Additionally, on September 4, 2020, the Center for Disease Control and Prevention (“CDC”) published an unprecedented Agency Order temporarily prohibiting evictions of qualified tenants from residential properties on the basis of nonpayment of rent through December 31, 2020. Unlike its federal counterparts, the CDC’s moratorium applies to all residential properties, regardless of whether the properties are subject to a federally-backed mortgage loan. To qualify for the CDC’s protections, tenants are required to show that they earned less than $99,000 during the 2020 calendar year ($198,000 for couples filing jointly), were not required to report any income in 2019 to the Internal Reporting Service, or received a stimulus check pursuant to Section 2201 of the CARES Act. Tenants must also certify that: (1) they are unable to pay rent as a result of COVID-19; (2) they will likely become homeless if evicted; and (3) they made previous efforts to obtain other government assistance to prevent eviction. Under the Agency Order, tenants are still required to satisfy all outstanding rent payments upon the moratorium’s expiration.
Although it is questionable whether the CDC has the constitutional authority to unilaterally order a moratorium on eviction proceedings, it is clear that federal agencies are seeking to extend foreclosure and eviction protections during the ongoing COVID-19 pandemic. As concerns the moratoriums issued on the state level, several of those states, including Alabama, Florida, Iowa, Mississippi, Pennsylvania, Tennessee, and Wisconsin, have allowed their state specific moratoriums to expire. Download the comprehensive spreadsheet capturing the current orders and policies on foreclosures and evictions.
In addition to the protections under the CARES Act and the CDC Agency Order, the following states have issued executive orders and/or legislation that restrict foreclosure and eviction proceedings in response to the ongoing COVID-19 pandemic, including potential remedies for violations of the new laws:
California: On August 13, 2020, the Judicial Council of California voted 19-1 to end its emergency moratorium on evictions and foreclosure actions. However, on August 31, 2020, the Governor signed Assembly Bill No. 3088, which passed the Tenant, Homeowner, and Small Landlord Relief and Stabilization Act (the “Tenant Act”) into law. Among other protections, the Tenant Act prohibits evictions on the basis of missed rent payments resulting from COVID-19 that occurred between March 1, 2020 and August 31, 2020. Beginning on September 1, 2020, and running through January 31, 2020, tenants are obligated to pay at least 25 percent of the total rent owed in order to continue benefiting from the protections of the new law. The Tenant Act does not waive unpaid rent; but rather, converts the outstanding amount owed to consumer debt, which may become collectible in Small Claims Court beginning on March 1, 2021. If a COVID-19 impacted tenant is unable to satisfy the 25 percent minimum, the Tenant Act permits evictions to proceed beginning on February 1, 2021.
The Bill also enacted the COVID-19 Small Landlord and Homeowner Relief Act of 2020 (the “Homeowner Act”) requiring mortgage servicers to provide written notice to a borrower if the mortgage servicer denies a forbearance request. Under the Homeowner Act, if a mortgage servicer denies a forbearance, it must provide the reasons for the denial so long as the borrower was (1) current on payments as of February 1, 2020 and (2) experiencing a financial hardship that prevents the borrower from making timely payments on the mortgage obligation due, directly or indirectly, to the COVID-19 emergency. The Homeowner Act further requires mortgage servicers to comply with applicable federal guidance regarding borrower options following a COVID-19 related forbearance. Under the Homeowner Act, a borrower, who has been harmed by a lender’s material violation, may bring an action to obtain injunctive relief, damages, restitution, and any other remedy to redress the violation. The Homeowner Act further provides that a prevailing borrower may be awarded reasonable attorneys’ fees and costs with respect to such an action.
Illinois: On October 16, 2020, Governor J.B. Pritzker signed Executive Order 2020-59 and announced the suspension on residential evictions will be extended through November 14, 2020. Specifically, the Executive Order prohibits the enforcement of residential eviction judgments, unless the tenant poses a direct threat to the health and safety of other tenants, an immediate and severe risk to property, or a violation of any applicable building code, health ordinance, or similar regulation. However, nothing in the Executive Order is to be construed as relieving any individual of the obligation to pay rent, to make mortgage payments, or comply with any other obligation that an individual may have pursuant to a lease, rental agreement, or mortgage.
Currently pending before the Illinois Legislature is the Emergency Economic Recovery Renter and Homeowner Protection Act. This Act proposes comprehensive protections to mortgagors, renters, and landlords during the COVID-19 pandemic. Specifically, Section 15 of the Act proposes a cancellation of rental debt for tenants diagnosed with COVID-19 or advised by a health care provider to self-quarantine; have lost income through furloughs, layoffs or other employment interruption; or are paying more for household expenses, child care, or health care during the moratorium. Section 15 also prohibits landlords from charging fees or negatively reporting to a consumer agency or credit bureau with respect to a tenant’s nonpayment of rent.
