AB-1436 Tenancy: rental payment default: mortgage forbearance: state of emergency: COVID-19.
The pandemic has sent 5.1 million Californians to unemployment lines, hitting service workers and employees of small businesses hard. Supplemental unemployment benefits are nearing an end, leaving many renters and landlords concerned over future payments.
One attempt to address this concern is Assembly Bill 1436, a new measure that would make it temporarily illegal for landlords to evict tenants who haven’t paid rent during the pandemic.
Tenant advocates praised the bill for seeking to avoid a tidal wave of evictions. Landlords, Investor Groups and Real Estate & Mortgage Trade Associations oppose the bill because it excludes commercial tenants from its protections, applying only to housing, would defer rent indefinitely for COVID-19 affected tenants and would also prevent landlords from receiving funding to pay taxes, mortgages, utilities, or staff.
AB 1436 has three main components:
- Loans on residential properties with 1-4 units: Borrowers will be entitled to request up to 12 months of COVID-based forbearance at any time during the “covered period”, which is the earlier of the 90 days after State of Emergency (SOE) is lifted or April 1, 2021. For example, if the SOE is not lifted until after April 1, 2021, a Borrower could request a forbearance on March 31, 2021 and not have to make any payments until March 31, 2022. Assuming the Borrower hasn’t been paying since COVID started, that gives the BR almost 2 years of not making payments. At that point, the servicer cannot require that the Borrower make up any missed payments and instead, must allow the Borrower to resume making their pre-COVID monthly payments. We do not know what happens on loans which mature during this period. They may require we extend the loan. This section applies regardless of the type of loan (i.e., business purpose, construction, reverse, etc.) and does not require that the borrower provide any proof that their income was actually impacted by COVID.
- Loans on residential properties with 5+ units: Borrowers who were current as of February 1, 2020 can apply for a 30-day forbearance; however, they must provide documentation that their income has been impacted by COVID. The Borrower can then request up to five (5) additional 30-day forbearance periods (for a total of 180 days).
- Residential tenants: COVID-impacted tenants who miss rent payments during the covered period (earlier of 90 days after the SOE is lifted or April 1, 2021), cannot be considered in default under their lease. In other words, a landlord cannot evict a tenant for non-payment between when COVID started in March 2020, thru potentially April 1, 2021. In addition, landlords cannot collect the missed rent until 12 months after the end of the effective period. This will, undoubtedly, increase defaults on rental properties.
Opposition Letters note this measure contains nearly identical provisions from Assembly Bill 2501 (Limon) that failed passage on the Assembly Floor in June.
Under the revised legislation, landlords would be forced to defer rents for 15 months after a state or local state of emergency is lifted, which can translate to years of unpaid rent, if a tenant is unable, or unwilling, to pay rent due to COVID-19.
A mortgage relief provision to help landlords was added. The lawmakers announced that they plan to amend AB 1436 in an effort to take the financial burden off of landlords and prevent foreclosures by granting a one-year forbearance to small landlords with properties of up to four units. Property owners of buildings with five or more units would also be eligible to request a six-month forbearance if the amended bill is approved.
An alternative bill Senate Bill 1410 proposes a state-funded rent voucher program to help pay the deferred rent, and provide stability to those renters who are recovering financially so long as they remain current on their contractual rental agreements.
If signed into law, AB 1436 would be in effect for 90 days after the state’s COVID-19 emergency order expires.
More about AB 1436:
Title: Tenancy: rental payment default: mortgage forbearance: state of emergency: COVID-19.
Author: Asm. David Chiu (D-San Francisco) and Monique Limon (D-Santa Barbara). Co-authors include Assemblymembers Rob Bonta (D-Oakland), Lorena Gonzalez (D-San Diego), Monique Limón (D-Santa Barbara), Miguel Santiago (D-Los Angeles), and Buffy Wicks (D-Berkeley).
Sponsors: Western Center on Law and Poverty, California Rural Legal Assistance Foundation, Public Advocates, Public Counsel, PolicyLink, Leadership Counsel for Justice and Accountability, and Housing Now! California. Assemblymembers Rob Bonta (D-Oakland), Lorena Gonzalez (D-Gonazalez), Miguel Santiago (D-Los Angeles), and Buffy Wicks (D-Oakland) are joint authors of AB 1436.
Oppose: California Apartment Association, California Bankers Association, Affordable Housing Management Association-Pacific Southwest, American Bankers Association, American Financial Services Association, California Association of Collectors, California Community Banking Network, California Credit Union League, California Escrow Association, California Land Title Association, California Manufactured Housing Institute, California Mortgage Association, California Mortgage Bankers Association, Escrow Institute of California, Mortgage Bankers Association, Securities Industry and Financial Markets Association, Silicon Valley Leadership Group, United Trustees Association, Western Manufactured Housing Communities Association.
Below is a more detailed description of some of the provisions of the portions impacting residential loans on 1-4 units:
- The restriction applies to ALL residential properties with 1-4 units unless the property has been surrendered. There is currently no exception for business purpose, construction (if occupied), reverse, seller carry-back or any other types of loans.
- A Borrower experiencing a financial hardship during the “covered” period (earlier of 90 days after the SOE is lifted or April 1, 2021) may request a forbearance (FB), regardless of delinquency status (i.e., even if the Borrower was in default well before COVID).
- The Borrower must now “attest” to his or her income being impacted by COVID, but still does not have to provide any documentation supporting the hardship.
- Request can be made orally or in writing.
- Servicer must grant the FB for a period of not less than 180 days and, if requested, it must be extended to 12 months.
- Servicer cannot mislead Borrower as to his or her rights.
- 2 years potential prohibition = March 2020 to March 31, 2022.
- Servicer must provide the BR with notice of the FB terms and right to extend.
- No fees, late charges, additional interest (including default interest) can be charged.
- Upon the completion of the FB period, the Servicer cannot require that the Borrower reinstate in a lump sum or increase the BR’s monthly mortgage payments. In other words, at the end of the forbearance period, the Borrower need only start making monthly payments. Any unpaid amounts would be due at the maturity of the loan.
- If the Borrower is unable to resume making payments after the forbearance period, the Servicer must review the Borrower for all available loss mitigation alternatives. Only then, if the Borrower cannot qualify, can the Servicer start foreclosure.
- Servicer must communicate in whatever language it generally uses when communicating with the Borrower.
- Penalties for violating any of the new provisions, include, but are not limited to:
- Injunctive relief;
- Actual economic damages;
- Attorneys’ fees and costs (even if the Borrower just gets a simple Temporary Restraining Order);
There are a lot more provisions to the proposed Bill, but this should give you a flavor.
SOURCE: The above bullet points were sourced from counsel of the California Mortgage Association and United Trustee Association regarding AB2501
Take action now and urge legislators to Oppose AB 1436.