for a period of 180 days thereafter.
Heard Around the Industry
Rent/Mortgage Payment Cancellation: Democratic Representative Ilhan Omar of Minnesota proposed a bill that would cancel rent and mortgage payments starting April 1, 2020, and continue until 30 days after the end of the federal state of emergency. Under the proposed bill, Congress would create a relief fund for landlords and lenders to make up for the rent and loan forgiveness. However, landlords seeking relief would be required to agree to a five-year rent freeze, abide by new limited eviction rules, and offer vacant units to public housing tenants receiving rental assistance.
Possible Relief for Commercial Tenants in Connecticut: Although Governor Lamont has yet to issue an official order halting evictions of commercial tenants in Connecticut, some commentators believe such a mandate may be on the horizon. This is based on information that was posted on the state’s website and then subsequently removed after a reporter’s inquiry. The language stated in pertinent part “that owners and lessors of residential and commercial properties may not evict or initiate an eviction until thirty days after the end of the public health and civil preparedness emergency.” It is not clear why this was posted and then taken down, but the Governor’s spokesman, Max Reiss has confirmed that the administration is working on expanding rental protections without providing further details. Although it remains to be seen whether the Governor will provide such relief (or any relief) to commercial tenants, the Connecticut courts have stayed “all issued executions on evictions and ejectments” through May 1, 2020.
National Survey Shows Increase in Apartment Households Paying Rent: A survey performed by the National Multifamily Housing Counsel found that 84 percent of apartment households made a full or partial rent payment by April 12, a 15 percent increase from April 5, based on a survey of 11.5 million units of professional managed apartments nationwide.
Rent Strikes Being Organized in New York City and Philadelphia: Tenant organizers in New York City and Philadelphia are launching an effort to have a mass rent strike on May 1, 2020, in a bid to force state governments to cancel mortgage and rent payments during the duration of the pandemic.
Possible CRE Trends Post COVID-19: In a webinar last month, New York University professor Dr. Timothy Savage, who is also an economist with the National Association of Industrial and Office Properties, opined that the pandemic could accelerate trends in the commercial real estate market towards industrial properties. He noted that as consumers increasingly turn to online shopping, warehouses and distribution fulfillment centers will flourish.
Additional information may be found here.
Business Interruption Insurance:
- Class Action Suits Filed: Last week, federal class action complaints were filed against six insurance companies in six different states seeking coverage for losses occasioned by the COVID-19 pandemic under their business interruption policies. The policies did not include a virus exclusion, but the insurers disclaimed coverage based on the lack of direct physical loss to insured property by the virus. While it remains to be seen whether the courts will certify the purported classes in any of these actions, it is unlikely that they will be certified unless all of the claims include common questions of law and fact, and all of the insurance policies contain identical language.
- Pennsylvania House and Senate Propose Legislation to Require Insurance Companies to Cover Business Interruption Claims:
Senate: The proposed Senate bill (PA Senate Bill 1114) would require insurance policies that insure against losses “related to property damage, including the loss of use and occupancy and business interruption” to be construed to include “loss or property damage due to COVID-19 and coverage for loss due to a civil authority order related to the declared disaster emergency…” PA Senate Bill 1114 would only apply to active insurance policies with effective dates before March 6, 2020, which is the date Pennsylvania declared a state of emergency.
House: The proposed House bill (PA House Bill 2372) would require an insurer to cover and indemnify insureds suffering business interruption losses due to the ongoing COVID-19 pandemic, “subject to the broadest or greatest limit and lowest deductible afforded to the business interruption coverage under the insurance policy.” The house bill would apply to business owners with (1) fewer than 100 eligible employees, and (2) have insurance policies that were effective on March 6, 2020, the date Pennsylvania declared a state of emergency.
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