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Re-Evaluating the Payroll Protection Program

While the world struggles with the impact of COVID-19, businesses are making required adjustments to this unprecedented disaster. Established disaster recovery policies were not necessarily designed to the extent of the COVID-19 impact. The Federal Government took a major step toward supporting business during the pandemic. On March 27, 2020, the CARES ACT was signed into law.

One of the benefits of the CARES ACT is to provide American companies financial support as they deal with the impact of COVID-19, including the impact of shelter-in-place requirements. Businesses can obtain a loan under the Payroll Protection Program (PPP), which loans are more extensive than Small Business Association (SBA) disaster loans. The PPP includes a forgiveness feature that is unique to SBA loans. In the eight weeks following the signing of the loans, all expenses related to (i) payroll, (ii) rent, (iii) mortgage interest, and (iv) utilities may qualify for forgiveness.

Regarding payroll, companies must commit to maintaining an average monthly number of full-time equivalent employees equal to or above the average monthly number of full-time equivalent employees during the previous one-year period. Companies must spend 75% of the loan funds on payroll. This is the provision that the mortgage default sector must pay specific attention to.

There are two considerations that are unique to the mortgage default sector. First, the servicing industry and the law firms that support it are impacted by the HUD moratorium, which is currently on schedule to be in place until May 18, 2020. The impact of the moratorium reduces the amount of work available to assign to full-time employees. Second, the mortgage industry has endorsed liberal loss mitigation policies as the industry undergoes record level loss mitigation application. As a result, post-COVID-19 foreclosure volume remains an unknown and may impact a company’s ability to maintain the average monthly number of full-time equivalent employees equal or above the average monthly number of full-time equivalent employees during the previous one-year period as required under the CARES Act.

Any business that is relying on the forgiveness element of PPP must carefully evaluate their operations to assure the loan forgiveness requirements prescribed by the CARES Act can be met.

About Author: Roy Diaz

Roy A. Diaz is the Managing Shareholder of Diaz, Anselmo Lindberg, P.A. The firm provides representation in Florida, Illinois, Ohio, Indiana, Kentucky, Wisconsin and Michigan. Diaz has been a member of the Florida Bar since 1988. He has concentrated his practice in the areas of real estate, litigation, and bankruptcy. He has represented lenders, servicers of both conventional and GSE loans, private investors, and real estate developers throughout his career with an emphasis on the mortgage servicing industry for over 25 years.
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