Expect a new look to uniform notes, security instruments and riders

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Fannie Mae and Freddie Mac have introduced new uniform notes, security instruments and riders for use immediately, with a deadline for use of January 1, 2023.

Read the press release here and review the new documents here.

The press release touts the benefits of the updated instruments as:

  • Easier to use: Employ more headings and subheadings, shorter paragraphs and sentences, and more clearly defined lists.
  • Provide more clarity: Use plainer language and clarify the explanation of borrower and lender obligations.
  • Reflect industry changes: Account for the changes that the industry has experienced over time and better reflect current industry practices and systems.

Fannie and Freddie are providing an 18-month transition period to allow lenders and their vendors to prepare.

Dirt lawyers should review the new documents to determine whether changes are needed in how closing documents are explained to clients.

What do you think of the new documents?

A few news items affecting housing…

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Last week, the CDC extended the residential eviction moratorium to July 31. The constitutionality and validity of the moratorium has been litigated many times. The issues are: (1) the existence of constitutional power for the government to hand down such a moratorium under the Commerce Clause; and (2) whether the delegation of authority to the CDC by Congress is broad enough to encompass an eviction moratorium.

The latest decision was issued June 2 by the D.C. Circuit in Alabama Association of Realtors v. United States Department of Health and Human Services*. There, the Court upheld the stay of the lower court’s decision striking down the moratorium and made it clear that the panel believes the CDC would win on the merits. 

On Tuesday, the Supreme Court left the moratorium extension in place.

The Treasury Department issued new guidance encouraging states and local governments to streamline the distribution of the nearly $47 million in available emergency rental assistance funding.  Associate Attorney General Vanita Gupta released a letter to state courts encouraging them to pursue alternatives to protect tenants and landlords.

South Carolina Housing authority is working with landlords and tenants to administer the federal pandemic relief funding. The application must come from the tenant, but the landlord may refer the tenant to the agency for action.

In other news, President Biden fired Mark Calabria, the head of the Federal Housing Finance Agency (FHFA) last week, just hours after the Supreme Court held the structure of FHFA was unconstitutional under the separation of powers doctrine. The offending provision states the president can only remove the director for cause, not at will. FHFA regulates Fannie Mae and Freddie Mac, both of which have been the subject of extensive restructuring debate dating back to the housing crisis of 2008. The case is Collins v. Yellen**

Real estate practitioners will recall that the Court issued a similar decision last year concerning the structure of the Consumer Financial Protection Bureau (CFPB) in Seila Law v. CFPB***.

* 2021 WL 2221646 (D.C. Circuit, June 2, 2021).

** U.S. Supreme Court case 19-422, WL2557067, June 23, 2021.

*** 140 S. Ct. 2183 (2020).

D.C. Federal Court vacates CDC’s eviction moratorium

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…. then temporarily stays its ruling

This blog reported in early April that the Centers for Disease Control and Prevention (CDC) had extended the national moratorium on residential evictions through June 30. The U.S. District Court for the District of Columbia issued an order on May 5 vacating the moratorium, but later in the day temporarily stayed its own ruling to give the Court time to consider the merits of the arguments on both sides. The result of the stay is that the eviction moratorium remains in place for the time being.

The suit* resulting in these remarkable rulings was brought on November 30 by two trade associations, the Alabama and Georgia Associations of Realtors, and by individuals who manage rental properties. The complaint raised several statutory and constitutional challenges to the CDC order. Both parties filed motions for summary judgment. The plaintiffs’ motion was granted on the grounds that the CDC had exceeded its authority by issuing the broad moratorium. The Department of Justice filed an emergency appeal within hours.

The Court asked for a defense response this week and a reply from the government by May 16, so it is likely that a new order will be issued soon. But with the moratorium’s expiration date of June 30, a new ruling will have little, if any, effect. 

In addition to the national moratorium, some state and local laws restricting evictions remain in place.

The Court’s order vacating the moratorium pointed to the unprecedented challenges for public health officials and the nation caused by the COVID-19 pandemic. The difficult policy decisions, like the decision to impose the moratorium, have real-world consequences, according to the Court. The Court stated that it is the role of the political branches, not the courts, to assess the merits of such policy decisions. The Court perceived the question before it to be very narrow:  does the Public Health Service Act grant the CDC the legal authority to impost a nationwide eviction moratorium? The Court held that it does not.

