West Contra Costa News

A Walnut Creek hotel general manager recently appealed to his congressional representative to stop lenders use of "vulture tactics" to prey on borrowers hard struck by the COVID-19 pandemic's economic impact.

Lenders circling over the pandemic-distressed properties "are well within their legal rights," the 249-room Walnut Creek Embassy Suites by Hilton general manager Wahid Mohammadi said in his April 2 letter to U.S. Rep. Mark DeSaulnier (D-CA).

In a copy of the two-page letter obtained by the West Contra Costa News, Mohammadi told DeSaulnier that the lenders' schemes are "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," Mohammadi wrote. "The negative impact to hotel owners and their employees of these vulture tactics will be long lasting."

DeSaulnier currently maintains a COVID-19 resource page on his House website.

The $2 trillion Coronavirus Aid Relief, and Economic Security (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 protecting properties of various sizes from lenders' actions to seize assets when payments aren't made during the pandemic.

California is one of those states, thanks to a March 16 executive order issued by Gavin Newsom. The order largely covers family dwellings and excluded larger properties.

Larger properties, however, got 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 impacted 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)."

Mohammadi 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," Mohammadi'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."

The vulture tactics, Mohammadi said, include accelerating the foreclosure process to gather 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.

"Representative DeSaulnier, 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," wrote Mohammadi. "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."