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Join DannLaw founder Atty. Marc Dann as he discusses the provisions of the CARES Act and offers advice on paying bills, dealing with creditors, mortgage forbearance, credit reporting, how to make sure your relationship survives the crisis, and scam artists who are already using the CARES Act to cheat consumers.
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Now that we’ve had additional time to review the CARES Act, we would like to share some clarifications and observations along with advice about how to deal with bills and other financial obligations that may be coming due on April 1.
1. Pay your bills if you can. You should take advantage of options that allow you to delay making payments if you need to, not just because they are available.
2. If you don’t have enough money to make your mortgage payment and pay your other bills, please consider the following factors before deciding how to allocate the funds you have:
3. First, consider the amount you owe on your home relative to its value. This is known as the loan to value ratio. If your home is worth more than your mortgage balance it is an asset that you should protect. If it is worth less than you owe it is a liability so your mortgage payment should be viewed as a housing cost and compared to alternatives like paying rent. You should also evaluate other factors including the state of the housing market in your neighborhood, the company that owns your loan, and whether you intend to sell your house sometime in the next few years.
As we noted in earlier updates, borrowers whose loans are “federally backed” can apply for up to 12 months of forbearance. But remember, forbearance is not forgiveness. At the end of the forbearance period you will owe the payments you did not make and you will most likely need to modify your loan. At this time, there is no way to determine what the terms of such modifications will be. In addition, if you pay taxes and insurance via your mortgage and the servicer has paid those costs on your behalf, your escrow payment may well rise substantially when the forbearance period ends. In either case, you could be looking at steep increases in costs when you begin making payments again.
4. If you are unable to pay your mortgage you are entitled to suspension/forbearance under these circumstances:
5. If the investor and/or loan servicer that holds your mortgage is not legally obligated to offer suspension or forbearance you should contact them to determine if they are offering programs that will help you manage your payments. Consider taking advantage of them if they make sense for you.
6. Although the CARES Act prohibits negative credit reporting in the short term for borrowers who were not behind on their mortgage or student loans when the Covid-19 pandemic began, creditors are not prohibited from reporting negative information during and after the crisis. If you rely on credit you should take steps to prevent your hard-earned credit score from dropping.
7. Remember: NOTHING prohibits many creditors from pursuing debt collection during this crisis. Do not ignore legal notices you receive. If you do, a creditor could obtain a judgement that will enable them to garnish your wages and attach your bank accounts. Keep control of you finances by communicating with your creditors.
8. If you are married or cohabitate, it is important for you to talk to your spouse or partner about finances. Be open, honest and transparent about your debts and thoroughly discuss the options and choices available to you. Don’t add to the stress associated with the Covid-19 emergency by concealing financial problems from your loved ones until it is too late to deal with them. This is especially true if one person is primarily responsible for paying the bills. In our experience, being less than forthcoming about your financial situation can be a relationship killer. Don’t let it happen to you.
9. If you are not going to pay a bill, please inform your creditor or mortgage servicer in writing. You should also ask them if they are offering programs or plans that will help you manage your debt.
Communicating with your creditors in writing is important for three reasons:
Reason 1: Employees at most companies are now working at home which means it could take hours to a, reach them and b, discuss the situation which means you may miss a crucial scene on Tiger King.
Reason 2: The only records of a phone call will be the notes taken by the creditor, which you will not be surprised to learn, will not be written in your favor.
Reason 3: We can tell you hundreds of stories about creditors who broke promises because they know no record of the promise being made exists.
So, please, please, please, make sure there is a written record of what you promise the creditor and what they promise you. If you are unable to communicate in writing, record the phone calls if it is legal to do so in your state. Ohio and New Jersey are both one-party consent states which means you can tape away.
If you want help thinking through your choices, our lawyers are available for free initial video or phone consultations call 877-475-8100 or [email protected]
In the last update we incorrectly reported that all Federal Student Loans were covered by the payment holiday. Unfortunately, we were wrong. If you have a Perkins Loan or an FFEL Loan it is not subject to the relief provisions of the CARES Act. In a nutshell, if you have a Federal Student Loan that originated prior to 2005 and you did not consolidate it later, your loan is not protected by the CARES Act at all.
