On April 7, the Council for the District of Columbia unanimously passed the COVID-19 Response Supplemental Emergency Amendment Act of 2020 (“Emergency Act”) an emergency relief bill for D.C.’s residents and businesses. Title II of the Emergency Act, captioned “Business Development and Consumer Protection,” directly and dramatically affects consumer financial services operations. This legislation includes mandatory mortgage payment deferments, a credit reporting restriction for mortgage servicers, renting restrictions, and significantly prohibits debt collection activity.
The Emergency Act takes effect upon approval by Mayor Muriel Bowser, who is expected to sign the Emergency Act into law shortly.
Section 202 Mortgage Relief
This section applies to mortgage servicers that hold rights to residential or commercial mortgage loans under the jurisdiction of the Commissioner of the Department of Insurance, Securities, and Banking (DISB). However, loans for which servicers have initiated a foreclosure action or exercised rights to accelerate the balance and maturity date of the loan on or before March 11 are exempt from this section’s provisions.
For a period extending 60 days beyond the end of the coronavirus (“COVID-19”) public health emergency, servicers are required to develop and implement deferment programs for borrowers that grant “at least” a 90-day deferment period for mortgage payments, waives any fee accrued during the pendency of the public health emergency, and ensures no “derogatory information” is reported to a credit bureau as a result of the deferral. Mortgage servicers also are required to establish application criteria and procedures for borrowers to apply for the deferment program, making such application available online and by phone.
Mortgage servicers are required to approve each deferment application in which a borrower demonstrates “evidence of financial hardship resulting directly or indirectly from the public health emergency” and the borrower agrees in writing to make deferred payments within an agreed reasonable time or within five years from the end of the deferment period, or the end of the original term of the mortgage loan, whichever is earlier if no agreement on a “reasonable time” for payment can be reached between the servicer and borrower.
Borrowers having to demonstrate evidence of financial hardship departs from forbearance procedures in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which explicitly prevents federally-backed mortgage servicers from requesting corroborating “evidence” of financial hardship. Analysis of the CARES Act and its requirements can be found here.
Further, the Emergency Act does not specify what evidence sufficiently demonstrates actual or potential financial hardship. However, presumably to counter-balance concerns of arbitrary denials of deferment requests, the Act authorizes “a person or business whose application for deferment is denied [to] file a written complaint with the Commissioner” of the DISB.
A borrower receiving a mortgage deferral who rents that property to a commercial tenant shall reduce the rent for a tenant who has notified the borrower of financial hardship in an amount proportional to the reduced mortgage payment and may require the commercial tenant with financial hardship to repay the amount of any reduced rent at the earlier of 18 months or the end of the lease term – without interest or fees.
The Emergency Act also prohibits mortgage servicers from requiring a lump sum payment from any borrower entering a deferment program, “subject to investor guidelines.”
Section 202 Mortgage Relief – Credit Reporting Prohibition
Mortgage servicers may not report derogatory information resulting from a deferral under the section to a consumer reporting agency. While facially a narrow prohibition, mortgage servicers need to be aware of its contours.
This credit reporting prohibition applies if the borrower enters a deferral program for a loan agreement under the jurisdiction of the Commissioner of the DISB, but the prohibition lasts for the duration of the deferral period.
The default window for a borrower to make deferred payments is the earlier of five years from the end of the deferment period or the end of the original term of the mortgage loan. It is unclear how the duration of this provision squares with the built-in sunset of a D.C. Council emergency act that it “shall remain in effect for no longer than 90 days.” Section 803. This potentially will lead to disputes over whether the Emergency Act was in effect to require a servicer to offer a program containing a credit reporting prohibition and whether the credit reporting prohibition remains more than five years after the Emergency Act lapses.
Section 207 Debt Collection
During a public health emergency and for 60 days after its conclusion, no creditor or debt collector shall, with respect to any debt:
- Initiate, file, or threaten to file any new collection lawsuit;
- Initiate, threaten to initiate, or act upon statutory remedy for the garnishment, seizure, attachment, or withholding of wages, earnings, property, or funds for the payment of a debt to a creditor;
- Initiate, threaten to initiate, or act upon any statutory remedy for the repossession of any vehicle, provided that creditors or debt collectors may accept collateral that is voluntarily surrendered;
- Visit or threaten to visit the household of a debtor at any time;
- Visit or threaten to visit the place of employment of a debtor at any time for the purpose of collecting a debt; or
- Confront or communicate in person with a debtor regarding the collection of a debt in any public place at any time.
The above prohibitions do not apply to debt owed on a loan secured by a mortgage on real property.
Additionally, almost all communication by a debt collector to a debtor is prohibited during the emergency and for 60 days thereafter. Specifically, a debt collector shall not initiate communication with a debtor via written or electronic communication or by telephone, unless the communication is in response to a request by the debtor for said communication.
The anti-communication provisions do not apply to communications initiated solely for the purpose of informing a debtor of a rescheduled court appearance date or discussing a mutually convenient date for a rescheduled court appearance. They also do not apply to original creditors collecting or attempting to collect their own debt, nor do they apply to collecting or attempting to collect a debt which is secured by a mortgage or real property.
Karl Racine, the Attorney General of D.C., vowed to “immediately begin enforcing these new protections to keep residents safe.”
Section 203 Tenant Protections
This section tolls tenant deadlines to exercise rights under both the Rental Housing Conversion and Sale Act of 1980 and the Rental Housing Act of 1985 until the end of the public health emergency and for 30 days thereafter.
Additionally, the emergency legislation amends the Rental Housing Act of 1985 to toll any notice of intent to vacate provided prior to the emergency declaration such that the same number of days to vacate remain at the end of the emergency as the tenant had upon the effective date of the emergency.
The Act further amends the Rental Housing Act of 1985 to toll all rent increases for which the effective date of the increase occurs during the emergency and for 30 days thereafter, the notice of rent increase was providing during the emergency, or the notice was provided to the tenant prior to, but takes effect following, a public health emergency.
The D.C. Council is working to extend these provisions in the COVID-19 Response Supplemental Temporary Amendment Act of 2020 (“Temporary Act”). A current version of the Temporary Act can be found here.
Under the Emergency Act, the above restrictions are only in effect for 90 days. If the Temporary Act is approved and signed into law by Mayor Bowser, the above restrictions would be in place for 225 days from when enacted.