Sections 20, 30, and 35 summarily offer a 180-day moratorium on foreclosures and prevents new eviction filings and enforcement of judgments. Furthermore, Section 25 proposes a 180-day suspension on mortgage payments for homeowners and forbearance on taxes, insurance, and association fees. Additionally, the Act provides that mortgage servicers shall establish loss mitigation criteria and procedures for borrowers who request forbearance and affirm that they are experiencing a COVID-19 related hardship.
Under the proposed legislation, an injured party may file an action in a court of competent jurisdiction against a person who violates the Act. Notably, if the alleged injury occurred under a Section of the Act that expires at the end of the moratorium period, an injured party is not enjoined from filing an action after the moratorium period expires, subject to any applicable statute of limitations. Under the proposed law, an injured party may recover $1,000.00, or the actual and consequential damages resulting from the injury, whichever is greater, for each violation of this Act, as well as costs and reasonable attorney’s fees.
Additionally, the Attorney General or State’s Attorney may request, and a court may impose, a civil penalty against a non-compliant lender in a sum not to exceed $50,000.00 against any person found by the court to have engaged in any violation of the Act.
New Jersey: On June 25, 2020, the New Jersey Supreme Court issued the Fifth Omnibus Order on Court Operations and Legal Practice and terminated the previous restrictions placed on the Office of Foreclosure. In essence, the Fifth Omnibus Order permits New Jersey courts to resume the processing of foreclosure Final Judgments and Writs of Executions. However, on September 25, 2020, Governor Murphy signed Executive Order No. 186 and extended the prohibition on removing individuals from properties due to an eviction or foreclosure proceeding. The Executive Order enjoins the enforcement of judgments, Writs of Possessions, or Warrants of Removal for at least 60 days following the expiration of the Public Health Emergency. New Jersey’s Public Health Emergency is currently scheduled to expire on October 25, 2020, although it may continue to be extended.
Pending before the New Jersey Senate is Bill No. 2340, which provides certain protections to homeowners, tenants, and landlords during the COVID-19 pandemic. Under the proposed legislation, lenders would be required to grant a mortgage forbearance to an impacted homeowner if the homeowner submits a written request affirming a reduction of income or other financial hardship resulting from COVID-19 pandemic. The minimum initial mortgage forbearance period would be 90 days, but a homeowner may receive a subsequent forbearance period for at least 90 days, for a minimum total of 180 days. Under the proposed legislation, an impacted homeowner or the Attorney General may bring an action alleging a violation of protections. Under the proposed law, if a violation is found to have occurred, a court may imposed fines, which may not to exceed $5,000 per violation. Alternatively, the Court may order a non-compliant lender to pay an award of damages to the impacted borrowers that shall not exceed 25 percent of the debt attempted to be collected. The court may further order a non-compliant lender to pay an impacted homeowner’s reasonable attorneys’ fees in connection with bringing such an action for relief.
Additionally, the proposed legislation provides that, in order to avoid mass evictions following the conclusion of the moratorium, landlords shall offer a tenant who missed any rental payment the ability to enter into an agreement. The agreement would be an addendum to the lease agreement for the repayment of any partial or full rent payments not made during the emergency period, provided that the tenant’s rent payments were current as of March 19, 2020. The Bill would additionally require that, upon written request from a tenant, a security deposit may be applied or credited towards rental payments due or to become due from the tenant during the emergency period.
New York: On October 4, 2020, Governor Andrew Cuomo signed Executive Order No. 202.67 further extending the moratorium on foreclosure actions through November 3, 2020. Specifically, the Executive Order suspends the filing and/or enforcement of foreclosure and eviction actions on the basis of nonpayment when the borrower and/or tenant is facing a financial hardship due to COVID-19.
Moreover, on September 29, 2020, the Governor signed Executive Order No. 202.66, which extended the prohibition of evictions through January 1, 2021. Specifically, the Executive Order suspends the execution or enforcement of any judgment or warrant against a residential tenant suffering from financial hardship during the COVID-19 pandemic.
Oregon: On June 30, 2020, Governor Kate Brown signed HB 4204 and HB 4213 into law, which provides a moratorium on foreclosure and eviction proceedings. Under HB 4204, mortgage lenders are enjoined from treating a borrower’s nonpayment as a default or assess any late fees or charges if the borrower notifies the lender that the borrower will not be able to make the requisite mortgage payments. However, it should be noted that the law’s protections do not apply to judgments of foreclosure and sales that were issued prior to the public health emergency period. HB 4204 also provides a right to a private cause of action, where a borrower suffers an ascertainable loss as a result of a mortgage lender’s violation of the above-referenced protections. A borrower who prevails in the action may further recover the borrower’s court costs and attorneys’ fees.