We are particularly concerned about the collection of Perkins Loans. In Ohio these loans are collected by the Ohio Attorney General and have become controversial because outside counsel and debt collectors have used aggressive collection tactics and added exorbitant fees to loan balances. DannLaw attorneys Emily White and Brian Flick recently wrote to Ohio Attorney General David Yost and asked him to protect Perkins Loans borrowers during the crisis:
Because our firm represents people who accrued significant debt while attending Ohio’s state colleges and universities, we are particularly concerned about the impact the ongoing emergency will have on student loan borrowers. Many are saddled with tens of thousands of dollars in debt that will take decades to pay off. Low income students who received Pell Grants and Perkins Loans are in a more dire position if they are forced to leave mid-semester due to financial, medical, or family difficulties: they must repay their loans and grants immediately.
To make matters worse, the tactics used by debt collectors and outside counsel hired by the Attorney General’s Office to pursue borrowers have become increasingly aggressive in recent years. Those tactics combined with the charges and fees added to balances, including the 30% surcharge outside firms have been authorized to charge since 2017, make dealing with student loan debt difficult during the best of times—and these are far from the best of times.
In the weeks and months ahead it will become increasingly difficult for Ohioans to pay meet their financial obligations. Governor DeWine, the federal government, and many companies are taking steps to help cushion the blow. I urge you to join them by suspending collection actions and waiving interest and fees for the foreseeable future. I also ask that you consider supporting the creation of a hardship waiver process that will enable Ohioans to deal with the long-term effects of the crisis. At this time in our history, state government should not be the creditor Ohioans fear most.
If you have a chance please join us in urging Attorney General Yost to stand down on collection of Perkins loans and Pell Grants during this crisis by visiting this website: [email protected].
Clarification on Mortgage issue
We incorrectly reported that credit reporting would continue on Federally Backed mortgage loans that are subject to suspension or forbearance under the CARES act. That is not correct. If you are current on the loan prior to taking advantage of the suspension or forbearance provision of the Act negative credit reporting is prohibited.
Stimulus Checks
One of the most significant features of the CARES Act are the payments of $1200 or more the vast majority of American Families will receive. But the Act does not prevent existing judgment creditors from attaching bank accounts into which the payments will be deposited. Pay close attention to which account the IRS has on record and direct it to an account that is not subject to attachment if you can do so. In addition, as has been widely reported, payments to people who have unpaid child support will be directed to their children.
Scam Alert
Anytime the government engages in significant action like the CARE Act charlatans and scam artists begin cooking up ways to cheat those who are eligible for help as well as those who are not. This happened repeatedly when the Federal HAMP program was created. Here are some bad actors you should avoid:
If you sent money to someone engaged in a scam in order to profit from this crisis contact an attorney or law enforcement agency right away. Ohio and New Jersey have strong consumer protection laws that will enable you to seek and secure damages from cheaters and scam artists.
This information is not, nor is it intended to be, legal advice. You should consult an attorney for advice. We can be reached at 877-475-8100 or via email at [email protected] or [email protected].
I’ve been involved in politics and government for over 40 years and I can say definitively that I have not seen legislation that offers as much direct and immediate relief to distressed consumers, borrowers, small business owners and tenants as the Covid-19 stimulus package, known as the CARES Act that Congress passed on Friday, March 27. You can read an analysis of the bill here. You can read the legislation in its entirety here.
While I’m generally pleased with the CARES Act, I do have two concerns:
First, I believe government, mortgage loan servicers and banks may make significant mistakes and cause undue delays as they implement the legislation, and, second, I worry that many mortgage, consumer, and student loan borrowers may not receive the assistance they will need to weather the Covid-19 emergency.
The Acts’ protections only apply to federally-backed mortgage loans.
