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Obtaining financial relief for your multifamily property during the COVID pandemic.

Zachariah Rosenberg

Barely a month ago loans were cheap, real estate transactions were booming - we all were shaking those hands and making those deals (some without hand sanitizer even).

I imagine you, like me, might be sitting at a “home office” - perhaps even with some “home staff”. I for one have been demoted from manager to janitor at this office - I’m sure you’ve had to make some adjustments too.

On to adjustments, I would like to share what we’ve been seeing in the multifamily space as a result of the COVID-19 pandemic. This article will specifically address the agency mortgage relief/forbearance program.

Mortgage Forbearance

The below outlines programs for properties with mortgages that are federally insured, guaranteed, supplemented or assisted mortgages, including mortgages purchased or securitized by the GSEs. The below programs are still actively being determined and are subject to change. The information below is not guaranteed to be up to date or accurate For all immediate inquiries and for other loan types, call us and your current loan asset manager.

The agencies are pushing forward relief efforts to help what may be over 50,000 properties in need of some level of relief. The primary form of relief is in mortgage forbearance.

Definition
Mortgage Forbearance /fawr-bair-uhns/ : An agreement in which the lender agrees not to foreclose on a mortgage and the borrower agrees to a mortgage plan that will bring the mortgage current over a certain time period.

In this case, If the property owner agrees not to evict any tenants due to financial hardship caused by the pandemic, COVID-19, the agencies will allow the borrowers to defer their full P&I loan payments for up to 90 days.

You qualify if:

Less Than
1.0
DSCR
You must demonstrate that the property has come under financial hardship due to the crisis and that the property will not be able to make its current loan payment. A clear indicator is if your Debt Service Coverage (Property NOI / Loan P&I Payment) has reduced to under 1.0 in March or the coming months.

Example
Your property collected $200,000 after expenses for each month of December, January and February. Your monthly loan payment is $160,000. Your debt service coverage is

In March, your collections dropped and your property income after expenses is now $150,000. Your debt service coverage is now .94.
Loan is
Current
Prior to 3/31
Your loan prior to March was current. All debt, tax and insurance payments on your property were current as of March, 2020. Loans that were already delinquent may not be eligible for mortgage forbearance.

How to Apply:

Note that you can only apply for forbearance after you can demonstrate a debt service coverage of under 1.0.

Evidence
Collect recent rent rolls, and put together a month to month income statement showing incomes and expenses for at least the months dating back to December 2019.

Ensure that you can illustrate a debt service coverage (income after expenses divided by loan payment amount) of over 1.0 before March and under 1.0 after March.
Contact
Get in contact with your lender/servicer’s asset manager. Make the following statement:

“As a result of the ongoing health crisis created by the COVID-19 virus, we are experiencing lower rental collections at our property located at (insert street address). Prior to this crisis, the operations were current on all debt, tax and insurance payments. In order to remain fully operational, we would like to request financial relief and mortgage forbearance.”
Review
The servicer will send a short legal letter dictating the terms of the forbearance. Review this letter with your legal counsel. If the terms are agreeable, execute and send back to the servicer. Formal agreement of the forbearance will be issued in writing and should take no longer than 48 hours to process. Below are some common terms to look out for.

Terms of the Forbearance:

90
Days
The duration of the agency relief program is typically 90 days (30 days with 2 extensions). If you apply and are granted forbearance in June, your July, August and September payments will be deferred. The agencies can approve longer durations, but this is on a case-by-case basis.
12
Installments
The deferred payments will be paid back in 12 equal, monthly installments without interest or fee after the forbearance term ends.
T&I
Payments
Taxes and Insurance may be able to be advanced by the loan servicer.
0
Fees, Evictions & Distributions
When reviewing the forbearance agreement from the servicer, ensure that there will be zero additional late fees and default/deferred interest due on the deferred loan payments.

No tenants may be evicted from the property due to financial hardship for at least 3 months and until the property has paid back the full amount of deferred loan payments.

No cash distributions to any equity holders until the property has paid back the full amount of deferred loan payments.

Currently, the last date to apply for mortgage forbearance is August 31st.

Extra Relief Programs

There is talk of allowing properties to pull from their repair and maintenance reserves to fund short term cash shortfalls resulting from the COVID-19 virus. While the mortgage forbearance program is the primary way to seek relief, in the event additional relief is required, your loan servicer may be able to approve the use of cash reserved for repairs and maintenance to cover short term operational deficit.

This has certainly been a shock. While the U.S. president and his administration are trying to get us out of quarantine and back in the office, we have to be prepared for this to last another 60-120 days. The good news is, America holds housing sacred - it’s part of the dream - and the government has made demonstrations that it is ready to support our industry. We at TapCap are in touch with owners, investors, banks, lenders and servicers - if any of this can be helpful to you, please reach out.

Stay safe, stay healthy, and please know, we are here and ready to help.

Information Sources