On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, a $2 trillion economic stimulus designed to help bolster the United States economy. If you are interested, you can read the entire 880-page document here. What we will attempt to do in this article is to go over some of the sections that may impact homeowners and real estate investors.
The part of the CARES Act that most people are paying attention to is the direct cash stimulus for families. The terms call for $300 billion to be spent on payments. A family of four earning less than $150,000 can expect a payment of $3,400.
People who file for unemployment will also receive $600 per week, in addition to whatever they would normally receive. This is called the Federal Pandemic Unemployment Compensation, and it will be in place for four months.
One component of this section is that it also extends benefits for self-employed individuals and independent contractors. One question that has not been resolved yet is whether real estate agents will be eligible for these benefits.
One benefit that may apply to many Realtors is the fact that they can delay paying one-half of their self-employment taxes until after 2021. Another important benefit is that the Act eliminates the 10% early withdrawal penalty for up to $100,000 for qualified retirement accounts for COVID-19-related purposes. One thing that isn't clear is how that will be defined.
Support for small businesses
The CARES Act offers up a total of $349 billion in low-interest loans to small businesses. Another important thing to note with the $349 billion for small businesses is that the part of the loans that go toward rent, mortgage interest, and utilities could be eligible for forgiveness through the Small Business Administration. Larger companies are eligible for part of $500 billion in funding meant to help preserve jobs.
Specific guidance on evictions and foreclosures
Sections 4022 through 4024 of the act deal with mortgages and foreclosures, including eviction moratoriums and mortgage forbearance.
Section 4022 states that a borrower with a federally backed mortgage can request forbearance regardless of delinquency status by submitting a request to the loan servicer. Forbearance lasts for up to 180 days and can be extended for an additional period of up to 180 days at the request of the borrower. During the forbearance period, no fees, penalties, or interest beyond the amount of the contractual payments can accrue.
Either the initial or extended period of forbearance may be shortened at any time by the borrower's request. This section blocks the servicer of a Federally backed mortgage loan from initiating any judicial or nonjudicial foreclosure process for not less than a 60-day period beginning on March 18, 2020.
Section 4023 covers multifamily forbearance and states that a multifamily borrower with a Federally backed multifamily mortgage loan can request forbearance of up to 30 days with two additional 30-day periods, for a total of 90 days. The borrower must be current on payments as of February 1, 2020. A multifamily borrower that receives a forbearance under this section cannot evict tenants for nonpayment of rent and cannot charge late fees due to the late payment of rent.
Section 4024 creates a 120-day moratorium on evictions of tenants in properties that are part of government programs or that have a Federally backed mortgage loan.
As the National Multifamily Housing Council noted in its analysis of the Act, the forbearance for multifamily properties only applies to owners with federally backed mortgages. Also, there is a disconnect between the possible 90-day multifamily forbearance and the 120-day eviction moratorium.
Bolstering affordable and public housing
The Department of Housing and Urban Development (HUD) will receive a large funding boost through this program that will extend across many different initiatives. The CARES Act allots $5 billion to expand Community Development Block Grants and $4 billion in McKinney-Vento Homeless Emergency Solutions Grants. Both of these programs are meant to benefit communities needing to provide housing for homeless and in-need citizens.
The Act also provides $1.25 billion in Section 8 voucher assistance to support those who experience income loss due to COVID-19 and $1 billion for the Project-Based Rental Assistance Program. There is also $50 million for the Section 202 Supportive Housing for the Elderly Program.
Potential tax benefits
Taxpayers who had losses in the past three years who had unused losses in 2018, 2019, or 2020 may be able to file amended returns, claim back those net operating losses, and get refunds on taxes already paid. The exact implications of this are still unclear, so people are advised to consult a tax professional before deciding to file amended returns.
The Millionacres bottom line
The CARES Act may provide some homeowners and investors with a bit of relief during this time period. This may be only the first of upcoming legislation to shore up various aspects of real estate and housing for the medium and longer-term as this situation continues to evolve.