CFPB Post-Covid Mortgage Servicing Rules

By: Salvatore Carollo, Esquire

Following the expiration of the federal foreclosure moratorium on July 31, 2021, the Consumer Financial Protection Bureau (CFPB) finalized its post-Covid-19 mortgage servicing rules which took effect on August 31, 2021 and will remain in place until December 31, 2021.  Generally, the new temporary rules which have been referred to as “procedural safeguards” have been implemented to prevent a mortgage loan servicer from initiating a new foreclosure, or completing an existing foreclosure proceeding before January 1, 2022.  In addition, the temporary provisions apply to all “federally-related mortgage loans” (as defined under RESPA) that are secured by the borrower’s primary residence.  As a result, the new rules can also apply to portfolio loans, rather than just federally backed mortgage loans that were subject to the CARES Act.

The temporary rule changes require enhanced foreclosure protections through December 31, 2021.  Until then, servicers are not permitted to commence a new foreclosure due to missed payments unless one of three safeguards have been met: (1) the borrower has submitted a complete loss mitigation application; (2) the property securing the loan is deemed abandoned; and (3) the servicer has not received any communications from the borrower for at least 90 days prior to initiating the foreclosure.  The prior existing servicing rules generally prohibit a loan servicer from noticing or filing a foreclosure action until the borrower is more than 120 days delinquent.  The rule changes essentially prohibit initial notices or first filings for any type of foreclosure until after December 31, 2021 with certain limited exceptions.  The rule changes further permit servicers to offer additional streamlined loan modification options to borrowers with COVID-19 related hardships based on the submission of incomplete loss mitigation applications so long as certain criteria and modification terms are met.

The new rules have also amended prior early intervention requirements of the loan servicer and introduce “live contact” options for COVID-19 related hardships.  These early intervention protocols 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 or 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 rule changes make it abundantly clear that under the current administration, the CFPB is displaying a renewed focus on prioritizing consumer protection over industry concerns.  Accordingly, the financial servicing industry is expected to remain current with these ever-changing regulatory developments and ensure compliance with fair lending statutes through continuous comprehensive internal review of fair lending policies and procedures.

Updates Regarding New Jersey Eviction Moratoria and Procedures

By: Christopher Saliba, Esquire

On August 4, 2021, Governor Phil Murphy signed Bill Nos. S-3691 and A-4463 into law. S-3691 provides residential eviction prevention and utility assistance for renters who have been financially impacted by the COVID-19 pandemic by appropriating an additional $500 million for the COVID-19 Emergency Rental Assistance Program (CVERAP) and $250 million for utility assistance, which are programs administered by the New Jersey Department of Community Affairs (DCA). A-4463 provides an additional layer of protection for defaulted renters during the public health emergency by mandating that court records pertaining to their non-payment during this period be kept confidential.

The new legislation sets forth new eviction moratoria expirations for those who were unable to pay their rent during the period of March 1, 2020 through August 31, 2021, or, for certain tenants, through December 31, 2021. For residential tenants with household incomes below 120% Area Medium Income (AMI) but above 80%, the eviction moratorium concluded at the end of August. For certain households with incomes below 80% AMI, the moratorium concludes at the end of the year. In order for the special protections described above to take effect, the tenant must provide the required self-certification form to their landlords and/or to the court. As to evictions stemming from a residential foreclosure action, said moratorium is set to expire November 15, 2021.

While tenants who are covered by this special protection may not be evicted, the rent is still due to landlords and landlords may pursue this rent through a money judgment. Further, landlords who are receiving rental assistance must waive any late fees accrued by tenants during the special protections period and may not report delayed rent to crediting agencies. Lastly, landlords may not disclose non-payment of rent to others and prospective landlords may not deny renting to a person who wasn’t able to pay rent during the covered period of March 1, 2020 through August 31, 2021.

Pursuant to its July 1, 2021 Order, the New Jersey Supreme Court has authorized mandatory settlement conferences in all residential landlord tenant cases. This requirement took effect immediately and all vicinages will schedule settlement conferences for pending landlord tenant cases. The Order directs that priority will be given to the nearly 14,000 landlord tenant cases that have been pending for more than one year or in which more than 12 months of rent is claimed to be due.

