In response to the COVID-19 global pandemic, the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act was instituted in late March as a way to ease the financial burden experienced by Americans during this crisis. The effects of this order were recently extended to December 31, 2020. If you are faced with financial difficulty due to the pandemic, here is what the CARES Act could mean for you.
What is Included in the CARES Act?
The CARES Act included a 60-day moratorium, or temporary postponement, of foreclosure proceedings for any homeowners behind on payments with a federally backed mortgage. What are federally backed mortgages? FHA loans, USDA loans, VA loans, and conventional loans sponsored by Fannie Mae or Freddie Mac are all considered federal loans. The effects of this moratorium have now been extended to December 31, 2020.
If you have a federally backed mortgage: providers of federally backed mortgages cannot pursue evictions related to foreclosure and are prohibited from taking any legal action that leads to foreclosure.
If your mortgage is not backed by the government: lenders and servicers are not stopped from carrying out foreclosures.
Mortgage forbearance is a reduction or pause in mortgage payments for a limited period of time. If you have a federally backed mortgage, the CARES Act allows you the opportunity for a mortgage forbearance of 6 months, with the option to extend for an additional 6 months after that.
NOTE: A mortgage forbearance must be arranged with your lender, it is not automatic. Any insufficient payments without a prior forbearance arrangement could lead to your payments being reported as delinquent.
Your loan status will not change due to a mortgage forbearance. The mortgage delinquency status will be “frozen” in the same state is was in before the forbearance. If you were in good standing, it will stay that way despite the reduction or suspension of payments. If you had past due payments when the forbearance was initiated, it will remain in that state without receiving additional delinquency during the forbearance period.
If you are at risk of foreclosure, forbearance could be a way to put to delay the effects of this foreclosure. Most lenders wait until mortgage payments are 90 days past due before notifying borrowers of their intent to foreclose. This means that if you are at risk of foreclosure, you could seek a mortgage forbearance to freeze your delinquency status and further postpone foreclosure, even after the federal moratorium ends.
What Does This Look Like on a Local Level?
Each state and local government has the power to create unique policies that best manage the state of emergency in their jurisdiction. The foreclosure ban will vary based on each location in the US. These policies are frequently changing to adapt to evolving health and economic conditions. The best way to know the foreclosure relief measures for your area is to visit the official websites for your local and state governments.
Do I Have to Pay Back the Excused Payments?
If you arranged for a mortgage forbearance, yes, you will eventually have to pay back all excused payments. You will not be charged extra interest on these payments, as laid out by the CARES Act, but the actual payments must eventually be paid. The details of this repayment have not yet been decided, but one certainty is that you will not be required to pay the excused payment in one single payment at the end of the forbearance period.
I Am at Risk for Foreclosure – What Do I Do Now?
If you were facing foreclosure but the moratorium or a forbearance has bought you time, be prepared for the proceedings that will occur when the moratorium and forbearance periods end. You will need to contact your lender to discuss an arrangement to prevent having to vacate the property. Your lender may require that you pay back any payments that were missed before the CARES Act, with possible interest or additional penalty costs.
If you find yourself in a position where COVID-19 or other circumstances will make it difficult for you to resume payments (or make up for missed payments) once the moratorium and forbearance periods end, here are some options to consider:
- Mortgage modification – A mortgage modification will entail renegotiating the terms of your mortgage in order to reduce your monthly payments. This will likely lengthen the life of your loan and lead to a higher amount paid in interest overall. You may end up paying a greater amount in total, but it will make monthly payments more affordable.
- Deed in Lieu of Foreclosure – A deed in lieu of foreclosure is an arrangement to forfeit your home to the lender instead of facing foreclosure. This arrangement is less damaging to your credit than a foreclosure and may put you in a better financial position to move to a new residence. There is no obligation for a lender to accept this arrangement. You may also be faced with significant tax repercussions if you pursue a deed in lieu of foreclosure. It is best to contact a lawyer, financial adviser, or Housing and Urban Development counselor before seeking this arrangement.
- Selling Your Home – If your home is in good shape and the surrounding real estate market is doing well, selling your home could be your best option. You could pursue a mortgage forbearance, giving you a period of six to twelve months to sell your home. This will help to avoid negative consequences to your credit score or potential tax repercussions.
If you are in financial distress because of COVID-19 and have been depending on the moratorium or a mortgage forbearance to buy you time, selling your home might be the perfect option for you. A cash, as-is home sale will provide you with a straightforward sale that is not concerned with the condition of your home or the current state of the housing market. We would be happy to discuss your home, make an offer, and settle on it in as quickly as a week! Call us today for more information!
***Latest update! In Massachusetts, the eviction moratorium has ended on 10/17/20 and landlords can now proceed with the eviction process (A lot of the cases are being handled via Zoom meetings due to COVID-19).