DC Council Expands COVID-19 Relief for Borrowers and Tenants
To fill the gap between the expiration of the COVID-19 Supplemental Act and the effective date of a permanent act, the Council also unanimously passed the COVID-19 Response Supplemental Temporary Amendment Act of 2020. This “temporary” legislation mirrors the COVID-19 Supplemental Act and expires 225 days after enactment.
The COVID-19 Supplemental Act expanded the Council’s efforts to respond to financial hardships stemming from the public health emergency, offering both mortgage relief and tenant protections to certain affected parties in the District. On April 21, 2020, the Council amended the COVID-19 Supplemental Act by passing the COVID-19 Supplemental Corrections Emergency Amendment Act of 2020 (the “Amendments”). The most notable change affects the mortgage relief and tenant protections we covered previously, and are outlined below. This emergency legislation is not subject to congressional review. So the Amendments will become effective as soon as Mayor Bowser signs the legislation, and will remain in effect for 90 days after enactment. Mayor Bowser has until May 6, 2020 to sign the bill, and is expected to do so. However, if the Mayor vetoes the Amendments, the Council has the power to override that veto with a two-thirds vote.
Section 202 – Mortgage Relief
Under the COVID-19 Supplemental Act and the Amendments, mortgage servicers making or holding residential or commercial mortgage loans under the jurisdiction of the Commissioner of the Department of Insurance, Securities and Banking (the “Commissioner”) are required to develop a deferment program (the “Mortgage Deferment Program”) that grants at least a 90-day deferment period of mortgage payments for borrowers.
Changes under the Amendments to the Mortgage Deferment Program
Changes Affecting Mortgage Lenders
- The term “mortgage servicer” has been replaced by “mortgage lender” to broaden the definition of those covered. The term “mortgage lender” means any person who makes a mortgage loan to any person or who engages in the business of servicing mortgage loans for others or collecting or otherwise receiving mortgage loan payments directly from borrowers for distribution to any other person. Notably, the Amendments include a carve-out which provides that a “mortgage lender” does not include the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or the Government National Mortgage Association. Mortgage lenders that violate the provisions of this section shall be subject to penalties as further described in section 19 of the Mortgage Lender and Broker Act of 1996.
- The language regarding the 90-day deferment now clarifies that the 90-day deferment is of the monthly payment of principal and interest on a mortgage for borrowers.
- Mortgage lenders who approve an application for deferment now have a notice requirement, whereby the mortgage lender must, on or before May 8, 2020, provide to the Commissioner notice of all approved applications. The notice must include the percentage of mortgage deferment approved for and accepted by each borrower. Further, the mortgage lender must provide the Commissioner with a list of all new approvals in 15-day intervals for the duration of the public health emergency and for 60 days thereafter.
- The Commissioner must, in turn, maintain a publicly available list of approved commercial mortgage loan deferral applications.
Changes Affecting Borrowers
- Borrowers receiving a mortgage loan deferment on a property that has a tenant shall, within five days of the approval, provide notice of that deferral to all qualified tenants. The term "qualified tenant" means a tenant of a property owned or controlled by a person or entity receiving a mortgage deferral through the Mortgage Deferment Program that has notified the landlord of an inability to pay all or a portion of the rent due as a result of the public health emergency.
- The reduction in rent that a borrower receiving a mortgage loan deferment shall provide to a qualified tenant is now proportional to the deferred mortgage amount paid by the borrower to the mortgage lender as percentage of total expenses reported in the borrower’s 2019 Income and Expense Report provided to the Office of Tax and Revenue.
- Clarifying language now states that the borrower may require the qualified tenant to repay the difference in the amount of the rent as stated in the lease, without interest of fees, within 18 months, or upon cessation of the tenancy, whichever occurs first.
- New language states that the borrower shall not report to a credit bureau any delinquency or other derogatory information that occurs as a result of the qualified tenant’s exercise of and compliance with the subsection regarding tenant rent reduction.
Section 203 – Tenant Protection
In addition to the amendments affecting mortgages, the act contains a few changes to tenant protections that will have a great impact. Under the COVID-19 Supplemental Act, rent increases for residential property are prohibited during a period for which a public health emergency has been declared, and for 30 days thereafter. Landlords also cannot charge late fees for late rent payments during this time. The Amendments expand this tenant protection to include commercial property, thereby granting a rent freeze to both residential and commercial tenants.