The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted to support individuals and businesses affected by the COVID-19 pandemic and signed into law on March 27, 2020, provides that borrowers experiencing financial hardship due to the national emergency declared by the President on March 13, 2020 may request and obtain forbearance on certain federally backed mortgage loans. The CARES Act applies to both single-family (one to four units) and multifamily (five or more units) federally backed mortgage loans, and requires lenders to acquiesce to any such forbearance requests made within the requisite covered period. Forbearances and related modifications pursuant to the CARES Act could adversely affect the tax status and tax treatment of certain special purpose entities that hold federally backed mortgage loans, including REMICs (real estate mortgage investment conduits), fixed investment (or “grantor”) trusts, and entities seeking to avoid characterization as taxable mortgage pools. These potentially adverse effects could obviate some of the very economic benefits the CARES Act was seeking to encourage.
A version of this article was originally published by Chapman and Cutler LLP on April 16, 2020, and was republished by the Journal of Taxation of Financial Products in July 2020. The republished article is linked below with permission.