Since the beginning of the pandemic, all landlord-tenant trials have been suspended, absent certain circumstances. The Judiciary now is gearing up to resume trials in residential landlord tenant cases, with evictions occurring in accordance with the newly enacted legislation described above.

Through the Court’s June 11, 2020, Omnibus Order, vicinages were authorized to schedule conferences in landlord tenant cases, including to conduct settlement negotiations in an effort to resolve cases without trial. However, voluntary participation has been sparce and as a result, the Court is now mandating settlement conferences to be scheduled. The Order provides that the conferences will primarily be conducted in a remote format, unless a Judge, in their discretion, schedules an in-person conference based on the individual circumstances of a case.

Both parties are required to appear at the settlement conference. The landlord is recommended to submit all required documents, such as a lease and registration statement (if applicable) five days before the settlement conference. If the landlord fails to appear, the case will be dismissed; and if the tenant fails to appear, default will be entered by the clerk.

If the landlord is prepared to proceed, the Court will hold a proof hearing; otherwise, a proof hearing will be held within 10 days of the settlement conference date. If the landlord establishes entitlement to relief at the proof hearing, the Court will enter default judgment, but the eviction cannot proceed until the end of the moratorium on residential evictions.

The goal of the settlement conferences is to have both parties appear, where the settlor will assist the parties in working out an agreement, which will be reduced to writing, placed on the record, and distributed to the parties. However, it is expected that not all matters will settle. For those where no settlement can be reached, the matter will be scheduled for trial. Trials were expected to begin September 1, 2021, but that date has been slightly pushed back due to the new legislation signed into law.

The Court’s authorization of mandatory settlement conferences does not affect commercial landlord tenant proceedings, which have resumed pursuant to the Court’s June 2, 2021, Order. Likewise, commercial foreclosure evictions are not bound by any moratoria and are allowed to proceed.

U.S. Supreme Court Declines to Strike Down National Eviction Moratorium, Warns CDC it Lacks Authority to Extend the Ban Past July 31

By: Lucas Anderson, Esquire

The Supreme Court on June 29 declined to grant an application to vacate a stay of eviction proceedings based upon the nationwide eviction ban imposed by the Centers for Disease Control and Prevention (CDC).  The application was brought by the Alabama Association of Realtors, who contended that the CDC lacks the authority to impose such a sweeping moratorium, which implicates the property rights of thousands of land owners across the country.  Although the court denied the Association’s application, four of the court’s more conservative justices—Thomas, Alito, Gorsuch, and Barrett, voted to vacate the stay.  Justice Brett Kavanaugh joined Chief Justice John Roberts and the court’s liberals denying the application, but his concurring opinion argues that the CDC exceeded its existing statutory authority in issuing the nationwide eviction moratorium.  Kavanaugh wrote that the CDC plans to end the moratorium in a few weeks, allowing for “additional and more orderly distribution of the congressionally appropriated rental assistance funds.”  Kavanaugh concluded that the CDC lacks the authority to extend the eviction ban past July 31 absent “clear and specific congressional authorization (via new legislation).”  The case is Alabama Association of Realtors, et al. v. Department of Health and Human Services, et al., No. 20A169.

New Jersey Bill A-5777

By: Salvatore Carollo, Esquire

Just recently, the controversial and fast tracked bill A-5777 originally touted by lawmakers as a feasible plan to terminate New Jersey’s public health emergency over Covid-19 was abruptly pulled from a planned vote scheduled on May 20, 2021 due to rampant backlash from state lawmakers in both major parties as well as opposition from prominent NJ business organizations.  The proposed bill would purportedly revoke nearly all of Gov. Phil Murphy’s executive orders related to the pandemic, but it wouldn’t necessarily eliminate all remaining restrictions as drafted.  Instead, the bill sought to keep 15 of Gov. Murphy’s executive orders until January 2022 – including a moratorium on evictions and utility shutoffs, as well as whatever current masking and social distancing measures were currently in place.

