Update to Summary of Legislative Relief for Tenants and Mortgage Borrowers in New York State in Response to COVID-19
On May 7, 2020, Governor Cuomo issued Executive Order 202.28. A summary of this Executive Order is set forth in Section I below. Section II is an updated summary of the material legislation in New York State in reaction to the coronavirus pandemic impacting (i) tenant eviction proceedings under real estate leases, and the related obligation to pay rent, and (ii) real estate mortgage foreclosure/forbearance proceedings, and the related obligation to pay debt service (our prior summary of this legislation was set forth in our article of April 2, 2020). Section III highlights the material questions relating to Executive Order 202.28, which remain unanswered. We plan to provide answers to those questions once further guidance is available.
I. Summary of Executive Order 202.28
- The following applies to residential tenancies only:
- On or before June 6, 2020, landlords and tenants may enter into a written agreement under which the security deposit will be used to pay rent that is in arrears or will become due.
- Tenants are under no obligation to enter into such an agreement, and landlords shall not harass, threaten, or engage in any harmful act to compel tenants to enter into such an agreement.
- If a tenant is eligible for unemployment insurance or benefits under state or federal law or is otherwise facing financial hardship due to the COVID-19 pandemic, then the landlord is required to enter into such an agreement at the request of the tenant made prior to June 6, 2020.
- The tenant shall replenish the amount of the security deposit applied to rent by paying to the landlord each month 1/12 of the amount so applied. The landlord may require the tenant to commence these monthly payments 90 days following the date the security deposit was applied to rent.
- A tenant may obtain insurance that provides security for the landlord in lieu of the requirement to replenish the security deposit, which insurance the landlord must accept.
- Landlords are not entitled to collect any payment, fee, or charge for late payment of rent occurring during the time period from March 20, 2020 through August 20, 2020.
- The following applies to commercial and residential tenants, and commercial and residential property owners:
From June 20, 2020 until August 20, 2020, there shall be no initiation of a proceeding or enforcement of an eviction of a tenant for non-payment of rent, or a foreclosure of a property owner for non-payment of a mortgage, in the event such tenant or property owner is eligible for unemployment insurance or benefits or is otherwise facing financial hardship due to the COVID-19 pandemic.
ll. Updated Summary of Legislation
Evictions and Rental Obligations
- 90-day moratorium on evictions in New York State for residential and commercial tenants until June 20, 2020 (Executive Order 202.8, issued by Governor Cuomo on March 20).
- In addition, there is a 60-day moratorium on evictions in New York State for non-payment of rent for certain residential and commercial tenants (i.e., tenants that are eligible for unemployment insurance or benefits or otherwise facing financial hardship due to the COVID-19 pandemic) from June 20, 2020 until August 20, 2020 (Executive Order 202.28, issued by Governor Cuomo on May 7).
- As New York State Courts have suspended the filing of non-essential proceedings until further notice, the consequence is that eviction proceedings are suspended indefinitely until there is a further order from the Governor and the Courts.
- The Executive Orders to date do not provide for any deferral or abatement of rent (other than in connection with a residential landlord’s application of the security deposit to unpaid rent under Executive Order 202.28, as described above) or what will occur with pending or new evictions once the moratorium expires.
- As described above, until June 6, 2020, residential landlords and tenants may enter into agreements to apply security deposits against rent that is in arrears or will become due. Landlords may not force tenants to enter into such agreements; however, tenants eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic may compel landlords to enter into such agreements. Commencing 90 days after a landlord’s application of the security deposit, the landlord may require the tenant to replenish the security deposit by paying to the landlord each month 1/12 of the amount so applied. In addition, a tenant may retain insurance providing security for the landlord in lieu of replenishing the security deposit, which insurance the landlord must accept (Executive Order 202.28).
- Landlords may not collect any payment, fee, or charge for late payment of rent occurring during the time period from March 20, 2020 through August 20, 2020 (Executive Order 202.28).
Foreclosures and Debt Service Obligations
- 90-day moratorium on foreclosures in New York State for residential and commercial property owners until June 20, 2020 (Executive Order 202.8).
- In addition, there is a 60-day moratorium on foreclosures in New York State for nonpayment of mortgages for certain residential and commercial property owners (i.e., property owners eligible for unemployment insurance or benefits or otherwise facing financial hardship due to the COVID-19 pandemic) from June 20, 2020 until August 20, 2020 (Executive Order 202.28).
