On March 16, 2020 the Governor of California, acting pursuant to his state of emergency powers, issued Executive Order N-28-20 aimed at curbing evictions and foreclosures during the COVID-19 State of Emergency.  The Order:

• Frees local governments from state law impediments to enacting restrictions on evictions or foreclosures resulting from COVID-19 with respect to both residential and commercial properties
• Suspends judicial foreclosures and unlawful detainer eviction actions anywhere such local restrictions are passed
• Requires the Department of Business Oversight to engage with financial institutions to identify tools to afford relief from evictions and foreclosures resulting from COVID-19
• Requests (but does not require) financial institutions to “implement an immediate moratorium” on foreclosures and related evictions resulting from COVID-19

The Impact of the Order Will Largely Depend on Restrictions Passed at Local Levels

The California Governor’s Order suspends any state law that would preempt or restrict the ability of local governments to impose limitations upon evictions and foreclosures on both residential and commercial properties in response to COVID-19.  Where those local restrictions exist, the Order suspends judicial foreclosures and unlawful detainer eviction actions arising from documented financial hardship caused by COVID-19 (but only to the extent of the limitation at the local level). 

The scope of this provision only applies to restrictions on evictions for nonpayment of rent, or foreclosures, arising out of a documented “substantial decrease in household income . . . caused by the COVID-19 pandemic,” or by any “government response to COVID-19”.  The Order also provides that judicial foreclosures, and unlawful detainer actions for eviction shall be suspended wherever such local restrictions are passed.

Many local governments have already enacted laws halting evictions resulting from financial hardship caused by COVID-19 (including the Cities of Los Angeles, San Francisco, Pasadena, Alameda, San Jose, and San Diego), and many more are currently considering doing the same across municipalities in Southern California, the Central Valley, and Bay Areas.  

The Order Calls Upon Financial Institutions to Provide Relief  

The Order also contains two provisions which require action by “financial institutions”, which includes “banks, credit unions, government-sponsored enterprises, and institutional investors.”  First, the Order directs the Department of Business Oversight to engage financial institutions to “identify tools to be used to afford Californians relief from the threat of residential foreclosure and displacement.”  Second, the Order “requests” that financial institutions “implement an immediate moratorium on foreclosures and related evictions,” resulting from COVID-19.  

Notably, the Order stops short of prohibiting foreclosures.  However, the intense pressure to honor the Governor’s request for a moratorium that servicers may face could be enough to meet the Order’s stated goal of halting foreclosures during the COVID-19 state of emergency.  In addition, HUD has suspended foreclosures for FHA, Fannie, and Freddie loans for at least 60 days, meaning that a large portion of mortgage loan portfolios will already be subject to a moratorium.

Limitations on Evictions and Foreclosures Will Evolve Rapidly

At this time, hard and fast moratoriums on evictions resulting from COVID-19 are becoming widespread in the State of California, aided by the Governor’s elimination of legal roadblocks through his Order.  It is less clear whether the same level of restrictions will be imposed upon foreclosures.  Even so, pressing forward with foreclosures in the current environment presents risks well beyond pure legal exposure.  And whatever the case is now, quickly evolving events on the ground means servicers must stay nimble, and expect to enact significant changes to loss mitigation practices during the COVID-19 state of emergency.