 

The bill in its original form would have also allowed Gov. Murphy to revoke or alter any of his remaining orders before the end of the year without getting any input from the Legislature. This perceived attempt at unfettered power garnered a stark response from Republican lawmakers who remarked that such a measure would continue a “dictatorship” that Gov. Murphy has enjoyed for more than a year and that the bill ‘looks more like Stockholm syndrome than true oversight by a supposedly co-equal branch of government.”  The New Jersey Business & Industry Association (NJBIA) immediately criticized the bill noting that it was bad for business and “did nothing to limit Gov. Phil Murphy’s unilateral power well beyond the health crisis.”  The NJBIA’s chief complaint with the original bill was the continuation of Executive Order 192, which mandates that employers abide by certain health and safety standards through the end of the year.  In practical terms, the continuation of EO 192 means that employers would have to continue daily health screening of workers and it would continue a mask mandate to be imposed indoors in places of business while many other states have gotten rid of the mandate entirely.

 

However, on May 24, 2021, New Jersey announced that it would lift its mask mandate on Friday, May 28, 2021 and no longer require masks indoors after already having lifted its outdoor mask mandate. During the formal announcement, Gov. Murphy stressed that businesses and private offices may continue to require employees and customers to wear masks and they will still be required in certain settings including health care, public transportation, airports, train stations, public-facing state offices and some private worksites.  Plus, masking will continue at public and private elementary schools, child care facilities, and youth summer camps in accordance with CDC recommendations as children under age 12 are not yet eligible to be vaccinated and children 12 to 15 have only been eligible for vaccination for less than two weeks.  New Jersey will also lift its six-foot social distancing requirements on May 28th and remove all indoor gathering limits on June 4, 2021.  All in all, the lifting of these major restrictions translates into a much welcomed return to “normal” for the majority of New Jerseyans who have endured a long road to recovery during this unprecedented pandemic.

Proposed New Emergency COVID Relief Act of 2020

Yesterday, Wednesday 12/9, a bipartisan group of the US Congress released a summary of the proposed new Emergency Covid Relief Act of 2020. While this proposal is not yet law, and the White House has introduced a competing proposal, further negotiations are likely. However, the summary of this proposed new bipartisan legislation includes the following relief provisions:

  1. An additional $300 billion to the SBA (Small Business Administration) for second PPP loans to small businesses impacted by the Covid-19 pandemic who have 300 or fewer employers and have suffered a 30% revenue loss in any quarter of 2020.
  2. Business expenses paid for with the proceeds of the PPP loan will be tax deductible, consistent with Congressional intent under the earlier CARES Act, and even though PPP loan forgiveness is already not taxable income, resolving what has been a point of contention between Congress, the Internal Revenue Service, and tax experts.
  3. PPP loan forgiveness would be further simplified for those small businesses with PPP loans of $150,000 or less.
  4. The federal government would provide a $300 weekly supplement to state unemployment benefits for an additional 16 weeks (under the proposal, this increase would not be retroactive).

It is still anyone’s guess what any final federal COVID relief legislation will look like, but S&E continues to monitor developments in this area and will keep you informed.

Congratulations Steven K. Eisenberg, Esquire, MBA

Steven K. Eisenberg, Esquire, MBA

Chief Executive Officer and Founder of Stern & Eisenberg

At Stern & Eisenberg, we are always looking for ways to grow and enhance our ability to support all of our clients’ needs through our existing footprint. Part of our effort includes supporting our attorneys’ efforts to develop their abilities and knowledge in additional jurisdictions.

It is with great pleasure to announce that Steven K. Eisenberg has recently been sworn into the practice of law in the additional states of West Virginia and Maryland. He looks forward to working with the other Stern & Eisenberg attorneys licensed in those states. With the help of our Stern & Eisenberg attorneys, Steven soon will join the Federal Bars (District Courts and Bankruptcy Courts) in both states. Steven is also finalizing his admission to the New York State Bar.

The S&E family is dedicated to professional advocacy, creative solutions and legal services for our clients, partners, and community with determined integrity and intensity serving the State of Delaware, Pennsylvania, New Jersey, New York, Pennsylvania, West Virginia and (Maryland).

