By Shellie Wallace, Esq.

Wilson & Associates, PLLC *

USFN Member (AR, MS, TN)

This spring has seen particularly volatile weather, and nothing brings it more to mind than when it hits home. On March 31, 2023, an EF3 tornado struck the Little Rock metro area, destroying homes, injuring dozens, and displacing thousands. The supercell thunderstorm continued to wreak havoc across Arkansas, Tennessee, and into Mississippi, where not one week prior, a tornado pummeled the state leading to 26 deaths.  

The storms resulted in federal declarations of a “major disaster,” and a foreclosure moratorium that will last 90 days. Which leads to the question: What is a FEMA Hold and how is it applied?

FEMA Holds are created by the Department of Housing and Urban Development (HUD) regulations. The specific regulation provides: “All the National Disaster Areas identified by the Federal Emergency Management Agency (FEMA) will be subject to a moratorium on foreclosures following the disaster.” A “Declared Disasters” list can be found on the FEMA webpage https://www.fema.gov/disaster/declarations. In the first three months of 2023, there were 28 declared disasters.

After an incident is declared to be a National Disaster, the HUD regulations require a moratorium on foreclosures for FHA-insured loans on property directly affected by the disaster.    The moratorium is intended to mitigate hardships, allow mortgagees time to obtain insurance benefits and reduce the impact of the disaster on FHA insurance. It starts the day the president declares a national disaster and continues for 90 days unless extended.  

Fannie Mae and Freddie Mac servicing guidelines, while not mandating a moratorium, require servicers to evaluate each mortgage loan that is or becomes delinquent due to disaster-related damages on a case-by-case basis. Specific types of assistance, including payment deferrals and modifications are made available by the specific servicing guidelines.

The VA Guidance on Natural Disasters provides that “the loan holder is ultimately responsible for determining when to initiate foreclosure and “encourages holders to establish a 90-day moratorium on initiating new foreclosures in the disaster area.”

As we have seen with recent non-disaster moratoria, even absent a specific requirement, most servicers are committed to assisting their customers and have been proactive in implementing programs that efficiently effectuate homeownership.

For a more detailed review of “Managing your Mortgage Default Portfolio During a Natural Disaster,” check out Part 2 of our Natural Disaster Series in the upcoming USFN Spring Report, scheduled to distribute in late May.

USFN April e-Update