Modrall Sperling COVID-19 Task Force Updated October 31, 2020
*This article is authored by Roberta Cooper Ramo with Nicole T. Russell, Haley B. Adams, Jamie L. Allen, and other Modrall Sperling attorneys.
Seven months ago Governor Michelle Lujan-Grisham ordered a state of emergency in New Mexico. Since then, Modrall Sperling lawyers have mobilized to deal with client issues as they arise. While the COVID-19 timeline and the country’s re-opening remain unknown, it is clear that we continue to juggle our lives and businesses around COVID‑19.
Modrall Sperling strives to be a resource for our clients as they strategize how to continue safely their businesses amidst so much uncertainty. A pattern of frequently arising questions surrounding COVID-19 has emerged from our consultations with clients over the past seven months. We endeavor to summarize those questions and the corresponding answers in this article. We hope that this will serve as a resource to our clients going forward. Please note that the law, the regulations, and judicial interpretations are in a constant state of flux. Before acting upon any of the information contained in this article, please consult with one of our attorneys to ensure that there have not been changes that might affect your planned course of action. Earlier archived versions of this Article may be accessed here. Though the information they contain is outdated, the history and fuller context of the issues discussed may be helpful.
1. What Federal Programs remain available to help businesses and individuals?
A. The Main Street Lending Program
The Federal Reserve established the Main Street Lending Program (Program), which aims to provide up to $600 billion in loans for small and midsize businesses that were in sound financial condition before the onset of COVID-19. This program will remain in effect until December 31, 2020.
The Federal Reserve Board and U.S. Department of the Treasury released instructions for borrowers and lenders, available here. The Program operates through five facilities, and the term sheets for each facility and FAQs can be accessed here.
Small and medium-sized businesses interested in the Program can apply for Program loans by contacting an eligible lender, a list of which can be found here.
B. Student Loan Payment Relief
On August 8, 2020, President Trump issued the Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic, available here. Essentially this allows borrowers of student loans, which are held by a federal agency to suspend payments until December 31, 2020 without penalty or accrual of interest. However, this relief does not apply to borrowers whose student loans are held by private entities.
C. Mortgage Assistance
On October 19, 2020 the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac will extend several loan origination flexibilities until November 30, 2020. The flexibilities were set to expire on October 31, 2020. The flexibilities include buying qualified loans in forbearance, alternative appraisals on purchase and rate term finance loans, alternative methods for documenting income and verifying employment before loan closing, and expanding the use of powers-of-attorney to assist with loan closings. The Federal Housing Finance Agency’s press release is available here.
D. Deference of Payroll Tax Obligations
On August 8, 2020, President Trump issued the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, available here. The Internal Revenue Service (IRS), later issued guidance, available here, stating that payment of payroll taxes for applicable wages is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021.
E. Stimulus Relief Bills like the CARES Act as Modified by the Paycheck Protection Program Flexibility Act
The Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) funded by the Coronavirus Aid, Relief and Economic Security Act, known as the CARES Act, was created to provide loans for businesses. On August 8, 2020, the Small Business Administration (SBA) stopped accepting Paycheck Protection Program (PPP) loan applications. Entities that secured funding should have received an SBA loan number.
There is ongoing discussion about a new stimulus bill and the possibility of a stand-alone bill to provide additional funding to the PPP. The landscape is confusing and unpredictable. We will continue to update the Modrall Sperling website with federal guidance as it develops.
2. Is there any guidance regarding loan forgiveness under the PPP?
Yes. The guidance for PPP loan forgiveness has evolved over time, with the most recent guidance having been issued on October 8, 2020. The frequent changes to the PPP forgiveness process can be confusing. The information below is intended to provide a general overview of the current PPP loan forgiveness landscape. For specific questions regarding your PPP loan you should contact your lender and consult legal counsel with additional questions.