*Alabama Association of Realtors v. United States Department of Health and Human Services, United States District Court for the District of Columbia, No. 20-cv-3377 (DLF).

CFPB issues proposed rule to ban foreclosures until 2022

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The Consumer Financial Protection Bureau (CFPB) issued a notice on April 5 proposing an Amendment to Regulation X that would require a temporary COVID-19 emergency pre-foreclosure review period until December 31, 2021, for principal residences. This amendment would, in effect, stall foreclosures on principal residences until January of 2022. The press release, which can be read here, requests public comments on the proposal through May 10, 2021.

The press release states nearly three million borrowers are delinquent in mortgage payments and nearly 1.7 million will exit forbearance programs in September and the following months. The rule proposes to give these borrowers a chance to explore ways to resume making payments and to permit servicers to offer streamlined loan modification options to borrowers with COVID-related hardships.

Under current rules, borrowers must be 120 days delinquent before the foreclosure process can begin. Anticipating a wave of new foreclosures, the CFPB seeks to provide borrowers more time for the opportunity to be evaluated for loss mitigation.

Many provisions of the CARES Act apply only to federally backed mortgages, but the CFPB seeks, by this proposed rules change, to set a blanket standard across the mortgage industry.

Eviction moratorium extended by Feds just two days before expiration

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Job losses during the pandemic have caused many Americans to be behind in their rent, and the Centers for Disease Control and Prevention announced on Monday, March 29, that the federal moratorium on evictions has been extended through June 30. The announcement was made just two days before the moratorium was set to expire.

The theory behind the moratorium is that the pandemic severely threatens individuals in crowded settings like homeless shelters. Keeping those individuals in their homes is a step toward stopping the spread of COVID, according to the theory. The moratorium was initially issued in September of 2020 and has been extended twice previously.

Renters must invoke the protection by completing a form available from the CDC website, by signing the form under penalty of perjury, and by delivering the form to the landlord. The form requires the renters to state that they have been financially affected by COVID-19 and can no longer pay rent. Legal aid attorneys have argued that this process is too difficult and that landlords are able to exploit loopholes. For example, if a lease has expired, a landlord might argue that eviction is not a result of non-payment of rent. Legal aid attorneys prefer that the moratorium be automatic.

Landlord trade groups have been opposed to the moratorium, stating that landlords should have control of their properties.

The CFPB and Federal Trade Commission issued a statement announcing that they will be monitoring and investigating eviction practices considering the extended moratorium. The agencies’ indicated they will not tolerate illegal practices that displace families and expose them and others to grave health risks.

More than $45 billion in rental assistance has also been set aside by Congress. This money will benefit landlords as well as tenants. Renters are now able to apply for federal rental assistance through application portals opened in March.

COVID forbearance extended

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The U.S. Department of Housing and Urban Development has extended COVID-19 foreclosure and forbearance moratoriums through June 30, 2021. It also extended the deadline for the first legal action and the reasonable diligence time frame to 180 days.

COVID-19 forbearance was also extended to allow up to two forbearance extensions of up to three months each for homeowners who requested a forbearance on or before June 30, 2020. These extensions are intended to provide relief to homeowners who will be nearing the end of their maximum 12-month forbearance period and have not yet stabilized their financial situation.

FHA’s streamlined COVID-19 loss mitigation home retention and home disposition options were extended to all homeowners who are behind on their mortgage payments by at least 90 days.

Diana Hoffman, Corporate Escrow Administrator with Fidelity recently wrote an excellent article about mortgage forbearance that I previously shared on this blog and am now sharing again with South Carolina closing attorneys in its entirety:

“Forbearance does not erase what the borrower owes. The borrower will have to repay any missed or reduced payments in the future. Borrowers able to keep up with their payments should continue to make payments. The types of forbearance available varies by loan type.

