April 9th, 2020

Rent and Mortgage Payments and Other Real Estate Issues During Covid-19

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Author: Richard A. Loube, Andrew L. Schwartz, Kristin A. Neubauer

A Discussion of the Real Estate Landscape during COVID-19.

The effects of the COVID-19 outbreak are incredibly far-reaching and have caused many economic hardships, with millions filing for unemployment over the past two weeks. This hardship contrasted with stay-at-home orders has put many in a difficult financial position, and has many asking whether they must continue to pay their rent or mortgage during these uncertain times. For those with real estate settlements scheduled over the next couple of months, they are left to wonder whether they must still move despite the stay-at-home orders.

This article discusses the current landscape of real estate in Maryland, Virginia, and the District of Columbia since the outbreak, including government action in the areas of landlord-tenant matters, mortgage payments and foreclosure, and real estate settlements. As the public measures are moving fast and changing quickly, you should consult your attorney to discuss any of the below executive orders and legislation that may be applicable to you to ensure that the discussion below is up to date at the time you review this article.

Landlord-Tenant Relationships and Rent Payments

By executive order, until the state of emergency issued by Governor Hogan is terminated and the health emergency is rescinded, no court is permitted to give any judgment for possession or repossession for nonpayment of rent under any residential, commercial, or industrial lease if the tenant can demonstrate that the tenant has suffered a substantial loss of income resulting from COVID-19 or the related proclamation of a state of emergency. Substantial losses include, without limitation, job loss, reduction in compensated hours of work, closure of place of employment, or the need to miss work to care for a school-age child. Further, the Maryland Court of Appeals has ordered that all pending eviction orders of residences be put on hold until further notice. Notably, the Governor’s executive order omits reference to the Maryland Code Section that addresses procedure for eviction where a tenant wrongfully holds over beyond a stated lease expiration date. Since the Court of Appeals order is specific to residential tenants, it is unclear whether a commercial tenant that stays beyond its stated term may still be evicted.

In Virginia, the Supreme Court entered an order for all courts to suspend non-emergency matters, including evictions, through April 26, 2020. In the District of Columbia, the D.C. Superior Court has suspended the evictions of all tenants until May 1, 2020.

Worth noting, while the executive and administrative orders suspend evictions, these orders do not expressly excuse the tenant from liability for rent payments. However, the D.C. Council passed legislation that may permit commercial tenants to defer a portion of their rent payments for 90 days of more if the landlord receives deferment of its mortgage payments for the same period. In order for a tenant to qualify, the tenant must notify the landlord of an inability to pay all or a portion of the rent due as a result of the public health emergency. For residential tenants in D.C., the legislation puts a freeze on rent increases, whether or not the property is subject to rent control laws.

Mortgages and Foreclosure

In Maryland, executive order prohibits the initiation of residential foreclosures, and the Court of Appeals has ordered that any filing will not be processed until the courts resume normal operations or unless otherwise notified. Further, the Maryland Department of Housing and Community Development indicates that many of the state’s banks and financial institutions have agreed to provide a 90-day forbearance and deferral period on mortgages. During this period, participating lenders will not charge late fees and there will be no negative reporting to credit reporting agencies. In order to obtain this relief, residents must contact their lender to determine if their lender is participating in this program and expressly request this relief.

As abovementioned, the Virginia Supreme Court has suspended non-emergency matters until April 26, 2020. Although foreclosures are not expressly mentioned, the Supreme Court’s order directs judges to exercise discretion as necessary in determining whether a matter is urgent and must be heard without delay. In making this determination, judges are to consider whether proceedings are necessary to protect liberty and constitutional interests, the health and safety of the parties, and others that may be involved and affected by the proceedings.

In the District of Columbia, the D.C. Superior Court suspended the evictions of all foreclosed homeowners until May 1, 2020. Further, as discussed above, the D.C. Council recently passed legislation that requires lenders to develop a program that, at a minimum, grants at least a 90-day deferment period of mortgage payments for residential and commercial borrowers. If any commercial borrower receives this deferment, the borrower must reduce the rent charged for the property to any tenant during the period of time in which there is a mortgage deferral in place in an amount proportional to the reduced mortgage amount paid by the borrower.

For those with home mortgages backed by the Federal Housing Administration, Fannie Mae, or Freddie Mac, Federal officials have imposed a nationwide halt to foreclosures and evictions. In addition, for Federally backed loans, lenders are supposed to allow forbearance for those experiencing a financial hardship caused by COVID-19.

Real Estate Settlements

For those that are already under contract, real estate settlements are largely continuing in each of the local jurisdictions. The forced closure of non-essential businesses has not directly impacted real estate settlements, and guidance from the Department of Treasury sets forth that settlements companies should be considered essential businesses. In addition, although not entirely clear, nothing appears on the face of the recent stay-at-home orders in Maryland, Virginia, and the District of Columbia that would inhibit the ability of residential settlements to close and individuals to change residences.

In Maryland, title companies and banks are expressly included as essential businesses, and moving companies appear to be included in this list as well. To facilitate closings, the Governor, by executive order, approved remote online notarization in the State of Maryland. In plain terms, remote online notarization allows notarial acts to be completed using audio-video communication. With regard to recording, many counties, including Montgomery County, allow use of online recording services to submit documents. Still, Land Records for Montgomery County and others are accepting documents for recording, though the process has slowed due to staff reductions and limited hours in some cases to submit documents.

In Virginia, the Governor’s executive order closes non-essential brick and mortar retail businesses if the business cannot adhere to the 10-person limit with proper social distancing requirements. Although only banks are expressly exempted from this requirement, presumably title companies and moving companies are permitted to operate, provided the companies follow the 10-person limit and otherwise honor social distancing requirements. Regarding execution of documents, Virginia adopted a statute and rules authorizing and administering remote online notarization in 2012 and many counties in the State, including Arlington, Fairfax, and the City of Alexandria, allow use of online recording services to submit documents.

In the District of Columbia, real estate settlements are moving forward as well, however, remote online notarization has not been passed. As a potential response, the Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020 – the SECURE Act – has been introduced at the Federal level, which would authorize every notary in the United States to perform remote online notarization. In the meantime, it remains to be seen whether D.C. government will authorize remote online notarization on its own. Also specific to D.C., recordings may only be submitted electronically.

If your settlement is scheduled for the coming weeks and either you or your counterparty may have trouble closing on that date due to COVID-19, it is recommended that you speak with your attorney to determine what defenses or remedies may be available to you.

You can find more on issues affecting businesses and individuals in our COVID-19 Resource Center.