PPP loan borrowers apply for forgiveness through their SBA approved lender. Although SBA opened the forgiveness portals to lenders on August 10, 2020, some lenders have not made applications for forgiveness available. This could be in part because lenders were awaiting further SBA guidance regarding loan forgiveness applications, like the guidance issued on October 8, 2020.
For those borrowers who already applied for forgiveness, the SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders on October 2, 2020. If you have already submitted a loan forgiveness application and you are uncertain of the status of your application, it is very important that you check with your lender and not assume that the application has the information required under any new funding act. Every item required to be documented must be complete for a lender to submit a forgiveness application to the SBA.
The SBA has also offered guidance on appealing rejections of PPP loan forgiveness. See Section 3 for an outline of the procedure to appeal PPP forgiveness applications that have been turned down.
Regardless of whether or not you have submitted your loan forgiveness application, it is important to keep detailed records of how you are complying with the stringent PPP loan rules. Applicants should continue to maintain detailed records, ask for receipts, and keep all supporting information, from the beginning of the covered period. While the PPP rules only require that you keep records for 6 years, because there can be tax implications, we suggest you keep your records for the 7 years required by the IRS. Applicants should draft memos—reviewed by counsel—to document eligibility for loan forgiveness.
A. Loan Forgiveness Requirements
Loan forgiveness will be based upon the business’ actions during the covered eight or twenty-four week period. From there, forgiveness will be determined by certain costs incurred and payments made throughout the covered period. Payroll costs are the primary eligible cost, and include:
- Salary, wages, commission or similar compensation (limited to $100,000.00 compensation or less per employee)
- Payments for vacation, parental, family, medical or sick leave (this may be limited if the Employer got benefits under the Families First Corona Virus Response Act, FCRA)
- Allowance for dismissal or separation
- Payments for the provision of group health care benefits, including insurance premiums
- Payments for retirement benefits
- State or local payroll taxes
Under the PPP Flexibility Act, available here, no more than 40 percent of the loan forgiveness amount can be attributable to non-payroll costs. Those non-payroll costs eligible for forgiveness include:
- Interest payments on mortgages incurred in the ordinary course of business on real or personal property in existence as of Feb. 15, 2020
- Rent payments under leasing agreements in existence as of Feb. 15, 2020
- Utility payments for electricity, gas, water, transportation, telephone or internet for which service was in existence as of Feb. 15, 2020.
It is possible the borrower’s forgiveness amount could still be proportionately reduced if the business has reduced its number of full-time equivalent (FTE) employees, or if the business has reduced the salary or wages of certain employees. However, the PPP Flexibility Act has loosened those restrictions in the following ways:
- Workforce Restoration Timeline Extended: Borrowers now have until December 31, 2020, to restore their workforce levels and wages to qualify for full loan forgiveness. The prior deadline was June 30, 2020.
- Forgiveness Requirements Loosened: If borrowers can in good faith document that from February 15, 2020 to December 31, 2020 they could not: (1) rehire individuals who were employees on February 15, 2020, or hire similarly qualified employees for unfilled positions on or before December 31, 2020; or (2) return to the same level of business activity at which such business was operating before February 15, 2020, because of COVID-19-related operating restrictions, they may still have their loans fully forgiven without fully restoring their workforces.
As mentioned above, the rules for PPP loan forgiveness have changed over time, with the most recent guidance issued on October 8, 2020. For a full chronological list of all the interim rules posted starting April 2 up until now, go here or visit past versions of our site to see their evolution.
B. Loan Forgiveness Applications
On October 8, 2020, the SBA and Treasury Department announced simplified rules for PPP forgiveness for loans of $50,000 or less. The SBA also issued further guidance on loans of all sizes and lender responsibilities. The Interim Rule on Additional Revisions to Loan Forgiveness and Loan Review Procedures issued on October 8, 2020, is available here.