Steven K. Eisenberg, Chief Executive Office and Founder of Stern & Eisenberg has an extensive background in real estate and corporate matters including acquisition and sale of businesses and assets.  His practice also focuses on the representation of lenders and servicers in the enforcement and protection of their interests in the legal process, including foreclosure, bankruptcy, evictions, title claims, loan modifications, and litigation.  Having experience previously representing borrowers, Steven brings his unique perspective to the representation of his servicer, lender and business clients.  Steven is now licensed to practice law in New Jersey, Pennsylvania, West Virginia, Maryland, and the District of Columbia. He is Martindale-Hubbell AV rated.  

Congratulations Steven!

Pennsylvania Unemployment Assistance Programs & COVID-19. What you need to know!

If you are confused about the various Pennsylvania unemployment programs, which include several unemployment assistance programs that were part of the federal CARES pandemic relief legislation enacted back in March, you are not alone.

The federal CARES pandemic relief legislation created three unemployment benefits programs (administered through state unemployment offices): (1) the Pandemic Unemployment Assistance (“PUA”) program, providing unemployment benefits for certain individuals who are unemployed as a result of COVID-19 and who traditionally were ineligible for unemployment, such as gig-economy workers, independent contractors, and self-employed individuals otherwise ineligible for regular or traditional state unemployment benefits; (2) the Pandemic Emergency Unemployment Compensation (“PEUC”) program, providing 13 additional weeks of regular or traditional state unemployment benefits for individuals whose state unemployment benefits would otherwise expire; and (3) the Federal Pandemic Unemployment Compensation Program (“FPUC”) program, providing $600/week of additional unemployment benefits (if the individual received other unemployment benefits in that week.

Congress provided funding for the PUA and PEUC programs through the end of the year. Unfortunately for those receiving unemployment benefits, Congress and the President failed to agree on a replacement or extension of the $600/week FPUC program, and that program expired at the end of July. In response, on August 8, 2020, the President issued an executive memo establishing a new Lost Wages Assistance (“LWA”) program.

What is the LWA program? It is a program administered federally through the FEMA (Federal Emergency Management Agency) Disaster Relief Fund as a grant program to the states, with the funds to be paid to eligible individuals through their state unemployment programs. The LWA program was designed to provide a $400/week “lost wages” benefit, $300/week of which is to come from the federal government, with the remaining $100/week to come as a match from the states (at least, those states that elect to participate). Unlike the FPUC, it is only available to eligible individuals impacted by the coronavirus pandemic who are already receiving more than $100/week of unemployment benefits. Further guidance from the federal government appears to allow states to meet the state’s match with that state’s underlying spending on traditional unemployment programs. This LWA benefit is available for weeks of unemployment ending on or after August 1, 2020 and ending on or before December 27, 2020, although as it is a FEMA grant program, it could end earlier if FEMA exhausts the funds allocated to this program or if Congress enacts new unemployment relief legislation.

FEMA appears to have begun approving states for the LWA program to provide the $300/week federal benefit, including Pennsylvania according to a press release from FEMA issued on Monday 8/24/20. However, it is not clear how long it will take for this LWA Program to be implemented in Pennsylvania, with FEMA announcing in its press release that it “…will work with Pennsylvania Gov. Tom Wolf to implement a system to make this funding available to Pennsylvania residents.”

            If you are an unemployed Pennsylvania resident, regular or traditional state unemployment benefits, benefits from the PUA program, and extended benefits from the PEUC program may be available to you. In addition, the $300/week LWA benefit should become available to Pennsylvania residents when implemented. See the Pennsylvania state unemployment program website, www.uc.pa.gov for more information. We continue to monitor developments in this area and will post updates as they become available.

Payment Protection Program (PPP) & The Continued Debate Over The Deductibility of Qualified Expenses

While the IRS has taken the position (IRS Notice 2020-32) that qualified expenses paid using PPP loan proceeds are not deductible for federal income tax purposes, the issue is far from resolved and the subject of continued debate. Click here for more information.

While the IRS has taken the position (IRS Notice 2020-32) that qualified expenses paid using PPP loan proceeds are not deductible for federal income tax purposes, the issue is far from resolved and the subject of continued debate.