If you are among the more than 50% of homeowners whose mortgage is “federally related” i.e. owned by Fannie Mae, Freddie Mac or insured by the FHA, VA and the Department of Agriculture help, which I’ll describe later, is on the way. But many borrowers, including those who have recently been in default in recent years, are not eligible for relief because their loans are not owned by the listed entities. That means it’s very important to find out who owns your loan. We can help you find out or you can send a “Request for Information to your servicer. Many loans that were formerly owned by Fannie Mae and Freddie Mac or insured by the FHA have been resold. In many cases hedge funds that are not obligated to offer the forbearance of payments included in the bill now hold own the loans.
The Act does not address Private Student Loans.
If your loan is not owned by the U.S. Department of Education then you are not eligible for the 6-month, consequence-free payment holiday included in the Act. While some courts in some counties have placed stays on some collection activity, lawsuits and other collection actions involving private student loans may proceed.
The Act’s eviction protections for renters apply to a very small category of landlords
Landlords who have loans from Fannie Mae or Freddie Mac and who seek mortgage assistance are prohibited from evicting tenants. Unfortunately, the vast majority of landlords do not fall into this category.
It is important to note that the members of Congress did not carve out these exceptions because they don’t care about the people they impact. The exceptions exist because the federal government generally lacks the power to control the private creditors involved.
Mortgages:
Mortgage Servicers for Federally Backed Mortgages must provide a 60-day suspension of payment obligations to borrowers who claim they are unable to apy because they have been impacted they Covid-19 crisis.
Mortgage Servicers for Federally Backed Mortgages are required to agree to forbearance of up to 12 months or longer without adding additional fees, penalties or interest other than that contemplated by the original note. It is important to note, however, that the Act does not prohibit negative credit reporting during the forbearance period.
Servicers of Federally Backed Mortgages are prohibited from moving forward to foreclose or evicting anyone from now until May 17, 2020.
Student Loans:
All Payments on Federal student loans will be suspended for six months. More significantly, no interest, penalties, or fees will accrue during this time period. The non-payments will be treated as payments for the purpose of forgiveness, loan rehabilitation or public service loan forgiveness programs. In addition, the Act contains a very consumer-friendly provision that requires lenders to report the borrower as paying currently to credit reporting agencies. Remember these provision DO NOT apply to Private Student Loans.
Unemployment Compensation:
The Act adds $600 per week in federal unemployment benefits to the amount paid by each state. For many workers this means unemployment checks will nearly equal their normal wage. You must still apply through your state’s unemployment system.
Small Business Owners:
Small business owners can apply to banks or other SBS-approved lenders for loans to cover eight to ten weeks of expenses including payroll, rent, health insurance, sick pay and other day to day costs. The loan is forgivable if the business keeps its employees on the payroll during the period. Banks will originate and service the loans and the Government will subsidize them through the SBA. While $355 billion has been appropriated, based on my discussions with clients, the money may run out so we suggest that small business owners apply right away.
Bankruptcy Changes:
The following changes to the Bankruptcy Code will be in effect for the next 12 months:
The stimulus checks Americans receive will not be considered income for purposes of filing a Bankruptcy.
For those already in a confirmed Chapter 13 Plan, the Bankruptcy Code has been amended to allow for Debtor(s) to file a Motion to Modify their Chapter 13 based on financial issues caused by COVID to extend the term of their plan for up to 84 months/seven years.
The definition of Debtor for purposes of filing Subchapter V of Chapter 11 also known as the Small Business Reorganization Act has been expanded to include all debtors, not just those defined as a small business:
The following change to the Bankruptcy Code is permanent:
The debt limit for cases eligible to file under the new Small Business Reorganization Act under Chapter 11 (a.k.a. SBRA or Subchapter V) has been increased to $7,500.000.00
See Previous updates on this crisis and its impact on consumers here
For more information contact [email protected] or call 877-475-8100
Marc Dann
We hope that you, your family and friends are safe and in good health. We, like most of you who live in New Jersey and Ohio have been ordered to stay home for a while. We want to assure you that we are here to help you despite the Shelter-in-Place and Stay at Home orders. You may reach us at any time by calling 877-475-8100, emailing us at [email protected], or calling Marc Dann’s cell phone: 330-651-3131.
