Since the Coronavirus (COVID-19) Started I Have not Been Able to Pay my Mortgage/Rent – What Should I Do?

Posted by Terry Goddard | Jun 03, 2020 | 0 Comments

         This question is being asked more and more as various states look to reopen their economies, and more importantly for people facing this issue, their court systems.  Here in Maryland, Governor Larry Hogan, as part of his state of emergency orders, has ordered no new foreclosure actions and placed a moratorium on residential and commercial evictions during the pandemic. 

           As of the date of this post, the District Court of Maryland, the state court that hears landlord/tenant cases, is not hearing failure to pay rent cases or eviction requests and all pending eviction orders have been stayed.  In addition, under the CARES Act, landlords who rent public housing, subsidized housing program properties (i.e. Section 8), and/or properties with federally backed mortgages are not permitted to file eviction proceedings until after July 25, 2020.  Even then, the landlord may not evict a person before August 25, 2020.  However, these protections are temporary and will be removed when the emergency orders are lifted. 

            Having said all that, there are some cautions.  You will need to show that your inability to pay rent was caused by a “Substantial Loss of Income,” defined as having some connection to the impact of COVID-19 restrictions on your income or your business operations.  Your proof must rise to the level of “documentation or other objectively verifiable means.”  Time will tell what proof is sufficient. 

            In addition, Governor Hogan's order does not limit other remedies or actions available to a landlord, nor does it eliminate the obligation to actually pay the rent.  Also, a landlord may still attempt to impose other damages, interest, any applicable late fees, and counsel fees.  A landlord may also be permitted to apply your security deposit to your unpaid rent. 

            Where will this leave everyone, especially since beginning June 8, the Maryland Court system is entering its phased reopening program and the stay of foreclosures and rent cases is set to be lifted on July 25, 2020.  Maryland homeowners and renters who have been unable to pay their obligations will face some hard decisions in the next two months. 

            Bankruptcy has always provided a viable option to homeowners who have gotten behind on their mortgage payments and still have monthly earnings.  A Chapter 13 reorganization plan can allow you to catch up your missed mortgage payments during the term of your plan while you make your current monthly mortgage payment under the protection of the automatic stay.  Generally, the missed payments are spread out over 36 to 60 months, for those filing after enactment of the CARES Act.  For those who filed before enactment, you may be able to extend your payment plan out as far as 84 months.  What programs and other allowances your specific lender are willing to make will depend on your specific lender and situation. 

            Bankruptcy may be more problematic for residential tenants in these circumstances.  While the automatic stay does go into effect, a residential tenant in a Chapter 7 case has 60 days to decide whether that tenant will assume or reject the lease.  During that period the residential tenant will need to make rent payments that come due after the petition date and will need to be able to pay past due rent quickly if the residential lease is assumed.  How quickly is fact and court specific, but for tenants on fixed incomes it would probably not be long enough.  Business tenants have slightly different rules. 

            As the economy starts to open back up and state court systems begin to address their case backlog, homeowners and tenants will have some hard decisions to make.  Bankruptcy is an option and you should consult a bankruptcy attorney before venturing down any of these paths.

About the Author

Terry Goddard

Terry L. Goddard Jr. heads the firm's consumer and small business bankruptcy group in both the Baltimore and Southern Maryland offices of Skeen & Kauffman LLP. Terry has over six years of bankruptcy experience assisting clients navigate the complex and intimidating filing for protection under Chapter 7 and Chapter 13 of the bankruptcy code. Terry has been a practicing attorney since 2002.


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