While the public health emergency of Covid-19 may have ended, the legal ramifications of the pandemic will be with us for years to come. The federal government enacted many emergency steps to protect citizens and businesses during the pandemic and the shutdowns that followed, such as the CARES Act. One aspect of the CARES Act that seems to be generating litigation is the portions of the Act that allowed banks to give forbearance to homeowners on their mortgage. Now that we are a few years removed from these forbearances, I anticipate seeing more lenders violating the CARES Act and seeking to demand improper payments from homeowners.


Under the CARES Act, homeowners with federally-backed mortgage loans were allowed to request forbearance of their mortgage payments. All that was technically required to ask for such a forbearance was to tell the mortgage holder that the homeowner was experiencing a financial hardship during Covid-19. The bank could then required to provide a forbearance for 180 days and extend the forbearance another 180 days on request. Many people did this, pushing back their mortgage payments during the pandemic.

Some banks, however, took the position that the forbearance was not really any relief at all. They claimed that, once the period of forbearance was up, all of the delayed payments were due and owing immediately. This probably is not what the CARES Act requires, and it is certainly not how the federal government views the matter. The United States Department of Housing and Urban Development, the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau, for example, have each clarified that borrowers will not be required to pay a lump sum repayment. Instead, banks with federally-backed loans are supposed to enter into repayment plans in the form of subordinate liens or having the deferred payments caught up when the house is sold or refinanced. Freddie Mac’s announcement on the matter was simple and to the point: “Simply put, if you are homeowner seeking a forbearance and Freddie Mac owns your loan, you are never required to make up missed payments in a lump sum.”

But, not every bank followed these guidelines. In a July 2020 study, the FHFA found that many banks were providing incomplete or unclear information about forbearance and repayment. This included at least one example of a bank incorrectly claiming that all deferred payments must be paid in a lump sum. National news organizations have reported on the scope of this problem, which appears to be widespread despite scripts provided to loan servicers that made it clear lump sum repayment was not required.

A forbearance requested by a Colorado homeowner could easily fall into a bureaucratic nightmare where one person at the bank provides a CARES Act forbearance and then some other department at the bank treats the borrower as though they had missed payments and the loan was delinquent. From there, a stream of useless phone calls interspersed with form letters generated by a computer demanding repayment will follow. Eventually, the matter might be referred for foreclosure even if the borrower has been making all payments as agreed since the forbearance ended. 

There are options for a homeowner in this situation, though. Even if a foreclosure has been filed, Colorado law does permit temporary restraining orders and preliminary injunctions to stop an improper foreclosure proceeding. Depending on the circumstances, the court may require a bond or loan payments to continue to be made during the pendency of the case. However, waiting until a foreclosure is imminent would be a mistake, because it will deprive the homeowner, bank, and their attorneys with valuable time that could be better spent analyzing the issues carefully and getting the loan back on track.

This, indeed, is one of the primary functions of lawyers in society that involved large corporate entities. Individual people or departments of a large company, like a mortgage lender, may not have the authority or ability to review all aspects of any given situation. The customer service representative at your mortgage servicer may not have access to your payment history, your loss mitigation package, or the collection department. Even if they do, regular employees may be extremely restricted by company policy in what they can safely do unless they want to be fired. Attorneys, at times, are the first person in a large corporate setting that can actually apply a human brain to a corporate machine. Like modern day priests, attorneys can collect information from multiple departments and consider how the law applies to those facts and what solutions make sense.  

How Can a Denver Business Lawyer Help

One of the best ways to trigger the involvement of an business attorney on the part of a corporation is to have your own attorney involved. Many companies will, wisely, refer matters to their legal department once the consumer hires their own lawyer. At the very least, a corporation will have to hire an attorney to analyze the situation if a lawsuit is filed, as companies cannot typically appear in court without representation. While this comes with its own costs, of course, homeowners who are tired of dealing with a bureaucratic machine should consider whether hiring counsel will help.

In addition to cutting through the bureaucracy, an attorney can also potentially seek relief against banks who violate the CARES Act. There have been several lawsuits filed to date alleging that lenders violated this law within the Tenth Circuit and at least one in the Second Circuit. The penalties for violating the CARES Act could trigger various rights under federal law and regulation for money damages. If you have suffered from improper threats, foreclosure, or legal action in violation of the CARES Act, you may wish to consult with an attorney.