Like us, you probably know one of the hundreds of thousands of people who have lost their jobs or been forced to close their small business over the past two weeks. And it’s even more likely that you or someone you know has seen your retirement savings take a major hit as stocks have lost trillions of dollars in value.
The airwaves, print media, and internet have been flooded with conflicting reports about state and federal proposals designed to help Americans deal with the financial challenges caused by the Covid-19 crisis. Some proposals have been enacted, some are awaiting congressional or state legislative approval, and others aren’t detailed enough to discuss at this time. We know it can all be confusing for people who simply want to earn a living, feed their families, and pay their bills.
No one knows how long the pandemic or the financial devastation associated with the measures taken to deal with it will last. With that in mind, we strongly advise that you Proceed with Caution when dealing with your mortgage servicer, student loan servicer, and other creditors. While FHA, Fannie Mae, and Freddie Mac have issued directives that make many mortgage loans eligible for 12 months of forbearance, delaying payments can throw your escrow out of balance, cause interest and escrow advances to be turned into interest-bearing principal when a loan is modified, or make accounting more complicated.
And while it is critically important for you to communicate with your creditors if you are having a problem paying your debts doing so is becoming increasingly difficult as the employees who answer the phones at banks and lenders begin working from home.
That’s why we want to emphasize that we are just a phone call away and available to help you make decisions that could impact your credit and your financial security for years to come. Please do not hesitate to contact us—your future may depend on it.
For right now: If you can pay your bills, including your mortgage and student loans, do so. If you are unable to pay, communicate with your loan servicer or creditor in writing if you can. If you must speak with them by phone, record the conversation. Advise the creditor of your situation BUT DO NOT AGREE TO A REMEDY. As we noted above, Congress and state legislatures are still considering proposals that may create favorable ways for you to deal with your obligations. Don’t repeat the mistakes people made during the collapse of the housing market. Many of our clients agreed to modify their loans during the early stage of recession and were unable to take advantage of more favorable remedies that became available later.
With that warning in mind, here’s what we know for sure as of today:
Fannie Mae: https://www.fanniemae.com/portal/media/corporate-news/2020/covid-homeowner-assistance-options-7000.html
Freddie Mac: http://www.freddiemac.com/about/covid-19.html
FHA: https://www.hud.gov/program_offices/public_indian_housing/covid_19_resources
We don’t mean to be a pest with these updates, but information about mortgage and consumer issues that may impact our clients, former clients and friends is flowing at a fast and furious pace.
Before outlining the evolving responses to the financial hardship caused by the emergency, I want to take a moment to discuss the long-term effects of this emergency. The fact is the job losses, foreclosures, repossessions, and other types of financial stress caused by the crisis will negatively impact the health of millions of Americans years after the threat of contracting Covid-19 fades.
I know this true from both personal and professional experience. On the personal side, my father committed suicide after losing most of his retirement savings when the tech bubble burst in 2000. From a professional perspective, I worked alongside thousands of clients, including many of you, who faced serious financial, personal, and health challenges in the wake of the 2008 collapse of the housing market. I’m proud that we were able to overcome those challenges and forge a path back to financial security.
But as we confront the possibility that one in five Americans will be out of work for an extended period of time, the potential failure of millions of businesses, and growing insecurity about shrinking retirement savings, we must acknowledge the need to take steps to prevent a pandemic of depression, suicide and addiction among our family, friends and neighbors.
When I look back at the courage and optimism that enabled our clients to triumph over adversity in the past, I am confident we all have the capacity to find humor and optimism in situations that appear dire and hopeless. I want you to know that we are here to help and that it will be our privilege to serve you in the weeks, months, and years ahead.
But remember, we can’t help if you don’t call.
