Hartford Business Journal

HartfordBusiness.com | March 8, 2021 | Hartford Business Journal 25 What better banking's all about sm . westfieldbank.com You've got enough on your plate. We're here to help. Business Checking n Business Lending n Digital Banking n Cash Management Services Smart Business Banking Smart Business Banking is a suite of accounts and services designed to make business banking more convenient and affordable. To us, saving you time and money is what better banking is all about. Visit westfieldbank.com/smart-biz to learn more or call 800.995.5734. Member FDIC Experts Corner C onnecticut homeowners are falling behind in paying their mortgages at a higher rate than those in most other states, according to the Consumer Financial Protection Bureau. Lenders seeking to recoup funds — typically handled through litigation before COVID-19 — are finding many obstacles in their path. These obstacles require careful consideration and strategic thinking to allow lenders to move forward in the midst of a global pandemic. One major obstacle for lenders is the Federal Foreclosure and Eviction Moratorium initiated by the Federal Housing Finance Authority (FHFA) and Department of Housing and Urban Development (HUD). The moratorium requires, among other things, that lenders halt new foreclosure actions, suspend actions already in progress, and cease eviction proceedings. Lenders are also required to be more flexible in providing potential forbearance options to impacted homeowners. At the time of this writing, the moratorium is expected to be extended through June 30. As a result, lenders holding federally- backed loans — such as those granted through the Federal Housing Administration, Fannie Mae, Freddie Mac, U.S. Department of Agriculture and VA — are required to comply with the moratorium. This represents an estimated 75% of mortgages held by Connecticut homeowners, even without accounting for the fact that many non-governmental loan servicers may follow this lead. Of course, many of these loan programs are geared toward providing homeownership opportunities to individuals who may not otherwise satisfy the credit or income requirements prescribed by traditional lenders. Therefore, the borrowers who qualify tend to have less income on hand, creating a higher risk of default. Add the severe economic effects of the pandemic to an existing financial disadvantage, and these borrowers are particularly vulnerable to defaulting on payments. Connecticut's Judicial Branch is supplementing the federal government's efforts with its own initiatives; the state issued a mortgage foreclosure standing order with regards to the moratorium on Sept. 24. The standing order requires that all mortgage foreclosure complaints filed in Superior Court on and after the date of the order be accompanied by an executed affidavit attesting to whether the loan is subject to the moratorium. Any foreclosure complaint that fails to comply with the standing order is subject to dismissal. An updated affidavit must be filed when motions for judgment and sale approvals are filed. While the Connecticut Superior Court resumed hearing property foreclosure cases last October, the federal restrictions that remain in place greatly impact lenders' ability to actually proceed on these matters, independent of any actual or informal moratorium enacted by individual lenders. As the COVID-19 pandemic persists, we anticipate the moratoriums will continue to be extended, as many homeowners remain financially impacted. Connecticut courts are empowered to craft results that they deem to be fair and in the interests of justice. Therefore, even after these moratoriums end, it is likely that the courts will continue to extend flexibility to homeowners. Now more than ever, lenders will need to be both flexible and creative in crafting strategies that maximize their interest, and that are sensitive to the broader societal implications of steering the country out of the crushing financial effects of the pandemic. Lenders could consider loan modifications and forbearance options that comply with federal and state mandates and internal guidelines. In the event that litigation is already pending, the parties may decide to attend a mediation or settlement conference in an effort to reach an equitable settlement, saving both sides time and the expense of drawn-out litigation. Now more than ever, short-sale options, deeds-in-lieu of foreclosure, deficiency waivers, and other options to resolve borrower defaults should be thoroughly explored as the inevitable wave of COVID-19- related defaults and anticipated litigation activity has yet to come. Brian Rich is a partner and Anthony Loney is an associate at law firm Halloran Sage in Hartford. COVID-19 foreclosure moratorium creates challenges for lenders By Brian Rich and Anthony Loney Brian Rich Anthony Loney

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