Financial Options if You Are Struggling with Mortgages Due to Loss of Rent

By Alex

Author: Alex Delaney 

At Compass Property Management, we are staying on top of our rent rolls. We are following up with all delinquent tenants, offering them empathy, support, resources and options. We are allowing weekly payments, if necessary, for those reliant on unemployment checks. We suspended late fees for April and May and we are constantly researching, and analyzing the data to ensure we are using every tool possible to get the rent paid so you can pay your mortgage.

But this is a pandemic that is impacting our society in a variety of ways. While some businesses are reopening, many people are staying home and other businesses are failing. Unemployment, stimulus checks and PPP loans are helping those least able to weather this storm, but it is possible that you have a tenant who will not be able to keep up.

What options do you, as an owner, have to weather this storm yourself? Hopefully, you have held funds back to get your portfolio through tough times. But this situation is unprecedented and while you may be able to bear a couple of months with reduced or no rent, your situation may well change if this pandemic doesn’t relinquish its nasty grip on our economy.

Forbearance: Banks are required, via the CARES Act to offer the option of filing a forbearance on your mortgage payment for 180 days for any Federally backed mortgages. There is an allowance for an additional 180 days if you are still facing financial hardship. This allows you to pause payments entirely, or make reduced payments on your mortgage. It also prohibits late fees or penalties during the forbearance period if the forbearance is granted. If your property is not under a Federally backed mortgage, your bank may still offer this option.

If you do choose this route, make sure to carefully review the repayment options. These are negotiable. You don’t want a balloon payment at the end of 180 days. If your tenant is unable to regain employment and eventually has to be evicted, this puts your property at risk when you suddenly have to double up on mortgage payments while facing turnover costs.

In addition, while the Stimulus Package specifies that negative reports to credit companies are prohibited, this only applies during the forbearance period. So if you struggle to pay back the funds, it could impact your credit once the forbearance has ended.

A more beneficial option is to have the missed payments added on to the end of the mortgage by extending the mortgage by the timeframe for the forbearance.

But there are other options:

SBA Loans

The Small Business Administration offers disaster loans if a disaster has been declared. These loans cover operating expenses, homeowner assistance and renter’s assistance. Apply at Homeowners must register with FEMA (Federal Emergency Management Agency) and obtain a FEMA Registration ID number prior to applying for an SBA loan.

1) 7(a) program: Can be used for working capital, expansion or renovation, new construction, purchase of buildings/land and refinancing debt for compelling reasons. Loans up to $5,000,000 via SBA lending partners. These loans require extensive paperwork and a lengthy approval time.

2) Express loan program: loans up to $350,000 for no more than 7 years, with an option to revolve. 36 hour turnaround time. Loan use is same as above 7(a) loan program but much easier to access. Funds can be used to purchase real estate, equipment and materials, construction /renovation costs and refinancing existing business debt. Find out more by talking to your lender or contacting the SBA.

3) 504 loan program: proceeds are limited to an acquisition or eligible refinance of fixed assets. Focus is job creation and /or retention.

4) EIDL loans, Economic Injury Disaster Loan Program allows property owners and small businesses to apply for low-interest working capital loans of up to $2 million if they have suffered “substantial economic injury.” Collateral, which can be your property, is required if the amount requested exceeds $25,000. Note, you cannot apply for an EIDL loan if you have an SBA loan. Currently, the preference for new applications is being given to agricultural businesses, but check back. This may change.

If none of the above options will work for you, check with your bank to see if they have programs not being advertised. Many banks have details on their websites.

Some private companies are looking for ways to help. Goldman Sachs is offering a small business stimulus package by committing $525 million in funding and lending to small businesses during the pandemic, including $250 million in emergency loans. Zapier has created a $1 million assistance program that provides a free 3-month credit. You must be an existing customer as of March 20, 2020 and have been impacted negatively by the pandemic. Your business must be privately owned and have 10 or fewer employees.

HomeSafe Georgia has a helpful mortgage assistance program, but it can only be used for your primary residence. However, if you only have a couple of renters, this may allow you the time needed to get your rental income back on track.

One final option: (And possibly the best, safest option). Mortgage rates are low right now and refinancing may be a viable option. Check with your lender, or go to one of the many on-line programs such as Quicken Loans.

Stay safe and visit us soon. We will continue to provide up to date information on our website.