It’s especially important for you to contact us now because some information you may be receiving via traditional or social media is inaccurate or incomplete. We are at work and available to answer questions or help at 877-475-8100 or [email protected]. You are also welcome to call Marc’s cellphone: 330-651-3131
What is True:
Today the Federal Government announced that no foreclosures will proceed in the next 60 days on loans that are insured by the Federal Housing Administration (FHA) or that are owned by Freddie Mac or Fannie Mae. While that covers a lot of loans most people don’t know the name of the owner or insurer of their loan, they only know the name of the company that collects the payments or servicer of their loan.
Further complicating the implications of this order is the fact that in the last few years the FHA, Fannie and Freddie have sold off hundreds of thousands of loans that they formerly insured or owned and many of those homeowners might incorrectly think that this particular decision applies to their loans. If you don’t know who owns your loan and you are facing foreclosure in the next 60 days reach out to us or your loan servicer to find out for sure.
In addition, some Ohio Counties (including two of the largest Cuyahoga and Hamilton) and some states (including New Jersey) have passed laws or issued court orders staying foreclosure cases, sheriff’s sales and foreclosure related evictions for 60 days. These orders apply to all loans. Ohio Chief Justice Maureen O’Connor is scheduled to speak at the Governor’s news conference at 2 p.m. today and she may share further news for Ohioans facing foreclosure.
Also, Ohio Senator Sherrod Brown has introduced legislation under the Real Estate Settlement Procedures Act to prohibit all foreclosure activity nationwide, to allow up to a six-month forbearance (not forgiveness) followed by an extension of the loan and requiring servicers to evaluate the loan for a modification for those impacted. That law has not passed and has a long road ahead in the U.S. Congress.
If you have a pending foreclosure case anywhere, call us to verify the status of your individual case and discuss strategy for how to most effectively move forward toward a positive resolution for you and your family.
What is not true:
No order or law that we are aware of (even those proposals discussed above) relieves mortgage loan borrowers, student loan borrowers or other consumer debtors from paying the debts or the payments that are due this month or in the future. Our advice about how to approach the situation if you can’t make payments is here. This patchwork of rules by state and local governments and courts will create an accounting nightmare as we recover from this crisis. Among other problems, a suspension of payments would throw escrow calculations off balance and cause increases in monthly payments down the road. Pay close attention to your mortgage statements in the coming days and months and reach out to us for help or to your mortgage servicer in writing if you have questions or concerns.
Nothing in the law that we are aware of prohibits mortgage companies or other creditors from reporting missed payments, even those that may be allowed by law. Once again, Sherrod Brown has proposed a bill to put a moratorium on credit reporting but that bill is a long way from law.
The bottom line is: if you can pay your mortgage and other obligations try to do so. Many of our clients have very favorably modified loans with payments that are affordable. Those arrangements can be upended if escrow increases because of missed payments or the loan has to be modified again. Many others have worked hard after foreclosure or bankruptcy to raise their credit score. We all have to balance payment priorities at this time and we just wanted to make sure that you were as informed as possible.
What is True:
A law has been passed to require companies to provide paid sick leave related to the COVID-19 virus to certain workers but millions of workers are exempted including those who work for companies with more than 500 employees and some companies with less than 50 employees. Here is a good summary of who gets it. Employers can recover costs later through tax credits.
Fifth Third Bank will not foreclose, evict or repossess cars for 60 days. Read about it here.
No Utility Shutoffs in Ohio. Cleveland.com report. But remember you still owe the bill and at some point it is going to have to be paid.
An important message from Marc Dann:
We are open and reachable during normal business hours and beyond and you can reach me on my cell phone at 330-651-3131. Rest assured that I will either be at home or at the office because like you, I’m really not allowed to go anywhere else. We will be happy to answer any questions you have about your existing case(s) as well as the many coronavirus-related legal issues our friends and clients are facing on an almost hourly basis. If you need to speak to one of our attorneys please use our toll-free line 877-475-8100. We answer 24 hours a day.
As always we stand ready to help our friends, neighbors and clients as this crisis unfolds. Never hesitate to call 877-475-8100 or email us at [email protected] or [email protected].