By: Jane Bond, Esq.
For borrowers exiting forbearance and in need of funds to move into a loan modification or other forms of loss mitigation, there may be opportunities for assistance under the American Rescue Act. Enacted by Congress and signed by President Biden on March 11, 2021, approximately $10 billion dollars will be directed to homeowners through Homeowner Assistance Funds (also known as “HAF”). These funds will be distributed by the U.S. Treasury and will remain available until September 30, 2025. The purpose of the funds is to prevent homeowner delinquency, defaults, foreclosure, loss of utility or home energy services, and displacement due to COVID-19.
State Allocation and Distribution
Homeowner Assistant Funds provide a minimum of $50 million dollars for each state, the District of Columbia, and Puerto Rico. Each state has a designated department to manage and operate HAF, and a list can be found on the internet of the department and the email address of the coordinator by state. Once the specific state HAF program is approved by the U.S. Treasury, the funding will be sent to the state. The state will distribute the funds through the designated department or through non-profit organizations, (similar to the distribution of rental payments). The estimated start of distribution is sometime during the fourth quarter 2021.
Qualifications for the Homeowner
For homeowners to be eligible to qualify they must attest they 1) have experienced a “financial hardship” after January 21, 2020, (can be before 1/21/20) and the hardship is continuing, and, 2) for those with a mortgage, it must be their principal residence, including any one- to four-unit dwelling.
The definition of “mortgage” is broad enough to allow states to aid homeowners in cooperatives, land contracts, and manufactured housing. Financial hardship is defined as a material reduction in income or a material increase in expenses. Financial hardship is based on financial information from the homeowner and/or attestations from an employer. At least 60% of allocated funds must be used for homeowners with income at or below the area or national median income. The remaining funds must be prioritized for “socially disadvantaged individuals.” Socially disadvantaged is defined as those whose ability to purchase or own a home has been impaired due to diminished access to credit on reasonable terms as compared to others in comparable economic circumstances, based on disparities in homeownership rates in the HAF participant’s jurisdiction as documented by the U.S. Census. The impairment must stem from circumstances beyond their control.
Indicators of impairment under this definition may include being a 1) member of a group that has been subjected to racial or ethnic prejudice or cultural bias within American society; 2) resident of a majority-minority Census tract; 3) an individual with limited English proficiency; 4) resident of a U.S. territory, Indian reservation, or Hawaiian Home Land; or 5) an individual who lives in a persistent-poverty county, meaning any county that has had 20% or more of its population living in poverty over the past 30 years, as measured by the three most recent decennial censuses. In addition, an individual may be determined to be a socially disadvantaged individual in accordance with a process developed by a HAF by reasonably relying on self-attestations.
Qualified Expenses
The U.S. Treasury lists these items as the expenses that qualify under HAF:
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- Mortgage payment assistance
- Financial assistance to allow a homeowner to reinstate a mortgage or to pay other housing-related costs related to a period of forbearance, delinquency, or default.
- Mortgage principal reduction, including with respect to a second mortgage provided by a nonprofit or government entity
- Facilitating mortgage interest rate reductions
- Payment assistance for: a) homeowner’s utilities, including electric, gas, home energy (including firewood and home heating oil), water, and wastewater; b) homeowner’s internet service, including broadband internet access service; c) homeowner’s insurance, flood insurance, and mortgage insurance; d) homeowner’s association fees or liens, condominium association fees, or common charges, and similar costs payable under a unit occupancy agreement by a resident member/shareholder in a cooperative housing development; and e) down payment assistance loans provided by nonprofit or government entities
- Payment assistance for delinquent property taxes to prevent homeowner tax foreclosures
- Measures to prevent homeowner displacement, such as home repairs to maintain the habitability of a home, including the reasonable addition of habitable space to alleviate overcrowding, or assistance to enable households to receive clear title to their properties
- Counseling or educational efforts by housing counseling agencies approved by HUD or a tribal government, or legal services, targeted to households eligible to be served with funding from the HAF related to foreclosure prevention or displacement
Maximum Amount per Homeowner
States will determine a maximum amount of money that can be distributed to each qualified homeowner. This can vary by state. Some states under the assistance for tenants during COVID-19 were able to receive up to $15,000 per person for rental assistance, electricity, and water. The funds were distributed directly to the landlord, electric company, and water utility. The same is expected for the distribution of the HAF funds; the vendor would be paid directly.
Until the final program is approved in each state, it will be difficult to know if the homeowner will qualify and the maximum amount each homeowner can receive. By the end of the year, there should be more clarity as the Treasury approves each state’s program and the parameters of each program are defined.
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About the Author: Jane Bond is the Managing Partner of McCalla Raymer Leibert Pierce’s Florida Litigation Group. Bond has more than 30 years’ litigation experience, with 26 years devoted to business and real estate litigation related to the mortgage lending and servicing industries.