Covid-19: New Rules Evictions and Foreclosures Still Limited News on Insurance Costs and Taxes
Co-ops STILL Eligible. Condos and HOA’s May be Challenged. Co-ops are eligible for PPP Loans even as first-time borrowers. Based on the statutory language in the new Stimulus bill, though, Condos and HOA’s do not qualify because (unlike Co-ops) they were not specifically included. Hopefully that omission will be corrected or explained away, but the new SBA regulations do not offer much hope.
First-time Borrower Does Not Need to Show Drop in Income. As in the initial PPP program, a first-time borrower does not have to show a 25% drop in income from the comparable quarter in 2019 in order to qualify. But Second Draw borrowers do. See our December 22nd newsletter for some other differences, such as an expansion of permitted uses of covered funds and a 300-employee cap. From what we have seen, most borrowers could spend 100% of any loan on payroll alone, so these expansions are only mildly useful.
Check with Your Lender First, But They May Be Scrambling. The maximum loan amount for most Co-ops (2.5 times the monthly payroll) is simply not high enough to interest a strange lender, so they may give you lower priority in processing applications. To get better treatment, check first with your underlying mortgage lender to see if they will process your application. Several lenders who had refused to process Co-op applications in April are scrambling to set up portals for applications, but that should be resolved shortly; even if they do not process PPP applications themselves, they should be establishing links with SBA loan specialists to process their customers’ applications. Fees are set by statute, so service is the more important priority.
Updated Rules Published. The SBA has posted two “Interim Rules” to answer questions about the PPP revisions for lenders and first-time borrowers. CLICK HERE for first-time borrower updates. CLICK HERE for Interim rules for “Second Draw” borrowers.
EVICTIONS AND MORTGAGE FORECLOSURES STAYED UNTIL MARCH 1ST OR MAY 1ST
March 1st Extension for ALL Residential Eviction Proceedings. All pending residential eviction proceedings are stayed until March 1, 2021 (actually February 26th, but that’s a Friday). No default judgments without a new hearing. No warrants of evictions executed without a new status conference. Exception: Claims for Nuisance or Hazardous behaviors will proceed normally.
May 1st Extension if Tenant files a “Hardship Application.” Any tenant against whom a proceeding is started may file a “hardship application” that states that the tenant has experienced “financial hardship” during the pandemic. In that case, eviction proceedings will be stayed until at least May 1st. And even if a tenant doesn’t submit an Application up front, the Court will give one to them on the hearing date.
Foreclosures on Residential Home [and Condo] and Co-op Loans Stayed. Lenders cannot continue foreclosures against condo or co-op loans (or home mortgages) until May 1, 2021, provided the borrower files a “Hardship Application” similar to the one for evictions.
Impact on Co-ops and Condos? Co-ops and Condos are not lenders or mortgagees. They are not subject to the rules restricting foreclosure of their liens against co-op shares or condominium units owned by natural persons. Recent case law has also held that a UCC foreclosure against collateral that is not real property (such as shares) is a private, non-judicial proceeding, so would not be subject to restrictions on pending judicial foreclosure proceedings.
We are also finding that most co-op end loan lenders are continuing to pay the arrears of their borrowers upon receiving notice of the default from the Co-op. This shifts the burden of payment and foreclosure to the lender. So we recommend that Co-ops continue to pursue their foreclosure proceedings aggressively.
However, evictions are still subject to stays, so a defaulting owner can still remain in possession without paying maintenance or arrears until the pipeline is reopened this summer.
INSURANCE COSTS RISING
Water Damage Claims Surging. Industry leaders have confirmed that water damage claims are on the rise, due in part to aging infrastructure which leads to more leaks. In other words, you are not alone.
Co-ops and condos already have to make unpleasant choices between filing multiple water damage claims and risking increased premiums or exclusions, or paying multiple deductibles for numerous smaller claims over the year. Associations should consider amending their documents to shift the liability for casualty damage due to water leaks to the owner rather than the Association.
Reinsurance Rates Up Sharply in January. The cost of “reinsurance,” by which insurers lay off a large potential liability by buying their own coverage with a “reinsurer,” rose by 6% globally for January renewals. Insurers blame lower interest rates (reducing return on premium payments) and higher loss claims (including fights over COVID claims). U.S. insurers saw the largest increases in casualty rates, ranging from 10% to 30% for general liability.
TENTATIVE ASSESSED VALUATIONS DUE OUT NOW
The tentative assessed valuations for real property in New York City for the tax year beginning July 1, 2021 are due out now. Buildings should check the City’s website, CLICK HERE, to see how much they have increased, and be sure to file a “tax certiorari” claim with your tax cert attorney. Since every real property owner in the City will be filing for tax reductions, we can only hope that tax rates stay reasonable in light of the looming City and State deficits. (Your taxes are your assessed value multiplied by the tax rate.)
We will continue to keep you updated on PPP and other developments. If you need assistance on any of our topics, please contact one of our partners on our Co-op/Condo team.