COVID-19 has wreaked havoc with the ability of many people to timely pay their current mortgage. We at Fox & Moghul have been receiving a high-volume of calls by distressed homeowners seeking assistance on this issue. If you are one of those affected by the coronavirus pandemic, and are facing financial difficulties, including an inability to pay your mortgage, then there may be several options that are available to you under the proposed CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ACT OR THE CARES ACT.
The federal government has instructed mortgage giants Fannie Mae and Freddie Mac to be more flexible with borrowers, reducing or suspending payments for up to 12 months. In light of these circumstances, borrowers may have the option of either suspending their mortgage payments for up to 12 months without being charged any late fees or any adverse impact to their credit standing. Additional remedies may be available on a case by case basis.
· Up to 180 days of forbearance for borrowers of federally-backed mortgage loans.
· Beginning March 18, 2020, stay on foreclosures of all federally-backed mortgage loans
· For multifamily borrowers, the legislation provides up to 90 days of forbearance. However, such borrowers may not evict or charge late fees to tenants during the time period.
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Mortgage Forbearance vs Mortgage Modification – Remember the Distinction.
It is important to keep in mind the distinction between seeking a forbearance versus modification related to your mortgage. An easy way to think of this distinction is that a modification to a loan offers a permanent solution to unaffordable monthly payments.
A forbearance merely delays the borrower’s payments to some future date. Typically, in these circumstances, interest and late fees continue to accrue, however, there are exceptions as outlined in the latest guidance from Fannie Mae and Freddie Mac. At the end of the forbearance period, you would typically be expected to pay the entire past due, interest and late fees in one lump sum payment.
Compare this to a loan modification, where a borrower whose job has been affected by the coronavirus. A modification allows you to essentially skip payments for a certain period of time, and then pay those missed payments back in one of several ways depending on the circumstances. Sometimes, the lender may decide to add all those payments to the end of the mortgage, or alternatively spread out the missed payments over the life of the loan.
Co-Ownership of Property with Someone Suffering Financial Hardship Due to the Coronavirus.
Imagine you co-own real property with someone who equally shares the financial responsibilities pertaining to the property with you, including mortgage, taxes and maintenance. Now, lets assume that person’s employment is adversely affected by the coronavirus, thereby crippling his or her ability to contribute toward the mortgage. Assuming that you do not wish to seek a forbearance or modification as explained above, what other options do you have other than paying for the other co-owner’s half?
First, assuming you can afford to, you could potentially buy out the other co-owner’s equity and assume full ownership of the property. During the settlement or closing, the other co-owner would simply convey his or her interest to you via a deed in exchange for his buyout. You may not necessarily need to come out of pocket with the funds to buy out the other co-owner, as you could potentially refinance and buyout the co-owner during that transaction.
However, if the co-owner refuses to be bought out and is otherwise not cooperating with you in potentially selling the property and splitting the sale proceeds, then you may have to resort to other legal remedies. The situation seems particularly unfair to the co-owner who is not only paying the other owners share, but is also not receiving any cooperation from the non-paying co-owner to sell his or her equity in the property to you or some third party.
Virginia Code § 8.01-83 – Partition vs Allotment.
If you are a co-owner of a property with someone else, you could also face problems if your co-owner is unable to pay his or her share of the mortgage. This is because when you and your co-owner obtained your mortgage, the lender most likely made you agree to joint and several liability in the note and deed of trust. Given these circumstances, you may want to seek relief under Virginia Code 8.01-83, which states as follows:
§ 8.01-83. Allotment to one or more parties, or sale, in lieu of partition.
When partition cannot be conveniently made, the entire subject may be allotted to any one or more of the parties who will accept it and pay therefor to the other parties such sums of money as their interest therein may entitle them to; or in any case in which partition cannot be conveniently made, if the interest of those who are entitled to the subject, or its proceeds, will be promoted by a sale of the entire subject, or allotment of part and sale of the residue, the court, notwithstanding any of those entitled may be a person under a disability, may order such sale, or an allotment of a part thereof to any one or more of the parties who will accept it and pay therefor to the other parties such sums of money as their interest therein may entitle them to, and a sale of the residue, and make distribution of the proceeds of sale, according to the respective rights of those entitled, taking care, when there are creditors of any deceased person who was a tenant in common, joint tenant, or coparcener, to have the proceeds of such deceased person’s part applied according to the rights of such creditors.
In other words, you can invoke the remedy of either allotment, partition or sale depending on the circumstances of your case. In all cases, you are essentially invoking the jurisdiction of the court to order a forced action of some sort with respect to the property, of a portion thereof.
In an allotment action, the one owner simply buys out another’s ownership in the property through a court-ordered allotment. Conversely, in a sale, the court is simply ordering a forced sale of the property through a special commissioner appointed by the Court (assuming the property cannot be physically partitioned), and the proceeds of the sale are distributed among the co-owners with any appropriate apportionment. Furthermore, a partition action would involve physically dividing the property provided such action meets certain perquisites.
The procedures governing such actions are complex, and a cautious borrower should contact an attorney before taking any action in this respect.