If your loan was for $50,000 or less you may now use the new simplified loan forgiveness application, SBA Form 3508S. Here, are the instructions for the simplified loan forgiveness application. However, your SBA approved lender will likely provide you with more guidance on how to submit your application. You should consult with your lender to determine how it wants to proceed.
If your loan was for over $50,000, you must determine whether you qualify for Form 3508EZ which may only be used by borrowers who are either self-employed, independent contractors, or sole proprietors. If none of these apply to you, then your forgiveness application must be done on Form 3508, last updated June 16, 2020. Both forms have further requirements regarding employees’ salaries and wages, as well as possible deductions. For those specifics you should consult the forgiveness application instructions for each form and the SBA’s Frequently Asked Questions regarding Paycheck Protection Program Loans, last updated October 7, 2020 and available here.
It is possible that there will be further changes to the loan forgiveness applications. For example, Senate Bill 4117 proposes to automatically forgive PPP loans of $150,000 or less, but this proposal has not yet been made law and it is unlikely to pass before the election in November.
3. What do PPP Recipients Need to Know?
PPP recipients should be aware that the SBA may review any PPP loan, regardless of size, to determine if the borrower was eligible for PPP loans under the CARES Act, whether the borrower calculated the loan amount correctly and used the funds for eligible costs, and whether the borrower is eligible for the amount of loan forgiveness it requests. For this reason, it is critical that borrowers keep all paper and electronic records related to loan disbursement and spending for at least 6 years after the date that the loan is forgiven or repaid in full. However, FAQ 46, available here, provides that if the SBA in the course of its forgiveness review comes across a mistake on the part of the borrower, the SBA will notify the borrower, who can repay the loan without penalty. If you borrow PPP loans and are contacted by the SBA regarding a mistake you should contact your legal counsel and accountants right away.
As mentioned above, there is an appeal process for borrowers whose PPP loan forgiveness applications are denied by their lender. The appeal process for PPP loan forgiveness denial was issued by the SBA on August 25, 2020 through an interim final rule, available here. If a borrower’s PPP loan forgiveness application is denied by its lender, the borrower should request SBA review. The SBA is accepting appeals by email at firstname.lastname@example.org, by fax at (202)205-7059, and via the Hearing and Appeals Submission Upload Application, available here.
If the final SBA review process also denies the borrower’s PPP loan forgiveness application, the borrower may appeal through the SBA’s Office of Hearings and Appeals. To appeal, borrowers must follow the steps outlined in the interim final rule, including filing the appeal petition within 30 calendar days after receipt of the final SBA loan review decision.
If you are PPP recipient contemplating a sale of assets of your business, you need to consider the SBA rules regarding loan forgiveness in that context. On October 2, 2020, the SBA issued a procedural notice clarifying when borrowers of PPP loans and their lenders need SBA permission for changes of ownership. The recently issued procedural notice, changed the definition of a “change of ownership.” Part of the change in definition means that if the sale or transfer is less than 50% of the company’s equity or assets and the borrower has completed a PPP forgiveness application with the lender, PPP borrowers and lenders do not need to seek SBA approval. If the sale or transfer is 50% or more of the company’s equity or assets the borrower may need SBA approval depending on whether the borrower has completed the following requirements with the lender: (1) the borrower has completed a PPP loan forgiveness application; (2) the borrower has submitted the PPP loan forgiveness application to its PPP loan lender; and (3) the borrower has set up an interest-bearing escrow account with that lender to cover the PPP loan. However, if any of those requirements cannot be met, the borrower must still get SBA approval for the sale or transfer. Previously, SBA approval was always required. Notably, even if business ownership is transferred, the original borrower is still responsible for the PPP loan.
If your business is a PPP borrower and has not obtained PPP forgiveness, you should consult with your lender before planning any sale of equity or assets. Additionally, we recommend consulting legal counsel prior to agreeing to any transfer of equity or assets so that a clear plan to maintain loan forgiveness is determined. Meg Meister and Ian Bearden are working in this area.
