Insight

COVID-19: THE IMPACT ON REAL ESTATE

COVID-19: THE IMPACT ON REAL ESTATE

Robert M. Steeg

Robert M. Steeg

July 1, 2020 04:43 PM

Real estate is one of the business sectors that has been hardest-hit by COVID-19. Below is a quick summary of some of the ways that real estate lawyers and title insurance professionals are adjusting, so that real estate transactions can continue to take place.

Condominium Life During COVID-19

Life at condominiums during COVID-19, especially at vertical buildings, has been stressful for the Boards, unit owners, occupants and employees.

Associations were just not prepared to handle the multitude of issues that a pandemic presents, such as testing, sanitizing, restricting access, and policing unit owners. Many HOA governing documents do not provide adequate powers for the Board to take drastic measures. In most cases, Boards have relied on the cooperation of the unit owners and occupants, since access to courts are limited to emergency matters only.

HOA’s need to obtain extraordinary powers in limited events, and develop policies and procedures in order to protect the unit owners, occupants, employees and third parties entering the facilities.

Mandating closure of many of the common amenities (pool, fitness area, library, meeting room, and even open common areas) is and has become an unpopular action, but without some controls you risk the entire community becoming infected. Boards need to plan now for the next such event (just as they do for hurricanes), and that especially includes a budget line item to cover the extra expenses relating to pandemics, such as back up personnel, daily cleaning, protective equipment and sanitizers.

Evictions in Orleans and Jefferson Parishes

Landlords should approach evictions with extreme caution during the COVID-19 crisis. Governor John Bel Edwards signed an Executive Order suspending evictions through May 15, 2020. In addition, under the federal CARES Act, landlords who have federally-backed mortgage loans or who participate in certain federal programs cannot send notices to vacate, file eviction proceedings or charge nonpayment penalties to residential tenants until July 25, 2020. Landlords who receive forbearance on federally-backed multifamily mortgage loans are similarly prohibited from taking the same actions during the period of forbearance.

The Louisiana Supreme Court has also limited in-person court proceedings to only certain emergency matters which do not include evictions. Further, most courts in Jefferson and Orleans Parishes are closed to the public until at least May 18, 2020, although online and fax filing and remote hearings are generally available.

And, these dates could change, if state or local officials continue the current suspension of activity.

Leases

Leases are a hotbed of activity right now, both from a business point of view and a legal point of view.

For the most part, landlords and tenants appear to be attempting to negotiate business arrangements without retreating into legal arguments. Residential tenants, for the most part, appear to be paying their rent without extensive requests for rent relief, depending on their personal circumstances. The same appears to be true for office tenants, although some requests for relief are being received.

The area experiencing the greatest amount of activity is, of course, the retail sector. Landlords are frequently proposing rent-deferral programs, on a blanket basis, to all tenants, often accompanied by extensions of the term of the leases. Large, national tenants frequently advance their own proposals, even ahead of the landlords’ proposals, often requesting several months’ rent abatement accompanied by several more months of reduced or deferred rent to allow the tenant’s business to ramp back up.

Government coronavirus relief programs, primarily those under the CARES Act, are an important backdrop to these negotiations. Landlords frequently insert provisions requiring the tenant to seek specific relief (such as a PPP loan) and requiring that a portion of the proceeds received by the tenant be applied to the rental amount otherwise deferred or abated. Also in the background are the potential legal positions of the parties in case the negotiations break down, most often focusing on the force majeure provisions of the leases, and also occasionally involving other legal theories.

Real Estate Closings: New Strategies

The advent of COVID-19 has had a pronounced effect on how real estate closings are conducted, as social distancing guidelines have necessitated new strategies for the usual closing process.

Governor Edwards signed an Executive Order authorizing the use of remote online notarization (RON) to allow the signing parties and the notary to be in different locations for the execution of a legal document requiring notarization. Unfortunately, the RON process does not apply to those documents that are required under Louisiana law to be in the form of an “authentic act” – where the signing party signs the document in the physical presence of the Notary and two witnesses. That particular form of execution is either legally required or very highly advisable for sales and mortgages, as well as for donations and wills.

Since RON is not useful for such documents, law firms and title companies are resorting to two other approaches in order to keep commerce moving. The first is executing the documents in various locations, and then transmitting these signed documents to the closing agent for collation and filing. That is the standard method of handling multi-state commercial closings today, anyway.

The second is getting physical signatures from the buyer and seller by staggered appointments under circumstances that allow for social distancing. For instance, the buyer comes to the Notary’s office at 10am, the conference room is set up to allow for social distancing, and other appropriate protective measures are followed. Then the buyer leaves and the process repeats itself as the seller comes in at 11am. The same procedure applies to a mortgage lender and its borrower. The disbursement of proceeds can then be authorized by email or telephone confirmation.

To further support this “remote” process, powers of attorney can be utilized to allow borrowers (and sellers and buyers for that matter) to execute one single document and have an employee of the title company, as agent, execute all other relevant documents needed for the closing process. The power of attorney will need to be executed before a Notary and two witnesses, but the time and minimal exposure involved in the execution of that one document (as opposed to 15 or more in a typical closing package) is a step in the right direction.

Title Insurance: Abstracts, Title Examinations and Recording Documents Using Remote Access to Clerks’ Offices

The coronavirus has had a material effect on title abstracting and examination, because the clerks’ offices are physically closed to the public. Abstractors are forced to use the computerized records to do the searches remotely, but in many parishes, the computerized records start only fairly recently, some going back only thirty years or so.

Louisiana law requires at least a 30-year search for most sales transactions, so the title examiner has to make sure he or she can comply with the law using only the available computer records. Law firms and title insurance agents are working closely with title insurance companies to make sure that title searches and examinations can be done so that closings can continue.

Another twist because of the coronavirus closures of offices is how sales (deeds), mortgages, leases, and similar documents are recorded once a real estate closing is finished. Before now, most documents were recorded by delivering paper copies of the original documents to the clerk’s office. A few parish clerks’ offices are set up for documents to be delivered electronically, but the majority are not. When paper documents have to be recorded, most of the clerks’ offices are accepting documents by mail or overnight courier service, but do not allow parties to go in person to deliver the documents. There is often a delay of two or three days, because many of the clerks are sanitizing the packages they receive before handling the paper documents.

Co-authors: Robert M. Steeg, Randy Opotowsky, Margaret V. Glass, David Martinez, Lillian E. Eyrich

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