With June's Rent Moratoriums Set to Expire, Experts Believe They Will Not Be Extended Based On Current Legal Proposals

The current foreclosure moratorium for homeowners is set to expire June 30, where borrowers who wish to request forbearance have until then to do so. For those borrowers who entered forbearance on or before June 30, 2020, they will be provided up to six months of additional mortgage payment forbearance, in three-month increments.

What is a Moratorium?

At the onset of the COVID-19 pandemic, millions of Americans were subjected to widespread unemployment and financial difficulties, leaving many unable to afford their mortgage. In response, Congress and other federal agencies created what are known as “foreclosure moratoriums,” which prohibited lenders from foreclosing on homeowners behind on their mortgage.

The primary federal moratorium officially ends on June 30, 2021.

Today, 1 in 5 renters is behind on rent and over 10 million homeowners behind on mortgage payments, according to the Center on Budget and Policy Priorities (CBPP), while more than 4 million adults who were behind feared imminent eviction, according to the Centers for Disease Control and Prevention (CDC).

As of the date of this article, the CBPP reports that “joblessness remains high and millions report that their households did not get enough to eat or are not caught up on rent payments,” tracking the extent of this hardship with real-time data from several sources on the ongoing economic crisis.

With the COVID-19 pandemic ongoing, President Biden continues to take action in efforts to help keep individuals and families in their homes, recognizing the housing affordability crisis.

Most States Do Not Have a ‘Right to Counsel’ in Housing Court. What Does This Mean?

However, one of the biggest (legal) issues for most Americans is that in the U.S., you don’t have a Sixth Amendment right to counsel in housing court, as you would expect to have in criminal court.

In 2017, New York became the first city to pass a “right to counsel” law which allowed for homeowners facing foreclosure to be provided with legal counsel, so long as their incomes were below 200 percent of the federal poverty level. In that year alone, evictions dropped 11% in zip codes with a ‘right to counsel,’ compared to 2% in zip codes without.

For millions of Americans, the right to counsel remains to be a major complication for homeowners in the housing court. So, what is foreclosure?

Foreclosure is a catch-all term for the processes used by mortgage-holders or mortgagees, to take mortgaged property from borrowers who default on their mortgages. Under the law, there are two types of foreclosures: judicial foreclosures, which require a court order, and non-judicial foreclosures, which allow a mortgagee to foreclose without going to court, so long as there is a power-of-sale clause in the agreement.

The CARES Act

Back in March 2020, U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act in response to the economic callout of the COVID-19 pandemic in the United States.

The $2.2 trillion economic stimulus bill, signed into law by former U.S. President Donald Trump, included $300 billion in one-time cash payments to individual people who submit a tax return in America, $260 billion in increased unemployment benefits, the creation of the Paycheck Protection Program (PPP) that provides forgivable loans to small businesses with an eventual $669 billion in funding, $500 billion in loans for corporations, and $339.8 billion to state and local governments.

Sections 4022 and 4023 of the CARES Act addresses mortgages, protecting those with federally-backed mortgages from foreclosure until August 31, 2020, which eventually was extended through part of 2021.

Under Section 4022, mortgagees had the right to request a mortgage forbearance for up to 180 days, while Section 4024(b) provided for a 120-day moratorium lasting through July 2020 on eviction filings for rental units in properties that participate in federal assistance programs or have a federally backed mortgage or multifamily mortgage loan.

February’s Extension of COVID-19 Housing Affordability Protections

Back in February, President Biden, along with the Department of Housing and Urban Development, Department of Veterans Affairs, and Department of Agriculture announced its coordinated extension and expansion of forbearance and foreclosure relief programs, which were set to expire in March.

With the extended foreclosure moratoriums set to expire on June 30, 2021, homeowners and borrowers are once again in panic mode, hoping for some additional relief, which requires realtors to be at the top of their game.

Known to the industry as the ‘Short-Sale Queen,’ Nicole Espinosa specializes in helping homeowners through the short sale process so they can avoid a foreclosure and the damage it wreaks on their credit score.

But Espinosa says this is something that most Realtors are not trained to handle. She explains that the short sale process requires specialized knowledge, and often, successfully navigating this process depends heavily on relationships with banks and lenders.

She says it’s not something that’s covered in depth during standard real estate education, which is why she published a comprehensive book on the topic, titled How to Master Short Sales.

“I think it’s too easy to get a [realtors] license,” Espinosa told Benzinga. “There’s not enough regulation when it comes to realtors and the way they need to do things, which puts their clients in really bad situations from a liability perspective—especially when it comes to short sales.”

Espinosa has often had to step in after other Realtors dropped the ball in handling a homeowner’s short sale.

“It’s heartbreaking to see a homeowner—going through one of the most difficult times in their lives—only to be let down by a professional they thought would be able to help them.”

She says it’s critical for homeowners to make sure a Realtor has experience handling short sales before putting that transaction in their hands.

With June’s Foreclosure Moratorium Ending, What Does This Mean for Homeowners?

With June 30 rapidly approaching, some believe there to be an incoming wave of foreclosures that would hit millions of low-income homeowners, according to Bloomberg, after forbearance provisions and the foreclosure moratorium ended.

