The only thing for certain in 2020 is that it has been a stressful year for everyone. This year we have seen lengthy residential eviction and foreclosure moratoria, enormous stimulus packages, and record low bankruptcy filings across the Lehigh Valley. None of these things can last much longer.
On March 16, 2020 the Pennsylvania Supreme Court declared a statewide Judicial Emergency staying any pending eviction proceedings and preventing any new filings. Thereafter, Pennsylvania Governor Tom Wolf entered several executive orders effectively, placing a moratorium on foreclosures and evictions through August 31st. By September 5th, over 600 evictions had commenced across the Valley. However, landlords quickly realized that evicting a residential tenant in the second half of 2020 would not be without new restrictions and tenant protections.
Introduced by the 116th United States Congress and signed into law March 27, 2020, by President Trump, the Coronavirus Aid, Relief, and Economic Security Act (C.A.R.E.S. Act) is a $2.2 trillion economic stimulus bill that requires additional eviction requirements for residential landlords and new protections for their tenants. In addition to filing eviction complaints, residential landlords must now complete an Affidavit of Compliance with Section 4024 of the CARES Act in order to begin the eviction process.
Section 4024 requires a declaration that:
- Neither the property nor any tenant of the property participated in or receives subsidies or benefits under a host of programs listed in the affidavit, such as Public Housing or Section 8 Housing, just to name a couple.
- The property is NOT subject to any federally backed mortgage, such as FHA or HUD loans, for example.
- The property is NOT subject to any unsatisfied mortgage securitized by the Federal National Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae).
- Any federally backed mortgage loan obtained after August 24, 2020, is NOT in forbearance status, nor is any application for mortgage forbearance currently pending.
- If any federally backed mortgage loan obtained after August 24, 2020, was in forbearance, which has expired, that a notice to vacate was properly served pursuant to section 4023(d).
If a residential landlord is able to satisfy the requirements to the Affidavit of Compliance discussed above, a tenant may forestall eviction through December 31, 2020, by completing the “Declaration for the Centers for Disease Control and Prevention’s Temporarily Halt in Evictions to Prevent Further Spread of COVID-19” form. Signing this form is a certification by a residential tenant that they:
- Have used best efforts to obtain all available government assistance for rent or housing.
- Anticipate earning no more than $99,000 in annual income for the calendar year 2020 (or no more than $198,000 if filing a joint tax return), or were not required to report income any income in 2019, or received an Economic Impact Payment (stimulus check) pursuant to the CARES Act.
- Are unable to pay full rent dues to substantial loss of household income or extraordinary out-of-pocket medical expenses.
- Are using best efforts to make timely partial payments as close to full payments as their income permits.
- If evicted, would likely become homeless.
- Understand the must still pay rent and comply with other lease obligations and that late fees or lease penalties may still be charged and collected.
- Understand at the end of the temporary halt on evictions, the housing provider may require payment in full for all payments not made prior to December 31, 2020.
Whether or not Governor Wolf possessed legal standing to stay residential foreclosure proceedings from March 16, 2020, through August 31, 2020, he surprised housing advocates when he declined to extend the stay longer. Despite the expiration of his order temporarily halting evictions and foreclosures, Pennsylvania’s “Homeowners’ Emergency Mortgage Assistance Program” (Act 91 of 1983) remains designed to protect Pennsylvanians who, through no fault of their own, are financially unable to make their mortgage payments through continuing and non-continuing mortgage assistance loans from Pennsylvania Housing Finance Agency.
Act 91 requires all lenders to send a specific Notice providing homeowners an opportunity to apply for the state mortgage assistance loans before they may begin foreclosure. Homeowners who take advantage of this process can effectively stay foreclosure more than 90 additional days. This means even non-federally backed residential lenders are legally forestalled from commencing foreclosure lawsuits into December 2020.
In addition, the protections provided by Pennsylvania law, the CARES Act allows for up to two 180-day deferments of payments for borrowers with federally backed or Government Sponsored Enterprise mortgages. A few common examples of such qualifying mortgages are FHA, VA, USDA, Fannie Mae, and Freddie Mac. With automatically approved deferment requests, this means many homeowners can avoid mortgage default and foreclosure into the summer of 2021.
CONSUMER BANKRUPTCY and the CARES ACT:
Since March, many financial analysts have predicted a “tidal wave of bankruptcy filings” as a result of government-mandated business closures and stay at home orders. However, Consumer bankruptcy filings are presently at a long time low. While Chapter 11 business filings have risen in 2021, Chapter 7 and 13 consumer bankruptcy filings generally comprise 95% of cases filed each year.
Recent reports suggest consumer filings will be down more than 50% for the year. While mortgage default rates have more than doubled from January 2020 to June 2020, monthly mortgage foreclosures have declined by 80% during the same time period. As a result, consumer bankruptcy filings historically used as a tool to reorganize delinquent mortgage debts are simply not necessary…yet.
Despite over 2 trillion dollars in economic stimulus packages distributed to individuals and small businesses pursuant to the CARES Act through stimulus checks, forgivable Paycheck Protection Program loans, and low-interest Small Business Administration Loans, middle-class Americans and small businesses are struggling to survive financially. While eviction and foreclosure, moratoria have seemingly staved off consumer bankruptcy filings in the short term, this trend is not sustainable without further economic relief from our legislators. Unless longer-term, more extensive, programs are put in place to resolve delinquent rent or deferred payments beyond the end of 2020, the “American economic disaster can” is just being kicked down the road into 2021.