The ongoing COVID-19 pandemic has had an unprecedented impact on all sectors of the U.S. economy in a remarkably short period of time, but one of the largest and earliest impacts has been on the hospitality industry. Hotel owners and operators are facing cash flow issues, employment-related concerns and, in many cases, difficulty with respect to their loan obligations.
On April 14, 2020, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued an interim final rule to temporarily defer real estate appraisals and evaluations under interagency appraisal rules.
The Coronavirus Act 2020 became legislation on 25 March 2020. This legislation provides, amongst other things, emergency measures to combat the economic effects of the pandemic. We discuss in this article the temporary ban on landlords exercising right of re-entry or forfeiture under a commercial lease agreement over non-payment of rent.
While the ramifications of the COVID-19 pandemic for real estate lenders and borrowers will unfold over time, at this point we know that lenders and borrowers will be communicating frequently and extensively regarding potential loan modifications and other accommodations. Lenders are well advised to insist on a pre-negotiation agreement, often referred to as a “PNA,” as a prerequisite to these communications.
Our Tax Group colleagues recently wrote an exceptional article, titled "Securitization Guidance on Coronavirus-Related Forbearances." It examines the Internal Revenue Service's helpful revenue procedure that permits loans that are subject to certain forbearances and related modifications as a result of the COVID-19 pandemic to be contributed to, and held in, real estate mortgage investment conduits (REMICs) and grantor trusts without jeopardizing these vehicles’ U.S. tax status. You can access it here in our BrassTax newsletter. Also take a look at our Tax Group's REMIC flow chart and article, "Unrecorded Mortgages Pose Unique Issues for REMICs."
The primary concern for the holder of any mortgage is ensuring the priority and perfection of its lien. When the collateral is a ground leasehold mortgage, this concern is significantly heightened.