At the end of the forbearance, the borrower’s options can include paying their missed payments:

  • At one time
  • Spread out over a period of months
  • Added as additional payments, or
  • Added as a lump sum at the end of their mortgage

The CARES Act requires servicers to grant forbearance up to 180 days, with a one–time extension of 180 days for borrowers experiencing a hardship due to COVID–19 issues, such as, loss of income, unemployment, illness or caring for a sick relative.*

The CARES Act also provides protection against derogatory marks against the borrower’s credit. However, the servicer can report notes to the credit bureau that can be seen by any future creditor that could prevent the borrower from obtaining any type of new financing for a 12–month period.

When the Federal Housing Finance Agency reports servicers who collect payments on mortgages backed by Fannie Mae and Freddie Mac, they will only be required to cover four months of missed payments on loans in forbearance.

The big question is what happens when that four–month period is over? As it turns out, the Government Sponsored Entities (GSEs) themselves are preparing to cover any remaining advances for as long as those loans remain in forbearance.

What does this mean to the title industry? To prevent payoff losses due to deferred payments, settlement agents should:

  • Ask borrowers if they have entered into a forbearance or loan modification agreement with their lender at the opening of the transaction
  • Review the preliminary report or commitment for title insurance for junior liens, securing the deferred payments
  • Ensure the payoff request includes the following language:
    • Please furnish to us a statement of the amount necessary to pay in full including any amounts deferred due to a forbearance or modification agreement.
      If the borrower entered into a forbearance agreement and you are not the entity servicing any deferred amounts, please provide the contact information for the entity who is.
  • Review the payoff statement for deferred principal balance amounts

The last item is important. If the deferred amounts are not contained in the payoff statements, it is likely the amounts are being serviced by another loan servicer and a separate payoff statement will need to be requested”

*See above in the main article. Two extensions are now allowed.

Lawyers: Tell your clients, friends and family members!

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South Carolina launched a funded rental and mortgage assistance program

South Carolina’s Housing Authority announced last week a new funded program to assist residents who face financial difficulty in housing as a result of the pandemic.

The program, called SC Stay, has $25 million to be provided on a first-come, first-serve basis to qualified residents for rent and mortgage deficits dating back to February of 2020. Residents may receive up to a total of $7,500 for prior and/or future mortgage or rent payments. The funding is provided through the U.S. Department of Housing and Urban Development’s Community Development Block Grant Program for Coronavirus and is a part of the CARES Act.

To qualify, individuals and families must:

  • Certify that their income is at or below 80% of county medium income adjusted by family size. (A chart reflecting the requirement for each county is attached);
  • Demonstrate that they are unable to make all or part of their rent or mortgage payments or are behind on those payments because of circumstances stemming from COVID. Those circumstances may include layoffs, reduced work hours as well as the inability to work because of infection and quarantine.
  • Have landlord or lender confirmation of their past-due payments and willingness to accept payments on behalf of the tenant or borrower.

The application process can be started here or by calling (833) 985-2929.

ALTA/NSPS Survey Standards have been revised

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Changes will take effect February 23, 2021

Almost every commercial transaction requires an ALTA/NSPS survey, so commercial practitioners are familiar with the most recent 2016 guidelines. Those guidelines are reviewed every five years, and a new version will be in effect beginning February 23, 2021.

You can review the new standards in their entirety, including a red-lined version, here.

The changes were made primarily to make the standards easier to understand and to correct a few inconsistencies. One change was made as a result of the 1995 U.S. Supreme Court case, Gutierrez de Martinez v. Lamagno, which held the word “shall” is a false imperative that actually means “may”. As a result, the word “shall” in the standards was changed to the word “must” to indicate an obligation or imperative.

Section 5.E was revised to clarify that the surveyor must only note observed evidence of easements, servitudes and other uses which are “on or across” the surveyed property instead of those which affect the surveyed property. This section also changes the necessity to locate utility poles within ten feet of the surveyed property from the prior requirement of five feet.

A change to Section 6.C states that if the surveyor becomes aware of a recorded easement not listed in the title evidence, the surveyor must advise the title company (in our case, the closing attorney) of the easement. If evidence of the easement isn’t provided to the surveyor, the easement must be shown or explained. This section was also revised to allow the surveyor to omit matters of record that are not survey related from the summary of title matters.