- As the New York State Courts have suspended the filing of non-essential proceedings until further notice, the consequence is that foreclosure proceedings are suspended indefinitely until there are further orders from the Governor and the Courts.
- Governor Cuomo issued Executive Order 202.9, which directs the Department of Financial Services (DFS) to “ensure under reasonable and prudent circumstances that any licensed or regulated entities provide to any consumer in the State of New York an opportunity for the forbearance of payments for a mortgage for any person or entity facing a financial hardship due to the COVID-19 pandemic” and directs DFS to promulgate emergency regulations regarding forbearance applications. Executive Order 202.9 also provides that any bank that is subject to the jurisdiction of the DFS will be deemed to be engaging in an “unsafe and unsound business practice” under New York Banking Law if the bank fails to grant a 90-day forbearance to any person or business with a financial hardship as a result of the pandemic. Executive Order 202.28 extends this directive for 30 days until June 6, 2020.
- To date, DFS has promulgated regulations providing relief for residential mortgages only. The DFS regulations provide relief for certain residential borrowers who can demonstrate financial hardship from COVID-19, including mandating that certain New York-regulated financial institutions grant these borrowers loan forbearances.
- The United States CARES Act provides forbearance relief to owners of residential properties (i.e., properties designed principally for the occupancy of one to four families) encumbered by federally backed mortgages, such as Fannie Mae and Freddie Mac. The Act also provides conditional forbearance relief to owners of multifamily properties (i.e., five or more units) encumbered by federally backed multifamily mortgages. If the multifamily owner was current on its mortgage payments as of February 1, 2020 and is experiencing financial hardship due to COVID-19, it may request forbearance for up to 90 days. Such owners may submit their request for forbearance until the earlier of the end of the COVID-19 emergency or December 31, 2020. If the multifamily borrower is granted the forbearance under the CARES Act, it may not evict or charge late fees or penalties to tenants during the forbearance period.
- Additionally, the CARES Act prohibits landlords from seeking to recover possession of a rental unit, or charging fees, penalties or other charges related to non-payment of rent, for 120 days from the passage of the Act if the landlord’s mortgage is insured, guaranteed, supplemented or assisted in any way, in connection with a HUD program, or by Fannie Mae, Freddie Mac, or where the property participates in a covered housing program under the Violence Against Women Act or the rural housing voucher program. In addition, a covered landlord may not issue a notice to vacate until after the 120-day period. The CARES Act contradicts certain guidelines issued by Fannie Mae and Freddie Mac earlier in the COVID-19 emergency. However, subsequent to the enactment of the CARES Act Fannie Mae and Freddie Mac issued revised guidelines to align with the CARES Act.
lll. Material Questions Relating to Executive Order 202.28
- In the event a landlord applies all or a portion of a tenant’s security deposit against rent, how does the landlord obtain the full replenishment of the security deposit if there is less than 15 months (i.e., the 90-day period until monthly payment of the replenishment commences plus the 12month period for the replenishment to be paid in full) remaining in the lease term?
- If a tenant elects to obtain insurance in lieu of replenishing the security deposit, what constitutes satisfactory insurance?
- There is reference to the condition “otherwise facing financial hardship due to the COVID-19 pandemic” in two places in the Executive Order (with respect to a landlord being required to accept a tenant’s request for application of the security deposit against rent, and with respect to the prohibition on evictions and foreclosures). What constitutes “facing financial hardship” and how is it evidenced?
- In extending the moratorium on evictions of tenants and foreclosures of property owners, the Executive Order specifically limits the moratorium to a proceeding for “non-payment of rent” and “non-payment of such mortgage”. Prior Executive Order 202.8 had no such limitation on the moratorium. Accordingly, are tenant holdover eviction proceedings, and mortgage foreclosure proceedings for non-monetary defaults, not subject to this extension of the moratorium?
- In Governor Cuomo’s press conference on May 7, which preceded the enactment of the Executive Order, he referenced an extension of the existing eviction and foreclosure moratorium, without citing any qualification concerning the financial hardship of the tenant or property owner. In light of the Governor’s statement at the press conference, will courts ignore the requirement in the Executive Order that tenants and property owners must be “eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic” as a condition to the extension of the moratorium on evictions and foreclosure from June 20 until August 20?
Hopefully these unanswered questions will be addressed through further guidance. Tannenbaum Helpern will continue to monitor the situation and provide updates.
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05.15.2020 | PUBLICATION: Note From The Real Estate Group | TOPICS: Real Estate | INDUSTRIES: Real Estate