By: Christopher Kelley, Esq.
The COVID-19 emergency has created a number of unique issues in the Real Estate industry from sales and rental transactions to closings and even payment of rent and mortgage payments. At this time we summarize what information we have and how the industry, particularly on the East End, has been affected to date.
Listings and Showings, What’s a Broker To Do?
In person showings by real estate agents are prohibited. Agents may only show homes virtually. Open houses are forbidden as it would result in the impermissible grouping of individuals. Listed properties may be posted as “unaccompanied showings only.”
Making Properties Available for Appraisers
Opening a property by a broker for appraisers as well as for home inspectors is permitted.
Are Any Sales or Rentals Happening?
Although immediately after the stay-at-home order, the East End saw a flurry of emergency rental activity, that has slowed as have new sales. However, there are sales continuing to be made as buyers look ahead to the prospect of a more normal economy in the near future. The preparation and signing of contracts, as well as the other elements of a traditional real estate transaction, have become more difficult as the professionals involved are spread out and working from home. It has become somewhat slower to arrange for engineer’s inspections, fuel tank inspections, termite inspections, water testing, etc.
Are Pre-Closing Walk Throughs Permitted?
Although real estate agents are prohibited from going to a property with their client/customer for the final walk through, purchasers are not prohibited from doing so and can do so on their own or in conjunction with an appointment with the seller.
How Are Closings Affected?
Virtually no one is doing any in-person closings at this time. The title companies are dealing with issues related to their ability to research titles in the County Clerk’s office. Suffolk County has limited online access to title histories, research available online only goes back to 1987. Title companies are also experiencing difficulty recording documents. Although the County Clerk’s office is open, the research and filing the title companies do on a daily basis has become more difficult. As a result, title companies have been asking sellers to indemnify them against liens and judgments.
Although transactions which are not financed may be conducted virtually with some efficiency where only the seller’s attorney, purchaser’s attorney and title company need to communicate, it becomes more difficult when a lender is involved. We are noticing a slowdown in banks issuing mortgage commitments, which we believe is primarily due to the decentralization of mortgage processing offices and with lenders’ personnel working at home. Coordinating title company, buyer and seller, and the bank, when everybody is working remotely, is a challenge. Also challenging in the new “at-home” world is the exchange of lender proceeds for title documents when there are multiple parties receiving proceeds of sale including banks having their mortgages paid off. Numerous lenders’ attorneys have issued different guidelines for how they will conduct virtual closings. To try to lessen the challenges, the State has authorized remote notarization of documents.
Is Anyone Getting Relief From Lease or Mortgage Payments?
Forbearance is a temporary hold on the obligation to make mortgage payments but does not relieve the borrower of any principal or interest, it merely defers payment.
Under the Federal CARES Act the federal government has enacted a forbearance program on the payment of federally backed mortgages. Also, the Small Business Administration is providing a financial reprieve to small businesses with 504 mortgage loans by automatically paying principal, interest and fees of current loans for a period of six months.
However, mortgages that are not backed by a Federal agency (such as most mortgages on East End second homes) are not covered by the Act. Holders of non-Federally backed mortgages need to be approached individually about forbearance options. There is also a moratorium on foreclosures of federally backed mortgages.
Currently there are no NYS or Federal laws/restrictions in place forcing lenders to provide mortgage loan payment relief to business/commercial property borrowers. All of the relief measures so far have been directed toward residential mortgage borrowers. However, most banks are extending forbearance and other relief on a case by case basis to their commercial borrowers.
Currently there are no NYS or Federal laws/restrictions in place providing rent payment relief for commercial or residential tenants. However, NYS courts have put a hold on all eviction proceedings for 90 days: https://www.nycourts.gov/whatsnew/pdf/AO-78-2020.pdf Similarly, Governor Cuomo has issued an executive order staying evictions until at least June 18: https://www.governor.ny.gov/news/no-2028-continuing-temporary-suspension-and-modification-laws-relating-disaster-emergency.
Consequently, although tenants (residential and commercial) are still technically obligated to pay rent (unless they make a separate deal with their landlords), they cannot be evicted for not doing so at this time. There is a bill currently pending in the NY legislature to put a freeze on rent payments, but that has not materialized yet. There is also talk about extending the eviction freeze for an additional 6 months after the crisis is over, but again that is not even close to official yet.
Our, advice to both landlords and tenants right now is to try to work together to make a deal that works for both parties until everything is resolved. Threats and default notices right now will not necessarily help a landlord’s position unless a landlord needs to give a long period of notice for a specific type of default (e.g. 30-90 day notices). Looking ahead, we can also see landlord tenant judges not looking favorably at landlords that really try to put pressure on residential or commercial tenants at this time.
Are A Lot of Buyers Backing Out of Deals?
We have seen a rash of purchasers trying to either withdraw from contracts or delay closings. Some purchasers who were counting on paying cash in a deal perceived the need to seek mortgage financing with the volatility/crash of the stock market. This has led purchasers to seek extensions of time to close in order to obtain mortgage commitments and concessions from sellers to get to closing. There is no basis in most instances for cancelling a real estate contract or postponing closing in an all cash deal based on the COVID-19 and the challenges surrounding it. For a complete discussion of contract defenses related to COVID-19, see, Business Interrupted? Part I: Is the Coronavirus a Force Majeure Event? (https://suffolklaw.com/business-interrupted-part-i-is-the-coronavirus-a-force-majeure-event/) and Business Interrupted? Part II: What if There is No Force Majeure Clause (https://suffolklaw.com/category/covid-19-updates/).However, with the Courts closed down for non-essential matters, such as contract disputes for the time being, the parties are left to negotiate themselves to get to the closing table or alternatively, for the return of deposits.
If you as a Real Estate professional or as a buyer, seller, landlord or tenant need advice on how to navigate any of these issues or in trying to pull together a sale or rental transaction in the changed conditions caused by COVID-19, please call our office and one of our attorneys will be happy to guide you through the process and make your transaction successful.