In a letter to Congress on August 4, 2020, copy available here, https://www.ada.org/~/media/ADA/Advocacy/Files/200804_Main_Street_Loan_Forgiveness.pdf?la=en, a consortium of some 170 business interests and lobbying groups (ranging from the Air Conditioner Contractors of America to the American Dental Association, and including the American Institute of CPAs) demanded that any new COVID-19 relief legislation affirm the deductibility of these qualified expenses (i.e. wages and rents paid using PPP loan proceeds).

Why is this issue crucial to small business PPP borrowers? Because any PPP loan forgiveness may be effectively negated if qualified expenses paid with forgiven PPP loan proceeds are not tax deductible. As their letter notes as an example, “If a business has $100,000 of PPP loans forgiven and excluded from its income, but then is required to add back $100,000 of denied business expenses, the result is the same as if the loan forgiveness was fully taxable.”  Proposals have been introduced in Congress to “reverse” the IRS position. However, currently all COVID-19 relief efforts are stalled. A real practical concern raised by those concerned with this issue is that with the extension of the time to use PPP loan proceeds to 24 weeks, a small business using PPP loan proceeds for qualified expenses in 2020 may not obtain forgiveness until sometime well into 2021. Without that forgiveness in hand, can that business deduct the qualified expenses paid using loan proceeds in 2020?

In the absence of further relief or guidance on this issue, small business taxpayers and their tax advisors will have to decide whether to take an aggressive approach, in light of IRS Notice 2020-32, or comply with the IRS’s position and face losing most or all of the benefits of PPP loan forgiveness. We continue to monitor developments in this area, and will provide updates on these critical issues as they become available.

Business Interruption Coverage Federal Court Order due to COVID-19

The US Judicial Panel on Multidistrict Litigation, in a much anticipated Order issued yesterday, rejected attempts by two groups of policyowners, one in Pennsylvania and the other in Illinois, to centralize hundreds of federal cases filed by business owners seeking insurance coverage for business interruption losses related to the COVID-19 pandemic. The Panel sided with insurance companies, and even some policyowners, who objected to consolidating these lawsuits into a single venue. While finding that consolidation may still be appropriate for cases against specific insurers, the Panel found that, generally, nationwide consolidation of cases involving many insurers (more than 100), who may have differing policy provisions, lack common elements that could complicate discovery efforts and slow down proceedings. The Panel, did, however, signal that it would consider “targeted” consolidation involving cases against a single insurer or group of affiliated insurers where common elements among policy provisions might be found. As there can be substantial variation in policy provisions for pandemic related business interruption coverage, it is important if you are a business owner to review your policy. If you have questions about your business insurance coverage, contact one of our experienced attorneys at Stern & Eisenberg, PC, Thomas E. Shea and Zachary Champion.

Estate Planning, Retirement Plans & The CARES Act (Part 2): COVID-19 Related Planning Opportunities

In addition to the suspension of required minimum distributions (RMDs) for 2020 available to retirement account owners as a result of the federal CARES Act that we discussed in our last post, this COVID-19 relief legislation also provided some additional relief efforts to help retirement account owners. First, retirement plan owners who were directly affected by the COVID-19 pandemic may take an IRA distribution this year of up to $100,000 and spread the income tax on that distribution out over 3 years (2020, 2021 and 2022). Also, if you are under 59.5 years of age and impacted by the COVID-19 pandemic, you can avoid the 10% penalty on early withdrawals. These relief provisions have created some interesting, albeit aggressive tax planning opportunities with IRAs. One possible, but aggressive strategy, is for an IRA owner to do a Roth IRA conversion and spread the income tax cost of the converted amount (up to $100,000) over 3 years. Another aggressive strategy is for an IRA owner directly impacted by the COVID-19 pandemic to make a deductible IRA contribution in 2020, then take a taxable distribution from the IRA this year. The deduction for the contribution is taken in 2020, but the taxes on the distribution can be spread out over 3 years. Although these strategies appear to comply with the CARES Act provisions, whether or not Congress intended to allow such strategies as part of this COVID-19 relief legislation has been a matter of some debate, and future IRS guidance on these strategies may be forthcoming. To learn more on how the CARES Act may impact your estate and retirement plan planning, please contact us today.