4. Is there a New Mexico Loan Program to aid businesses harmed by the COVID-19 shutdown?
Yes, the New Mexico Investment Council has established a New Mexico Recovery Fund managed by Sun Mountain Capital. That program opened August 5, 2020, and allocated $400 million in loan funds available for New Mexico’s small businesses. The rules for application may be found here.
As of early October, 2020, applications for eligible businesses were still being accepted. Eligible businesses are those which are:
- A New Mexico business or nonprofit corporation organized under Section 501(c)(3) or 501(c)(6) that has closed or reduced operations due to the public health order, and
- Had annual gross revenue of less than $5 million as determined by its 2019 federal income tax return or Form 990, and
- Experienced a 30% decline in monthly gross receipts or monthly revenue in April and May of 2020 as compared to the same months in 2019.
On August 25, 2020, the Governor’s Economic Recovery Council issued a press release, available here, urging small businesses to apply for an emergency loan available through the New Mexico Finance Authority. Note that these loans must be repaid under the terms of the program. Participation in the loan program has been lower than expected and it is possible that its eligibility requirements will be re-considered in the next 60-day legislative session.
5. What is the Status of New Mexico’s Re-opening?
Although New Mexico had begun to loosen several business-related restrictions over the summer, Governor Lujan Grisham announced an Amended Emergency Public Health Order (Amended Order), effective October 16, 2020, which may be accessed here and an Extended Emergency Health Order, announced October 20, 2020. The Amended Order and the Extended Order are expected to be in effect until Nov. 13, 2020.
- Limited Retail Hours: All retail establishments including any food and drink establishments, must close by 10:00 p.m. Retail establishments are defined as businesses selling goods or services directly to customers including grocery stores and big box stores. The Amended Order from October 16, only applied to food or drink establishments serving alcohol.
- Hotspot Businesses Temporarily Closed: Businesses that incur 4 “rapid responses” over a 2-week period will be required to close for two weeks. A “rapid response” refers to a reported incidence of COVID-19 in the workplace to the Environment Department. Additionally, the Environment Department will be listing New Mexico businesses and public institutions, which have reported more than one COVID-19 positive case on a public dashboard starting October 23, 2020. Reporting of COVID-19 incidents in the workplace is required.
- Enhanced Safety Requirements for Food and Drink Establishments: Food and Drink Establishments that wish to continue offering indoor dining at the 25% maximum occupancy must do the following:
- Complete NM Safe Certified Training Program by October 30, 2020;
- Consent to spot testing employees by the Department of Health; and
- Require dine-in customers to list their name and contact information in a logbook, and retain the information for no less than 3 weeks. Previously the logbook was only a recommendation, not a requirement.
Food and Drink Establishments only offering outdoor dining at 75% maximum capacity are not required to complete the certification program.
- Reduced Hotel Occupancy: Places of lodging that have completed the NM Safe Certified Training Program are limited to 60% maximum occupancy. Those that have not completed the certification are limited to 25% maximum occupancy. Previously, hotel occupancy was limited to 75% for certified and 50% for uncertified.
- Limited Gatherings: All gatherings of more than 5 people are prohibited, previously gatherings had been limited to 10 people.
- Mandatory Quarantine for Individual Traveling into New Mexico: A mandatory 14-day quarantine is still in place for all individuals traveling into New Mexico from states deemed high-risk based on COVID-19 positivity rates. The Governor issued a renewed public health order, effective October 29, 2020, renewing the requirement that individuals from high risk states quarantine for 14 days. The list of those states deemed “high-risk,” found here, is continually changing, and is thus updated weekly.
New Mexico’s Guide to COVID-Safe Practices for Individuals and Employers was updated on October 13, 2020 and may be accessed here.
