Many of our clients are still sorting through the various types of assistance offered via the CARES Act and the various executive orders signed by the President and the governor of the state in which they live. But learning about the programs and benefits that are now available is only half the equation. The other: deciding whether it’s in your best interest to take advantage of them.
Making those decisions won’t be easy. The CARES Act itself is more than 800 pages long and the rules and regulations the federal government is developing to implement it are only making things more complicated. Throw in the things individual states are doing and you have a nearly impenetrable mass of guidelines, requirements, and instructions that would make any bureaucrat proud.
To help you cut through the mountain of red tape that’s wrapped around the various relief packages we’ll be conducting a series of free Facebook Live legal clinics beginning this week. During the live sessions, we’ll answer questions about the CARES Act and address consumer, foreclosure, and student-loan related issues.
To participate in the clinics, please visit and like the DannLaw Facebook page. The first session will begin on Tuesday, April 7, 2020 at 6:00 p.m. EDT and will deal with the Act and a wide range of issues. You may submit a question during the broadcast or submit questions in advance by emailing [email protected].
Our second free live legal clinic dealing with student loan issues will be broadcast on Thursday, April 9, 2020 at Noon EDT. You may submit questions during the show or in advance by emailing [email protected].
Right now, we’d like to share some of the insight and info we’ve been able to distill from the rapidly evolving situation:
Housing
Borrowers whose loans are “federally backed,” i.e. insured by the FHA, VA, or Department of Agriculture or owned by Fannie Mae, Freddie Mac are entitled to a 60-day payment suspension followed by 12 months of forbearance.
Forbearance is not Forgiveness. Borrowers who take advantage of this type of relief will eventually have to pay the piper.
If you have an FHA, VA, or USDA loan, the principal and interest deferred will be rolled into a zero-interest second mortgage when the forbearance period ends. This is known as a “partial claim.” In addition, your escrow payment will be recalculated so your mortgage servicer can recoup the payments for taxes and insurance advanced during forbearance. The bottom line: if you take advantage of this benefit, your payment will increase when forbearance ends. You can learn more about the FHA’s policies here.
Forbearance is even less attractive for borrowers whose loans are owned by Freddie Mac or Fannie Mae because it is unlikely that either will adopt borrower-friendly solutions similar to those implemented by the FHA, VA, and USDA. That means servicers will do one of two things when forbearance ends: demand a lump sum equal to one year of one year’s worth of mortgage payments or offer to modify the loan in an as-yet-unspecified way. This uncertainty means you should think long and hard about taking advantage of the opportunity to defer payment of your Freddie or Fannie loan.
There’s also a lot of uncertainty regarding non-federally backed loans. No one knows if servicers will offer relief to borrowers who lost their jobs or experienced a loss of income due to the Covid-19 crisis. The only way to find out is to ask. When you do, please remember the guidelines we laid out for communicating with mortgage servicers and other creditors:
- Communicate in writing when you can.
- If you are unable to communicate in writing, record your conversation if it is legal to do so in your state. Recording is permitted in Ohio and New Jersey.
- Contact us to arrange a free consultation if you are uncomfortable with the information provided by your servicer. Rule of thumb: if something doesn’t seem right it probably isn’t. Don’t hesitate to protect yourself.
Student Loans
The CARES Act enables people with federal student loans originated or consolidated after 2005 to defer payments for six months. No interest or late charges will accrue during the deferral period.
Similar relief is not available to borrowers who have Perkins Loans, private loans, or federal loans that were originated before 2005 and not consolidated thereafter. You must continue to make your payments. The only good news: most courts are staying hearings for 60 to 90-days so borrowers have some time to work things out before having a judgment issued against them.
If your student loan is in the collections process please pay attention to any service of process or other court documents that you may receive. If you don’t understand something sent to you by a debt collector, law firm, or Court seek advice from DannLaw or another attorney.
Small Business Loans
Businesses with less than 500 employees are eligible for three programs:
- Payroll Protection Program a forgivable loan for 2.5 times the business’s monthly payroll. These loans are available from banks or other Small Business Administration (SBA) Lenders.
- SBA Emergency Loans are available to businesses under distress as a result of the COVID-19 Crisis. Ten thousand dollars of the loan amount is forgivable.
- SBA Disaster Loans are available to businesses located in states in which a Federal Emergency has been declared.
It’s important to note that the implementation of these loan programs has been disorganized and haphazard. Banks have been slow to develop and implement their application process and many have limited applicants to existing customers. In addition, the transfer of funds to the SBA Emergency and Disaster Loan programs has been moving at a snail’s pace. The roadblocks and delays are incredibly frustrating at a time when many small businesses need immediate help if they are to survive the crisis. We’re constantly monitoring the situation so we can help clients receive the assistance they need.
Please visit the SBA Website for additional information about these loans.
Scams:
All individuals and small businesses should be on the lookout for fraudulent and/or criminal behavior. Here are some warning signs:
- SBA backed Loans can only be originated by SBA Lenders. Make sure you are providing your information to an accredited SBA Lender. There are no fees associated with applying for these loans and most businesspeople should be able to fill out the relatively simple applications. If you need help only deal with licensed CPAs or attorneys.
- There is no fee to apply for the stimulus checks of $1200 or more per family that will be distributed under the provisions of the CARES Act. Indeed, there is no application at all. All you need to do is to verify that your most recent tax return has all of your correct address and bank account information.
You may view our previous updates here.
That’s it for now. Be well, stay safe and if you need help or information please call 877-475-8100 or email us at [email protected]