The COVID-19 pandemic marks an unprecedented crisis for the world’s economy. Because of the immense financial strain it has placed on individuals and companies alike, you will inevitably encounter defaults as a secured or unsecured creditor. You may also receive requests for extensions, payment deferrals, modifications, and accommodations. There are rules in place to protect both debtors and creditors in the face of the pandemic. Our Columbia, SC attorneys can explain these rules and how to implement them.
Background on the COVID-19 Crisis
The coronavirus pandemic has had a devastating effect on the world’s economy. Here at home, it has placed a significant financial strain on those who’ve seen their businesses impacted by the shutdowns and slow reopening in many states, as well as those who’ve been laid off or have had their hours reduced at work.
This naturally places both businesses and individuals in a precarious position when it comes to repaying debts, and thus creates challenges for you as a creditor when it comes to collecting on those debts. No one knows how long the pandemic will last, but it will end eventually. Debtors are still obligated to pay, and you are still entitled to request payment.
What Creditors Need to Know About the CARES Act
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was introduced on March 19, 2020, is the government’s most significant and far-reaching economic response to the pandemic. This $2 trillion act aims to ease some of the pressure under which people and companies are struggling by providing grace periods, recovery rebates, and more.
Creditors and Mortgage Loans
The CARES Act has greatly affected the rights of creditors holding mortgage loans throughout the country. These affects include placing a moratorium on foreclosures of federally-backed mortgage loans. This applies to many residential mortgage loans in the country. At the time of this article, the moratorium on foreclosures of federally-backed mortgage loans is set to expire on August 31, 2020.
Under Section 4022(b), (c)(1), homeowners affected by the virus can request forbearance from their monthly mortgage payments for up to 180 days and then have the option to request an additional 180 days of forbearance if needed. No interest or penalties will be applied to the loan amount during that time. Essentially, the account will be treated as if the debtor is still making all payments on time and in full.
A mortgage loan servicer cannot start any judicial or non-judicial foreclosure process on federally-backed mortgage loans until the moratorium has expired, with the exception of abandoned properties. Foreclosure-related sales or evictions relating to federally-backed mortgage loans are also prohibited. Also, courts across the U.S. have limited operations to slow the spread of COVID-19, and many have postponed foreclosure hearings for both federally-backed and non-federally backed mortgage loans. South Carolina Courts began to allow foreclosures and evictions to proceed on non-federally backed mortgage loans on May 15, 2020.
Accommodations for Debtors
Your borrower has to approach you and ask for an extension or forbearance or make a plan to modify their payment amounts or schedule. They should not just stop paying without coming to an agreement of some kind with you. The regulations passed for the duration of the pandemic do limit what a creditor can do when seeking to enforce payment on a defaulted loan. Some accommodations for your debtors are required by law (such as the CARES Act), and others are at the creditor’s discretion.
Your relationship with your borrower and how you wish to maintain that relationship beyond the pandemic will affect how you respond. Are you willing to grant an extension on payments? For how long? These are just some of the questions a creditor must ask themselves when determining how to proceed with a debtor in default during the pandemic.
Four Strategies for Ensuring Your Payment
It is critical to your business that outstanding debts are paid, regardless of the pandemic. Below are a few ways you can ensure that you are able to collect, including:
- Investigate whether non-payment or postponement of payment is due to the COVID-19 crisis. While some debtors may claim hardship due to the pandemic, it is important to verify that they truly no longer have the ability to fulfill the payment arrangement. It’s a good idea to ask for written evidence, including bank statements, requests for government support, and statements from accountants or other third-parties. It is crucial to note that this is not a requirement for forbearance requests for government-backed mortgage loans.
- Have debtors submit a written payment proposal. Make sure they explicitly acknowledge their request and proposal in writing. Having this in writing will make it harder for them to dispute it later on if they are unable to meet the terms set forth in the proposal. This will save you the time and cost of an unjustified dispute.
- Ask the debtor to provide securities. If your debtor is unable to meet their payment obligations, they can pledge additional securities in the form of a guarantee from a board of directors or a third-party pledge or some other form of additional collateral. Again, make sure to consult with a lawyer to make sure the security construction is recorded properly to avoid securities that are not legally valid.
Contact a South Carolina Creditors’ Rights Lawyer for Assistance
This is a complicated and potentially confusing time for everyone, especially when it comes to finances and debt. An experienced and dedicated legal team becomes a necessity. Our knowledgeable attorneys can review your existing loans and use their expertise to guide you safely through this uncertain period. Please contact Crawford & von Keller, LLC, to set up a confidential consultation.