Lenders Work With Apartment Owners As Moratoriums Stretch On

The state and federal eviction moratoriums kept untold millions of people off the streets as the US economy struggled during the pandemic-led downturn. Many landlords were able to weather this disruption with little effect but others, especially smaller companies, are having to negotiate with lenders to stay afloat. 

Fortunately, as in other asset classes, lenders have been open to these talks, according to Bonnie Y. Hochman Rothell, partner and chair of the Litigation practice at Morris, Manning & Martin LLP. 

“The majority of my clients on the lender side are working with them [apartment owners] quite extensively to be creative and to work through some of the foreclosure moratoriums,” Rothell says. “On the lender side, for those loans that are technically in default right now, we’ve tried to be proactive to renegotiate so there aren’t 1,000 foreclosures and bankruptcies at the end of this. Obviously, everything is flowing upward. The good news is that not everybody has had to take advantage of those moratoriums.”

The agencies, Fannie Mae and Freddie Mac, are offering forbearance, but many times that isn’t needed.

“The good news is that not everybody has had to take advantage of those moratoriums,” Rothell says. “A lot of the HUD and Fannie and Freddie loans that I’m familiar with for our lending clients are reporting very low percentage rates of landlords who have been forced to take advantage of the moratorium on foreclosures.”

While it’s easy to picture apartment owners as big REITs or institutions, many are mom and pops. “They are small businesses that we’re either able to take advantage of PPP loans or the different stimulus packages that have been offered,” Rothell says.

In addition, many tenants didn’t take advantage of the eviction moratorium, which also helped landlords avoid issues.

“If people were employed or did have the money to pay the rent, I think they realized that it makes sense to pay the rent,” Rothell says. “They realized that there will be late fees and catch-up down the road that could be worse than staying current right now. For those that have not remained current, of course, some are gearing up for either a foreclosure or, on the landlord side, an eviction. For the most part, we’re really urging parties to try to continue to negotiate.”

With the forbearances and the fact that the majority of tenants are paying rent, Rothell is optimistic that there won’t be a flood of apartments in foreclosure.

“Banks aren’t necessarily in the business of holding property,” Rothell says. “They’ve been there in the past, and I don’t think most banks want to have REO in their inventory.”

But Rothell does think there will be some foreclosures. “It won’t be as dire as some of the predictions, but I think that there are definitely going to be some foreclosures,” she says. “Some of my financial institution clients are gearing up for those. I think the reason for that is we’ve had some borrowers take the approach of not communicating with their lenders and not trying to work out the situation. In those instances, I think that the lenders are going to have no choice and, in fact, probably would be better off foreclosing.”