6. How has COVID-19 affected tax filings, tax matters and retirement plans?
The CARES Act has a number of very important exemptions or changes to rules concerning retirement plans of all kinds. These range from changes providing large loans and distributions from qualified plans for those qualifying for them to suspension of required minimum distributions (RMDs). Other changes were made that might make a difference in your decisions about charitable gifts from IRA’s and certain estate planning matters.
Qualified individuals have three years to return COVID-19 related distributions from IRAs and retirement plans.
For Retirement Plan questions of all kinds, Karen Kahn is working on these matters. For other tax matters, including state taxes and estate tax questions the following lawyers are able to help: Vanessa Kaczmarek, Ian Bearden, Zack McCormick, Roberta Ramo, Marjorie Rogers and Nadine Shea. For State Gross Receipts Tax questions, please contact Zack McCormick or Ian Bearden.
7. Are there any health insurance or health plan issues?
Certain protection of continuation of health benefits are covered by the CARES Act. However, many depend upon the hour requirements of the employer’s plan and there may be state insurance rulings that have changed. The U.S. Department of Labor (DOL) and the IRS have waived health plan claims deadlines for both employees and employers, including deadlines for paying COBRA premiums. On May 13th, the IRS issued Notices that permit Employers the option of: 1) extending the grace period for unused amounts from 2019 in Health FSAs and DCRAs to December 31, 2020; 2) prospectively permitting changes to health plan coverage and to Health FSAs and DCRA amounts without a qualifying status change (although Employers can limit the amount and the election change period); 3) permitting use of telehealth services without disqualifying HSA contributions; and 4) increasing the Health FSA carryover to $550 and permanently indexing the carryover dollar amount. Amendments to plan documents are not required until December 31, 2021. The IRS has also extended many health plan deadlines including the deadlines for submitting medical claims, electing COBRA, and adding new dependents.
Further, the New Mexico Office of Superintendent of Insurance has issued various guidance documents relating to the COVID-19 pandemic. A continually-updated collection of these documents can be found here.
Also important are the requirements of HIPAA when an employer finds that an employee has been diagnosed with COVID-19. Kevin Pierce is ready to answer HIPAA questions and Karen Kahn can help with health plan and cafeteria plan questions.
8. How does COVID-19 affect employers?
The DOL is requiring employers to post a notice of the Families First Coronavirus Response Act (FFCRA). The FFCRA became effective on April 1, 2020. The current poster applicable to non-federal employees (as of March 26, 2020) can be found here. The DOL has provided additional information regarding the FFCRA and related posters on the DOL website here. Employers are required to inform employees of the rights afforded by the FFCRA. The DOL counsels that an employer may satisfy this requirement by emailing or direct mailing this notice to employees, or posting this notice on an employee information internal or external website.
As businesses reopen, they should review the guidelines from the CDC, available here and here, and the State of New Mexico, available here. Note that businesses that are currently open must follow many requirements in the Governor’s Orders, including the number of people that can be in their business and other requirements.
Several attorneys in our Employment Group can help with these kinds of issues.
9. How has COVID-19 impacted real estate leases?
Both residential and commercial leases are impacted by the COVID-19 shutdown.
For commercial leases, look first to the language of the lease.
Many tenants have stopped paying rent during the shutdown and both landlords and tenants are looking at their leases. The result is in part dependent upon the language of the leases. However, many leases do not address a virus in a clear way. Additionally, tenants who were recipients of PPP loans may be required to pay rent under certain terms of that loan. Other loans may not have a similar requirement. Landlords should be clear about following the notice provisions of the default clauses in their leases and tenants would be well advised to get in touch with their landlords directly. Any written communication by either the landlord or tenant should be reviewed by your attorney. Meg Meister, Roberta Ramo and Robin James are working in this area.
