The “CARES Act” , Bankruptcy, Forbearance, Foreclosures & Evictions Provisions
The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted on March 27, 2020 contains a number of provisions affecting bankruptcy cases, modifications to and enforcement of federally backed residential mortgage loans, foreclosures and evictions. Key provisions are as follows, and please note that various states and municipalities also have enacted other applicable orders regarding mortgages, rents and evictions.Bankruptcy Code Changes:
- Chapter 11: Increases the debt limit for eligibility to file for Chapter 11 relief under the Small Business Reorganization Act from $2,725,625 to $7,500,000. This provision is valid for one year after the effective date of the CARES Act, after which the debt limit will return to $2,725,625.
- Chapter 13: Permits Chapter 13 debtors whose plans were confirmed prior to the enactment of the CARES Act to modify their plans based on a material financial hardship caused by the COVID-19 emergency, including the modifying of their repayment term to as long as 7 years after the initial plan payment was due.• Chapter 13: Exclusion of COVID-19-related payments from the federal government when determining a debtor’s disposable income for Chapter 13 plans.
- Chapters 7 and 13: Exclusion of COVID-19-related payments from the federal government from the calculation of a debtor’s income for the determination of Chapter 7 or Chapter 13 eligibility.
Single Family Federally Backed Mortgage Loans – Forbearance:
- Requires lenders to grant borrowers up to 180 days forbearance if borrowers request forbearance, and borrowers affirm that they are experiencing financial hardship, directly or indirectly, from the COVID-19 emergency. If requested, lenders may grant an additional 180 days forbearance and the lender may not require additional documentation of financial hardship outside of the original claim.
- Prohibits lenders from charging any fees, penalties, or interest beyond what would have been due had the borrower had made all contractual payments in full when due.
Multifamily Federally Backed Mortgage Loans – Forbearance:
- Requires lenders to grant borrowers up to 30 days forbearance if borrowers request forbearance, affirm that they are experiencing a financial hardship, directly or indirectly, from the COVID-19 emergency and were current on their payments as of February 1, 2020. Borrowers are eligible for two additional forbearance periods of up to 30 days each as long as a borrower’s request is made at least 15 days before the expiration of the forbearance period.
- Prohibits borrowers who are granted forbearance from their lender from initiating proceedings to evict tenants solely for nonpayment of rent, issuing notices to vacate or charging any late fees, penalties or other charges to a tenant during the forbearance period.Foreclosure Moratorium – Applies to Both Types of Loans:
- Imposes a moratorium on the initiation of proceedings to foreclose on property securing a federally backed mortgage loan for 60 days beginning on March 18, 2010 unless the property is vacant. The Act does not prevent pending proceedings from going forward but states and municipalities may have initiated related orders or legislation.
Eviction Moratorium – Applies to Both Types of Loans
- Bars initiation of proceedings to evict a tenant for nonpayment of rent, issuing notices to vacate or charging tenants fees, penalties, or other charges related to nonpayment of rent for a period of 120 days after March 27, 2020, regardless of whether a forbearance has been requested. Again, the Act does not prevent pending proceedings from going forward but states and municipalities may have initiated related orders or legislation.
- Prohibits borrowers from requiring tenants to vacate until 30 days after a notice to vacate has been given.
Our Bankruptcy and Creditors Rights Practice Group is led by J. Robert Seder. Mr. Seder is a Fellow of the American College of Bankruptcy and recognized annually by U.S. News & World Report and Best Lawyers® as one of the “Best Lawyers in America” which recognizes the top 4% of practicing attorneys in the U.S. For the past eight years, SederLaw has been ranked a “1st tier” Law Firm in matters of Bankruptcy & Creditor’s Rights/Insolvency and Reorganization Law by U.S. News & World Report and Best Lawyers® recognized for professional excellence with consistently impressive ratings from clients and peers.The multidisciplinary skills and experience that our attorneys bring to bear, include the areas of bankruptcy law and procedure, litigation, banking and finance, real estate, taxation, employment law, and business and corporate law. Our attorneys represent lenders, financial institutions, and businesses as creditors in bankruptcy actions, in the enforcement and restructuring of loan and credit obligations, and in the protection and advancement of creditors’ rights in insolvency situations.We represent national, regional and local banks, financial institutions and public and private lenders and investors, including asset-based lenders, commercial and real estate lenders, as well as other secured creditors in bankruptcy cases and insolvency proceedings, bankruptcy litigation, workouts, restructurings and enforcement proceedings. Our representation spans all aspects of a bankruptcy case, including asserting and defending secured and unsecured claims, protecting our clients’ rights under executory contracts and unexpired leases and defending against preference, fraudulent conveyance, receivership and foreclosure proceedings and other avoidance actions.We assist corporate clients in designing strategies to take full advantage of the strategic opportunities presented by distressed loan and asset acquisitions, both in and outside of the bankruptcy process. These agreements range from litigation settlement agreements to warehousing agreements, and from collateral trust, insurance indemnity and surety bond agreements to securities lending, swap and other derivatives transaction agreements.Representing clients in bankruptcy and insolvency situations not only requires specialized knowledge of bankruptcy law, but also requires expertise in litigation and corporate law.
We have represented clients in virtually all types of distressed financial situations, both out-of-court and in-court. Because we have a history of representation and counsel in a variety of industries, we support our clients in the development of creative business solutions. Handling both bankruptcy and commercial transactional and litigation matters both in the Commonwealth of Massachusetts and in other jurisdictions, we provide the comprehensive, effective counsel that reflects a full commitment to responsive, value-added service.