Others, including many mom-and-pop landlords and property owners, however, believe that things will return to normal after more than a year of having to afford protections as opposed to filing for eviction.

Generally, rent moratoriums and eviction protections vary from state to state.

For example, Florida has no statewide foreclosure moratorium, as all programs under the Florida Housing Coronavirus Relief Fund have closed, whereas the Texas Department of Housing and Community Affairs advises homeowners who have been affected by the COVID-19 pandemic to contact their loan servicer to determine if they qualify for reduced or suspended payments.

To see whether your state has a foreclosure moratorium, please click here.

“We must not lose sight of the dangers so many consumers still face. Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up,” said Dave Uejio, acting director of the Consumer Financial Protection Bureau (CFPB), in an April press release.

Could There Be Another Extension Into 2022? The CFPB Hopes So

The Mortgage Bankers Association (MBA) recently reported there are approximately 2.23 million homeowners that are currently in forbearance plans, which in recent months has continued to decline, according to Marina Walsh, VP of Industry Research for the MBA.

“The economy is starting to pick up, and we expect the economy, as the vaccine rolls out, to improve, which would also mean a lower unemployment rate,” says Walsh. “As employment gets better, that will be good news in terms of borrowers who want to retain their homes and stay in their homes.”

Depending on whether a new rule from the Consumer Financial Protection Bureau (CFPB) goes through, foreclosures may be banned until 2022, which would benefit all borrowers, including those with private loans, which account for about 30% of the market.

Back in April, the CFPB issued its notice of proposed rulemaking (NPR) to amend Regulation Z, specifically to “prevent avoidable foreclosures” due to the COVID-19 pandemic “as the emergency federal foreclosure protections expire [in June].”

Previously, the CFPB’s foreclosure ban only applied to borrowers with federally-guaranteed loans (FHA, VA, or USDA) and conforming mortgages owned by Fannie Mae and Freddie Mac. “Every one of the nearly 3 million borrowers behind on their mortgages should have a chance to explore ways to resume making payments and avoid foreclosure,” the CFPB’s announcement states.

However, Espinosa believes that the moratoriums will not be extended, which is why agencies like CFPB are still trying to prevent and/or minimize the wave of foreclosures.

“Right now, they are not talking about the moratorium getting extended, but simply being proactive and requiring the servicers to review if someone applies for help, to avoid unnecessary foreclosures. I don’t think they will extend past June, otherwise, they wouldn’t be doing all of these extra things to put into place. From what it appears, they’re not going to extend, so they’re trying to do other things, besides continuing to extend the moratorium.”

With the proposed rule, CFPB hopes to accomplish the following:

#1 - No Initial Notices Are to Be Filed for Any Type of Foreclosure Until After December 31, 2021

Generally, mortgage servicers would be prohibited from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after December 31, 2021.

However, the CFPB is considering exceptions to that rule, in which a servicer would be allowed (in certain circumstances) to initiate a foreclosure prior to the December 31 window.

#2 - Borrowers Can Be Offered ‘Streamlined Loan Modification Options’

“In the event homeowners have incomplete applications, the servicers are able to review everything and not move forward with any foreclosures until at least December 31,” Espinosa explained.

For this to happen, these (incomplete) applications would need to satisfy specific criteria regarding the length of the term, interest on deferred funds, preexisting delinquencies, and fees.

#3 - Amend Regulation Z’s ‘Early Intervention Requirements’

This proposal introduces the “early intervention” and “live contact” options for COVID-19 related hardships.

These early intervention requirements would require servicers to discuss with certain delinquent borrowers specific COVID-19 related information at two specific times:

First, at an initial live contact if the borrower is not yet in a forbearance program and the owner of the assignee of the loan offers a COVID-19 hardship forbearance program.

Second, at the “last live contact” prior to the end of the forbearance period if the borrower is in a COVID-19 related hardship forbearance program.

These ‘live contact’ requirements would come to an end on August 31, 2022.

While this proposed rule is not yet in effect, it would impose a number of new protections for homeowners. For more information on the CFPB’s proposed moratorium extension, please click here.

What Can You Do To Protect Yourself?

Espinosa says there are a few ways homeowners can protect themselves from foreclosure.

The first and best solution is to catch up on your payments:

“If you fall behind on your payments, you have the option—within a certain timeframe— to reinstate your loan and become current," she explains. "Typically, you would need to pay all of the back payments plus the interest and late fees in one lump sum payment.”

The next best solution is a short sale:

“If you find yourself in a situation where you can no longer afford your home and what is owed, you could qualify for a short sale. A short sale allows you to sell the house and settle your debt. Your bank will take less than what is owed so you can avoid foreclosure and not have to come to closing with any funds. This is the only option where the bank reduces what is owed and agrees to settle your debt,” Espinosa said.

The last solution is bankruptcy, which will eliminate your financial obligation but will also have a massive impact on your credit score.

“While bankruptcy can stop any foreclosure proceeds immediately giving you some temporary relief, unfortunately, it is just temporary. Ultimately you will still need to come to an agreement with your lender after the bankruptcy to either pay what is owed or sell the house. This is the last resort because it will also severely damage your credit making it near impossible to get another mortgage for several years."