Mercer Times

A Princeton hotel general manager recently appealed to her congressional representative to stop lenders from using "vulture tactics" to prey on borrowers hit hard by the COVID-19 pandemic's economic impact.

Lenders circling over the pandemic-distressed properties "are well within their legal rights," The Westin Princeton at Forrestal Village General Manager Kim Hughes said in her April 2 letter to Rep. Bonnie Watson Coleman (D-NJ).

In a copy of her two-page letter obtained by the Mercer Times, Hughes told Coleman that the lenders' scheme is "unconscionable from a moral perspective and stand starkly against the principles that we share here in the United States."

"Frankly, to take advantage of this crisis for the sake of better returns for some New York hedge fund strikes me as unAmerican," Hughes continued in her letter. "The negative impact to hotel owners and their employees of these vulture tactics will be long lasting."

Hughes urged Coleman to join with other members of congress, the Federal Reserve and other regulatory agencies "to address this situation before hotels across this country are mercilessly foreclosed on due to no fault of their own." Among other things, Hughes called for an 18-month moratorium on foreclosure proceedings to allow hotel owners "time they will need to come up with reasonable solutions and strategies."

The Westin Princeton at Forrestal Village is a 296-room hotel on Village Boulevard.

Coleman currently maintains a coronavirus information page on her House website.

The $2 trillion Coronavirus Aid, Relief and Economic Security Act of 2020 (CARES Act) passed by Congress late last month provides some foreclosure relief, mostly for family-owned properties.

In addition, some states have set up foreclosure moratoriums and stays, often covering small and large properties from lender asset seizure when payments aren't made during the pandemic.

New Jersey is one of those states, thanks to two orders issued last month. Gov. Phil Murphy's March 19 executive order bars residential homeowner evictions after foreclosure, but allows foreclosures to otherwise proceed. In a judicial order issued March 28, the state's Banking and Insurance Department announced an agreement with about 45 banks, credit unions and servicers to consider forbearance agreements for borrowers suffering economic hardship during the pandemic.

Both orders largely apply to family residential properties and not to larger properties.

Larger properties received some protection in an interagency statement issued March 22 by the Federal Reserve, FDIC and other regulatory agencies that encouraged the nation's banks to work proactively with borrowers hit hard by the COVID-19 pandemic.

"The agencies encourage financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19," the statement said. "The agencies view loan modification programs as positive actions that can mitigate adverse effects on borrowers due to COVID-19. The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (TDRs)."

Hughes called the interagency statement "undoubtedly a step in the right direction" but said not all borrowers have loans from FDIC-insured banks.

"However, billions of dollars of hotel loans in our country come from unregulated non-banks such as hedge funds and other investment funds," Hughes's letter said. "Since the Federal Reserve and the FDIC have no direct oversight of these firms, they are unlikely to follow the previously mentioned guidance. They are more likely to take a different approach: the use of vulture tactics to extract as much 'value' out of the hotel as possible without any regard for the current crisis or the hotel employees or hotel owners involved."

Those "vulture tactics" include accelerating the foreclosure process to gather in as many COVID-19-distressed properties as possible, using "small technical ways" to rush loan defaults, denying borrowers existing escrowed funds and slowing reimbursements on collateral, Hughes's letter said.

"Representative Coleman, I urge you, Congress, the Federal Reserve and other governmental agencies to move quickly to address this situation before hotels across this country are mercilessly foreclosed on due to no fault of their own," Hughes's letter said. "To the extent additional legislation related to COVID-19 is proposed, I would recommend adding language that introduces an 18-month moratorium on ALL foreclosure proceedings for ALL lenders to hotels. This should give hotels the time they will need to come up with reasonable solutions and strategies with their lenders to ensure that they have their loans paid off and avoid unnecessarily enriching hedge fund vultures."