For residential leases, the following information may be helpful:
The CARES Act contained a 120-day “moratorium” on landlords evicting tenants or imposing fees/fines due to a tenant failing to pay rent. However, this moratorium expired on July 24, 2020, allowing landlords to issue 30 days’ notice for tenants to vacate properties. The CARES Act eviction moratorium applied to “covered dwellings” and “covered properties”, which included any property that participates in a covered housing program including such as (among other programs) the Low Income Housing Tax Credit program (26 U.S.C. § 42) and programs pursuant to which the landlord’s mortgage is a HUD, VA, USDA or Fannie Mae or Freddie Mac loan.
Even though the federal moratorium has expired, relief for renters continues to be in effect at the state level. Before the enactment of the CARES Act, the New Mexico Supreme Court issued an Order staying the execution of all writs of restitution under the Owner Resident Relations Act, for non-payment of rent, provided the resident “has demonstrated by a preponderance of the evidence a current inability to pay monthly rent established by the rental agreement.” The Order does not contain a termination date, and instead, “shall remain in effect until amended or withdrawn by future order of the Court.” Accordingly, the Order continues to apply even though the CARES Act moratorium has expired. There is a list of Frequently Asked Questions on New Mexico Courts website, available here.
10. What about creditors’ rights issues?
In addition to leases, COVID-19 has had a dramatic effect on loans. Businesses that extend credit are being requested to forbear collection and the CARES Act has expanded certain bankruptcy relief. Moreover, the dramatic oil price reduction has hurt businesses and individuals within, and dependent on, the oil and gas industry for revenue. Creditors should understand their rights and the rights of their borrowers, including the revisions to the Bankruptcy Code under the CARES Act.
On Friday, June 5, the New Mexico Supreme Court handed down an order, available here, suspending any issuance of new writs of garnishment and writs of execution in consumer debt cases. Previously-issued writs and domestic support obligations are unaffected.
11. Is it possible to execute new Estate Planning Documents during the shutdown?
Yes. In New Mexico, documents that only need to be witnessed by a notary may be notarized by video (i.e. Zoom or FaceTime), if certain requirements are satisfied. Initially, the allowance of notary by video was allowed until June 20, 2020, but has since been extended until rescinded by Governor Lujan-Grisham under Executive Order 2020-039.
Most states have enacted some form of remote notarization. However, state laws and guidance are evolving quickly during the ongoing pandemic, so it is a good idea to check the laws of the state where you are notarizing the documents. A helpful resource that summarizes approaches from different states is available here.
Additionally, and especially important now, is letting someone in your family know where your original wills, trusts, durable powers of attorney and health care directives are kept. If you have questions about creating or updating your estate planning documents, the attorneys in our Trusts and Estates Group can help.
12. What employment issues exist in the context of reopening?
The Department of Labor and the Equal Employment Opportunity Commission have issued guidance—available here—to help employers apply sick leave and the expanded Family Medical Leave Act and to avoid claims for discrimination, retaliation, and harassment in the workplace based on COVID-19. The Guidance covers matters such as the ability for employers to take the temperatures of employees entering the workplace, limitations on disclosing the identity of a COVID‑19 positive employee, and the duty to accommodate an employee’s request for accommodation based on a fear of contracting COVID‑19. Modrall Sperling’s Employment Group is ready to navigate employers through these and other potential areas of exposure. These guidelines continue to change and you should consult with your attorney before you take action.
13. Risk management and related litigation.
The Long Term Care and Healthcare industries are facing regulatory and personal injury claims related to COVID-19. Our attorneys have handled regulatory and litigation matters for our clients in the Long Term Care and Healthcare industries, such as skilled nursing facilities and assisted living facilities, and hospitals, including regulatory proceedings, trials and appeals, and they are well-versed in recent COVID-19 developments. Should you be threatened with COVID-19 related litigation or regulatory enforcement matters, attorneys, Michelle A. Hernandez, Tomas J. Garcia, Tim L. Fields, Martha Brown, Susan Bisong and Jeremy Harrison can help you.
The most important advice of all: Stay safe, practice social distancing, wash your hands, wear your masks and know that we all care about our whole community and are here now and in what we know will be a robust recovery for New Mexico.