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In a NutshellAs Americans struggle to cope with the financial uncertainty caused by the Covid-19 pandemic, the United States Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Among other things, the CARES Act protects borrowers of federally backed mortgage loans from foreclosure. This article will discuss the foreclosure protections, moratorium on evictions, and other mortgage relief implemented by the CARES Act.
Written by the Upsolve Team. Legally reviewed by Attorney Andrea Wimmer
Updated July 28, 2023
As Americans struggle to cope with the financial uncertainty caused by the Covid-19 pandemic, the United States Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Among other things, the CARES Act protects borrowers of federally backed mortgage loans from foreclosure. This article will discuss the foreclosure protections, moratorium on evictions, and other mortgage relief implemented by the CARES Act.
In early 2020, the United States and many other countries were hit with a flu-like coronavirus now known as Covid-19 that forced people throughout the country to wear masks, practice social distancing and stay home. In many states stay home orders were issued by state governors prohibiting individuals from going to work or leaving their home for anything other than essential needs. In response to this unprecedented effort to slow the spread of Covid-19 the United States Congress passed the Coronavirus Aid, Relief, and Economic Security Act now known as the (CARES) Act.
In addition to economic stimulus payments sent to every American, small business payroll loans, and extra unemployment benefits, the Act also enacted strong foreclosure protections for homeowners and a moratorium, or temporary pause, on evictions for renters.
According to the Consumer Financial Protection Bureau (CFPB), under the CARES Act a federally backed mortgage loan is any loan that is insured by the Federal Housing Administration or the National Housing Act. That is guaranteed under the Housing and Community Development Act, guaranteed by the Department of Veterans Affairs or the Department of Agriculture. And any loan that is made by the Department of Agriculture or purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.
The CARES Act provides three principle protections for homeowners affected by the Covid-19 pandemic. A forbearance period, pausing monthly payments for up to one year during the Covid-19 emergency, a prohibition against imposing late fees or negative credit reporting as a result of individuals taking advantage of the forbearance period, and a moratorium on sheriff sales and enforcing judgments of foreclosure.
Under the CARES Act, any borrower of a federally backed mortgage loan can request forbearance from having to make mortgage payments for a period of up to one year. Federally backed mortgages include mortgages backed by Fannie Mae, Freddie Mac, USDA, FHA, and the VA. To obtain the mortgage forbearance you must make the request directly to your lender, but you are not required to provide any proof or documentation of financial hardship. Forbearance will be granted in three-month increments with an additional three-month extension available for up to one year. Depending on how badly the pandemic has affected you, you may request as little as three months or the entire year. While not required under the CARES Act, many other mortgage loan servicers not servicing federally backed mortgage loans are also offering similar forbearance terms to their borrowers during the pandemic.
In addition to its forbearance provisions, the CARES Act also provides that a mortgage servicer may not impose late fees or submit negative credit reporting on borrowers who take advantage of the CARES Act’s foreclosure provisions. Despite this, it is important to understand that the CARES Act does not ‘excuse’ or ‘cancel’ your mortgage payments. The forbearance merely excuses your obligation to make your mortgage payment during the forbearance period. The CARES Act does not regulate how your lender can recover the missed monthly payments after the forbearance. You should ask upfront about how the payments will be recouped. Typically, lenders will either request a lump sum payment, capitalize your missed payments, extend your home loan terms, or pro-rate your missed payments into your remaining loan payments.
A lump-sum payment means all the payments you missed during the forbearance will be due in one large lump sum at the end of your requested forbearance period. Capitalized missed payments means that all the payments missed during the forbearance will be added to your loan balance. If your loan terms are extended your missed payments will be added to the end of your existing loan amortization. And if your lender elects to prorate your missed payments, a portion of the missed payments added to some or all of your remaining loan payments. For example, if you missed ten $1,000 payments and your lender elects to prorate your missed payments over your next ten mortgage payments, you would have to pay an additional $100 with your mortgage payment each month for the next ten months. But remember your lender is not required to let you pick the repayment plan you prefer, so be sure to ask your lender how they intend to recoup the missed payments. Since you will eventually have to make up the payments you miss, if you’re able to resume your payments early, call your lender and ask to do so.
Another significant protection provided under the CARES act protects homeowners who were facing foreclosure or being foreclosed on when the pandemic hit. According to the Act, a lender servicing a federally backed mortgage loan, except for vacant or abandoned property, may not: initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment, order a sale, or execute a foreclosure-related eviction or foreclosure sale.
This is a blanket moratorium and is not limited to Covid-19 financial hardships. Initially set to expire on May 30, 2020, the moratorium was extended to June 30, 2020, for all federally backed mortgage loans, and for Fannie Mae and Freddie Mac mortgages it has now been extended to August 31, 2020.
A judicial foreclosure is a foreclosure that is initiated with a formal lawsuit and resolved through traditional court proceedings. A non-judicial foreclosure is usually referred to as a sheriff sale and is a private foreclosure proceeding that ends with the property being sold at a public auction by the local sheriff or court officer. Under the CARES Act, both are prohibited during the foreclosure moratorium including any proceedings that might arise as a result of them, such as requesting for a foreclosure judgment, ordering a sale, or executing a foreclosure-related eviction.
If you are currently involved in a foreclosure, depending on what stage of the proceedings you are in, you may be able to speak with your lender about how they intend to move forward after the moratorium. If your lender has turned your foreclosure over to a law firm and you are represented by an attorney, consult your attorney about how the moratorium will affect your proceedings. If you are not represented by an attorney, you should seek legal advice for your specific situation.
Finally, your state governor may have issued specific executive orders pertaining to foreclosure proceedings in your state, or your state legislature may have passed specific legislation that you should also look into.