Blog

Millsap & Singer Covid-19 Updates (KS, MO, KY)

Forbearance Provisions and Loan Modifications in the Time of Covid-19

Forbearance Provisions and Loan Modifications in the Time of Covid-19
By: Kip Bilderback

Much discussion has been had about the CARES Act forbearance provisions and what happens after the forbearance plans end. Much concern has been expressed that there will be lump sum payments due at the end of the forbearance and the impact of forbearance on insurance and real estate tax escrow accounts and accounting.  For loans which come under the control of the FHFA, options will be given to borrowers at the end of their forbearance. FHFA Director, Mark Calabria confirmed and encouraged other lenders to adopt a similar approach:

“During this national health emergency, no one should be worried about losing their home," said Director Mark Calabria. “No lump sum is required at the end of a borrower's forbearance plan for Enterprise-backed mortgages. To help homeowners navigate the forbearance process, FHFA partnered with CFPB on the Borrower Protection Program to provide homeowners accurate information about forbearance and address concerns noted in some consumer complaints. While today's statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach."

What options will be available? Certainly, the option to set up a repayment plan to pay past due amounts would be tool that can be used. More likely, though, a loan modification process will be used to either capitalize the payments to the back end of the loan or reduce ongoing payments to allow easier recovery. This can bring up some considerations. A loan modification is just that, an agreement between the holder of a loan and the borrow to change the terms of an existing loan agreement. Typical changes will include interest rate, payment amount, loan term, or due date. There are generally no items that cannot be modified under the requirements in the states of Missouri, Kansas and Kentucky.


The question we most typically see with regard to modifications is whether they must be recorded. Only Kansas, under KRS 382.385, requires modifications to the terms of mortgages on real property securing lines of credit and revolving credit plans to be recorded. Otherwise, there are no requirements to record a loan modification. However, if you do not record a loan modification, its terms affect only the lender and the borrower, not junior lienholders as it is not part of the public record. Consequently, if a modification can potentially adversely affect a future junior lienholder, it is recommended that the modification be recorded. It is recommended that a modification that extends the maturity date of the loan, a modification that increases the total due under the loan, or a modification that provides additional rights to the detriment of future lienholders be recorded. It is also prudent to consider obtaining a date down endorsement to your loan policy of title insurance to assure the lien for the loan, as modified is protected. 

As forbearances turn to potential modifications, please feel free to reach out with any questions, or to have our firm draft and record modifications. 

Updates to Kansas and Missouri Court Moratoriums
Kansas
The Governor of Kansas has entered an executive order that has extended the moratorium under her prior executive order until 5/31/20.  This moratorium applies to situations where the default was a result only applies to situations where a default was the result of a defined COVID-19 related economic hardship, so it is our opinion that it does not apply to any matters that may have already been referred for FC or that may be referred for FC with due dates on or prior to 2/1/20 (the State of Emergency declaration for KS not having been issued until March 2020).  The Kansas Supreme Court also entered certain administrative orders on Friday that extended the suspension of statutory deadlines and also placed continuing restrictions on civil court operations that will impact foreclosures in 2 of the state's 3 largest counties (Wyandotte Co. and Johnson Co.) until those counties' local shelter-in-place orders are lifted after 5/15/20.

Missouri
The Missouri Supreme court has issued an order effective May 16th regarding the resumption of some functions on a phased roll-out. Certain criteria must be met by the individual courts in order to proceed through the phases. At this time we anticipate the more rural counties of the state will begin reopening courts for some business and will be working with clients to proceed with affected files as we are notified by the counties.

As of May 4th, 2020, the statewide stay-at-home order has been lifted which is the main criteria in the phased roll-out mentioned above. Stay-at-home orders are still in place for the most populous areas. Currently, Jackson County(Kansas City), St. Louis County, and St. Louis City are under orders. 

For the full list of current court moratoriums, see below.

Kansas

Closure/Cancellation

Time Frame

Statewide

No foreclosures of residential property are allowed to be initiated where the default is the result of a financial hardship created by the COVID-19 pandemic (loss of income or increased expenses due to the pandemic and making continued mortgage payments would hinder their ability to purchase other essentials – food, medicine, health/safety services).  

March 24, 2020 - May 31, 2020, unless rescinded or the statewide State of Emergency expires, whichever is sooner. 

Wyandotte and Johnson County

Restricted to emergency operations.  All civil proceedings are suspended indefinitely. Statutes of Limitations and procedural time standards deadlines are tolled during the pendency of the order.

Until after 5/15/2020

 

Kentucky

Closure/Cancellation

Time Frame

All Kentucky Courts – As ordered by the Kentucky Supreme Court

Courthouses are closed and all civil dockets for foreclosure purposes are canceled until at least that time.

