With the COVID-19 crisis throwing both the national and international economies into a state of upheaval, many financial experts are predicting a spike in home foreclosures in the United States. Fortunately, there are a few pats to take in order to avoid property foreclosure whether it’s taking financial shelter under the new federal “Coronavirus Aid, Relief, and Economic Security Act” aka the CARES Act, or by selling the property.
The Federal CARES Act
Along with providing a variety of financial relief options for US citizens during the coronavirus pandemic, this new act also offers aid for property owners. Since President Trump signed it into law on March 27, 2020, the CARES Act not only prohibits foreclosures of federally backed mortgage loans for 60 days (retroactively effective March 18, 2020) but also allows homeowners to apply for a forbearance which will last up to 180 days and can be extended an additional 180 days.
Mortgage Forbearance Do’s and Don’ts
If you only take away one thing from this section, it should be this: mortgage forbearance does not mean mortgage forgiveness. Not making any loan payments for up to two periods of 180 days each may sound appealing, but it’s important to note that the missed payments will become due in some form at the end of the forbearance period.
So far there are currently several options available for repayment. Depending on your lender, these options may include paying it off in one lump sum, adding the skipped payments to the end of the mortgage, or–in the case of Federal Housing Authority (FHA) loans—converting the balance to an interest-free subordinate mortgage, which only becomes due after the repayment of the first mortgage. These options do vary from lender to lender, however, and some may not be available to you.
Additionally, under the CARES Act, lenders cannot report forbearance to credit bureaus, so it won’t negatively affect credit scores. However, if borrowers miss any mortgage payments before they request forbearance, lenders must still report that information to the bureaus.
Defining a Federally Backed Mortgage Loan
To determine your eligibility for forbearance under the CARES Act, all you have to do is find out who owns your mortgage. This may sound simple, but mortgages can be bought and sold even after you close on your property. You should receive a notice from the lender each time this happens, but if you haven’t been keeping track or if you are unsure, you are not alone; there are many different online tools you can use such as the Mortgage Electronic Registration Systems Inc (MERS Inc) website or by calling your lender. If your loan is from Fannie Mae, Freddie Mac, the Federal Housing Authority (FHA), Veterans Affairs (VA), or the U.S Department of Agriculture’s Rural Home Service (RHS), then it is federally backed.
If it turns out that your loan isn’t federally backed, your lender may still offer loan forbearance or a similar plan for assistance. Be sure to contact them to discuss your options before your mortgage payments lapse and the foreclosure process begins.
How to Apply
To apply forbearance under the CARES Act, you need to make a request with your lender and let them know that you are experiencing financial hardship due to the COVID-19 pandemic. It’s important to remember that you are not required to provide any additional documentation to the lender under this act even if they request it.
Selling the Property
Regardless of the circumstances, whether it’s related to COVID-19 hardships, job relocation, or just time to move, you might be concerned that now is a bad time to sell. How is the market for sellers? Are people even able to tour homes or sign papers under shelter-in-place orders?
Real Estate Transactions are Essential Business
Even with many businesses shuttering, real estate buying, selling, and closings are still taking place. While the government does consider real estate an essential business, social distancing orders are still in place, with nearly all of the property showings taking place virtually instead of in person. This limits the contact between the sellers and potential buyers since it would be possible for an infected buyer to spread the virus and vice versa. Additionally, many documents can be signed with electronic signatures and, like grocery pick-ups, in-person document signings are often handled through car windows. Buyers and sellers can also anticipate the closing process may take longer than usual if they must deal with the municipal offices that are closed or operating with a pared-down staff.
While home buying and selling has certainly slowed down since the spread of COVID-19, it has not stopped. Interest rates have been dropping to record lows—hovering near 4%–enticing many new homebuyers and investors to make offers. However, it may still be too early to tell what the impact will be in the coming weeks or months.