Oregon’s legislation similarly provided protections to tenants from eviction proceedings under HB 4213 by prohibiting landlords from initiating or continuing any eviction action on the basis of nonpayment of rent or without cause. HB 4213 further provides a six-month repayment period following the expiration of the moratorium. Landlords will also be prohibited from reporting late rent payments to credit reporting bureaus during the moratorium. Landlords are, however, permitted to notify tenants of owed rent. In turn, tenants will have fourteen days to advise landlords of their intention to use the six-month grace period as a repayment option.
Governor Brown subsequently signed Executive Order No. 20-37 and Executive Order No. 20-56, which collectively extended the foreclosure and eviction moratoriums, as set forth in HB 4204 and HB 4213, through December 31, 2020
***
In addition to the above-referenced federal and state enactments, class-action filings related to COVID-19 issues continue to be filed. We expect to see claims and issues evolve as states continue to move toward reopening and defendants (ranging from banks to insurance companies to colleges and universities) adapt to the current economic reality, including strategies to handle the uptick in COVID-19 related litigation. In the interim, notable types of filings and issues include the following:
CARES Act: We are continuing to see cases filed by small businesses against banks where plaintiffs challenged the implementation and administration of the $349 billion Paycheck Protection Program (“PPP”), which is part of the $2.2 trillion CARES Act. We also expect to see more cases filed against banks following the implementation of an additional $484 billion in PPP funding. These cases fall into two buckets. First, plaintiffs argue banks gave preferential treatment to existing customers or customers seeking larger loans. This theory, however, failed in at least one court so far, (denying a preliminary injunction and holding that a bank’s policy in administering PPP funds “does not run afoul of the CARES Act”). Interestingly, plaintiffs ultimately voluntarily dismissed their case in Profiles, Inc. At least one bank is also evaluating arbitration as a method of resolving these claims. There are similar cases still pending in federal courts across the country.
Second, plaintiffs (agents, i.e., law firms, consultants and accounting firms) allege banks have not paid them any fees for assisting borrowers with their PPP loan applications. This “newer” theory has been rejected by at least one court so far. See, e.g., Quinn v. Signature Bank, et al., No. 20-cv-04100 (S.D.N.Y. 2020) (holding that “absent an agreement between agent and lender, defendant banks are not required to pay agent fees under the text of the CARES Act or its implementing regulations”); Sport & Wheat CPA PA v. Servisfirst Bank Inc., et al., No. 3:20-cv-05425 (N.D. Fla. 2020) (holding plaintiff, an accounting firm, was not entitled to any portion of fees paid by the federal government to defendant under PPP for assisting small business borrowers with their PPP loan applications). Note: there is now a docketed appeal in Sport & Wheat CPA PA.
We expect other courts will follow as banks move to dismiss claims on grounds PPP does not require them to pay any fees to agents. There are similar cases still pending in federal courts across the country. Note: these cases will proceed on an individual basis after the Judicial Panel on Multidistrict Litigation denied a motion to transfer them into a single MDL proceeding in August. See In re Paycheck Protection Program (PPP) Agent Fees Litigation, MDL No. 2950 (J.P.M.L. Aug. 5, 2020).
There may also be securities class actions on the horizon wherein shareholder plaintiffs allege banks “mismanaged” the distribution of PPP funds, which negatively impacted investors.
Insurance: We are continuing to see cases filed against insurers for lost business income. Plaintiffs vary across industries and include restaurants, medical practitioners (dentists, radiologists, etc.), hair salons and nail studios. Plaintiffs argue they were improperly denied business interruption coverage insurance in violation of plaintiffs’ insurance policies.
Tuition Refunds: We are also continuing to see cases filed against public and private colleges and universities across the country. The initial wave of cases saw plaintiffs seeking full or pro-rated refunds for monies paid toward tuition, housing, meals and other fees after plaintiffs were sent home and schools canceled live in-person classes due to the COVID-19 pandemic. Plaintiffs now also raise unjust enrichment and breach of contract claims to argue online learning is inferior to the traditional classroom (and college) experience and, as a result, tuition should be reduced.
Debt Collection: Consumers are filing cases seeking to halt debt collection and foreclosure actions.
Product Claims: Consumers are filing warranty and representation claims concerning the efficacy of products related to COVID issues.
Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.
For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVID-19@reedsmith.com.
Client Alert 2020-568