The introductory paragraph of Table A optional items has been revised to clarify that the wording of a Table A item may be negotiated. Item 6 of Table A was modified to clarify that zoning information must be provided to the surveyor. Item 11 regarding underground utilities has been simplified to two choices: (a) plans and/or reports provided by the client; or (b) markings coordinated by the surveyor pursuant to a private utility request. Item 18 (wetlands) was deleted. If a wetlands delineation is required, it must now be negotiated as an additional Table A, item 20. Item 19 was revised to allow for off-site easements appurtenant to be surveyed in their entirety.

We have a couple of weeks to become fully familiar with the new standards.

Some news from the transition that may affect dirt lawyers

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While we don’t all agree on politics, something we can all embrace from last week were the hilarious Bernie Sanders’ mitten memes. I saw friends from both sides of the aisle post one funny version after another. I even saw an interview that had Bernie himself laughing about them. He appears to be a good sport!  As a South Carolinian, my two favorites involved the Coburg cow and Cocky. I, for one, needed the comic relief.

There were a couple of real news items for real estate practitioners to consider.

First, the CFPB Director, Kathy Kraninger, stepped down at the request of the new administration. This blog has discussed several cases that have argued the CFPB was unconstitutionally organized as violating the separation of powers doctrine because it had a single director that could only be removed for cause. Last year, the Supreme Court held in Seila Law v. CFPB that the director can be removed at will by the president.

An interim director was named to take control until a permanent director can be confirmed. Rohit Chopra, a commissioner of the Federal Trade Association, is the choice to be the permanent CFPB Director. Stay tuned for changes that may be implemented under the new leadership. Speculation is that the bureau’s enforcement and oversight activities will be beefed up with an emphasis on COVID-related consumer relief.

Speaking of COVID relief, the Federal Housing Finance Agency has announced that Fannie Mae and Freddie Mac will extend their moratoriums on single-family foreclosures and real estate owned (REO) evictions through February 28. The moratoriums were set to expire at the end of this month.

The administration would also like to ease the current housing market pain of high home prices and low inventories by proposing a $15,000 first-time homebuyer tax credit which would serve as down payment assistance. There is also speculation that mortgage insurance premiums may be reduced.

On the other hand, mortgage rates appear to be on the rise, so it remains to be seen whether the new administration’s efforts to encourage development and home ownership will be successful.  As always, real estate practitioners will need to keep an eye on the news to assist them in predicting how 2021 will sort out on the housing front and in their businesses.

CDC announces COVID eviction moratorium through the end of 2020

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On Tuesday, September 1, the CDC announced a temporary eviction moratorium through December 31, 2020. The order applies to all rental units nationwide and goes into effect immediately. Treasury Secretary Steven Mnuchin said that the order applies to around 40 million renters.

The CDC announced the action was needed to stop the spread of the coronavirus and to avoid having renters wind up in shelters or other crowded living conditions. This order goes further than the eviction ban under the CARES Act which covered around 12.3 million renters in apartment complexes of single-family homes financed with federally backed mortgages.

The Order, entitled, “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19, does not suspend mortgage foreclosures. To take advantage of the suspension, the tenant must sign a declaration form alleging:

  1. The individual has used best efforts to obtain all available government assistance for rent or housing;
  2. The individual either (i) expects to earn no more than $99,000 in annual income for Calendar Year 2020 (or no more than $198,000 if filing a joint tax return), (ii) was not required to report any income in 2019 to the U.S. Internal Revenue Service, or (iii) received an Economic Impact Payment (stimulus check) pursuant to Section 2201 of the CARES Act;
  3. The individual is unable to pay the full rent or make a full housing payment due to substantial loss of household income, loss of compensable hours of work or wages, a lay-off, or extraordinary out-of-pocket medical expenses;
  4. The individual is using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses; and
  5. Eviction would likely render the individual homeless— or force the individual to move into and live in close quarters in a new congregate or shared living setting— because the individual has no other available housing options.

The order specifically does not excuse rent, it just delays eviction. There is a substantial body of depression -era caselaw that holds this type of governmental action is permissible because it does not impair the contract, it only delays the remedy, and it is not a taking because the rent is still due. Lawsuits are likely to follow regardless of this old caselaw.

Many would argue that a temporary ban on eviction for non-payment burdens landlords with the cost of rental delay. Many landlords are individuals or small businesses that cannot spread the losses and cannot pay maintenance costs, mortgages and property taxes without the benefit of rental income.