Eviction filings will not be accepted by the circuit court clerk until 30 days after the order expires pursuant to federal and state moratoriums on evictions and public health and safety concerns.
 

April 1, 2020 – May 31, 2020

Kentucky Bankruptcy Courts (Eastern & Western Districts)

Telephonic appearances and participation are available to limit personal contact.

None provided

    

Missouri

Closure/Cancellation

Time Frame

All Missouri Courts

All in-person hearings

March 22, 2020 – May 16th, 2020.  After May 16th courts may reopen in a phased rollout as certain criteria are met.  

Western District of Missouri

To limit the number of people coming into the courthouse, upcoming dockets will be held by phone. 

Ongoing until further notice

Eastern District of Missouri

All proceedings shall be conducted by means other than in-person meetings wherever possible by law and as directed by the presiding judge in the proceeding. Any proceeding not deemed essential by the presiding judge in the proceeding that does require in-person meeting will be continued until further notice by the presiding judge. 

Until further notice


Recording Fee Increase in Kentucky 

With the New Year came new recording fees in Kentucky. A notable example would be the cost to record a deed has increased from $23 to $50. While the increase may seem dramatic, a further look into the fees shows additional changes to what is covered by this fee. Under the old fee structure, only three pages were included in the said fee, every additional page incurred an extra charge. Now the fee includes five pages before any additional fees are incurred. Some of the common fees we see in a Kentucky foreclosure action are listed below:
  
Assignment of Mortgage     $46
Deed $50
Lis Pendens Notice $46
Lis Pendens Notice Release $46
Mobile Home Conversion to Real Estate           $51

Question of the Quarter
By: Heather M. Fuller, Aaron M. Schuckman & Lucas J. Markushewski

Are fees in your states recoverable in the event of a payoff or reinstatement?  In the event of a partial reinstatement, are fees and costs recoverable or would they have to be waived?

Missouri: Missouri does not generally have statutory requirements regarding recoverability for payoff, reinstatement or partial reinstatement. Instead, the terms of the loan documents will govern. Under the standard Fannie/Freddie instruments in Missouri, you can recover your attorney fees for foreclosure as well as foreclosure costs, such as recording the SOT, title work, and postage for statutory notices. The instruments also provide for recoverability of costs for forced place insurance, property inspection/valuation, and other fees incurred to protect your interests, such as property preservation. Note, under RSMo. 408.092, attorney fees to enforce a credit agreement are permitted if they are included in a written credit agreement or they do not exceed 15% of the outstanding credit balance in default. The standard Fannie/Freddie instruments call for attorney fees to be recoverable, but they do not set out the specific rate. Therefore, a lender may make a business decision in the case of a low balance loan to cap recoverability at 15% of the outstanding credit balance in default.

Kansas: The terms of the note/mortgage will ordinarily control recoverability. Kansas law does not impose any cap on recoverability other than prohibiting recovery of costs for preparing/recording assignments of mortgage. The terms of the standard Fannie/Freddie instrument otherwise permit recovery of reasonable attorney fees, court costs, title expenses, property valuation costs, and other related sums incurred in enforcing the terms of the contract. Accordingly, fees and costs incurred as of the date a reinstatement quote is being provided will generally be recoverable.

As with the comment above, KS law does not impose any caps (other than prohibiting recovery of assignment-related fees/costs). Reasonable fees/costs are otherwise generally recoverable under the terms of the standard Fannie/Freddie loan instruments. As such, any fees/costs incurred in enforcing the terms of the contract that have been incurred as of the date of the quote can be included and would be recoverable.

In the case of a partial reinstatement, the same would apply. The terms of the note/mortgage would ultimately control recoverability in this situation. Fees and costs would otherwise remain recoverable under Kansas law if the contract terms permit it.


Kentucky: Kentucky also does not have statutory requirements regarding recoverability for payoff, reinstatement or partial reinstatement. Instead, the terms of the loan documents will govern. Under the standard Fannie/Freddie instruments in Kentucky, you can recover your attorney fees for foreclosure as well as foreclosure costs, such as title evidence, court filing fees, and Master Commissioner fees.  The instruments also provide for recoverability of costs for forced place insurance, property inspection/valuation, and other fees incurred to protect your interests, such as property preservation. Note, under KRS 286.8-110 and KRS 411.195, attorney fees to enforce a credit agreement are permitted if they are included in a written credit agreement and they do not exceed 15% of the outstanding credit balance in default.  The standard Fannie/Freddie instruments call for attorney fees to be recoverable, but they do not set out the specific rate.  In the case of a low balance loan, it is recommended to cap recoverability of attorney fees at 15% of the outstanding credit balance in default.

Contributors