The COVID-19 pandemic reshaped the real estate industry in ways that continue to influence lending practices, regulatory frameworks, and risk management strategies in 2025. For private lenders, the disruption of 2020 was not merely a temporary crisis but a defining event that exposed vulnerabilities in loan portfolios, tested the limits of contractual provisions, and prompted lasting changes in how the industry approaches borrower distress.
This retrospective examines the key regulatory and legal developments that emerged during the pandemic and distills the lessons that remain most relevant for private lending professionals navigating today’s market.
Recording Office Disruptions and the Digitization Imperative
One of the first operational challenges to surface during the pandemic was the widespread closure of county recording offices. Across the country, jurisdictions shuttered their doors or moved to severely limited operations, creating bottlenecks in title searches, lien recordings, and loan closings. The American Land Title Association tracked these disruptions in real time, documenting a patchwork of operational statuses that varied dramatically by jurisdiction.
For private lenders, the recording office shutdowns created immediate practical problems. Loans could not be closed on schedule. Title searches were delayed or unavailable. Some jurisdictions accepted electronic recordings while others did not, creating an uneven playing field depending on the geography of the transaction.
The Lasting Impact
The pandemic dramatically accelerated the adoption of electronic recording and remote notarization technologies. By 2025, most jurisdictions have implemented or expanded electronic recording capabilities, and remote online notarization has gained statutory authorization in the majority of states. Private lenders who have integrated these technologies into their closing processes benefit from faster turnaround times and greater resilience against future operational disruptions.
The lesson is clear: reliance on purely in-person, paper-based closing and recording processes creates unnecessary vulnerability. Lenders who build flexibility into their operational workflows are better positioned to maintain deal flow during periods of disruption.
Business Interruption Insurance and Coverage Gaps
The pandemic sparked intense litigation and industry debate around business interruption insurance. Traditional business interruption policies are designed to cover direct physical loss or property damage from events such as fires, floods, and storms. When COVID-19 forced businesses to close, many policyholders discovered that their coverage did not extend to losses caused by a viral pandemic or government-mandated shutdowns.
Courts across the country largely upheld insurers’ positions that pandemic-related closures did not constitute the type of direct physical loss required to trigger coverage. Some policies contained virus exclusion endorsements that explicitly barred pandemic-related claims. A small number of policies with broader infectious disease coverage extensions did provide some relief, but these were the exception rather than the rule.
What Private Lenders Should Take Away
For private lenders, the business interruption insurance experience underscores the importance of understanding the scope and limitations of insurance coverage, both for their own operations and for their borrowers’ properties. Key considerations include:
- Requiring borrowers to maintain comprehensive insurance coverage as a loan covenant, and periodically reviewing the adequacy of that coverage
- Understanding that standard business interruption policies may not protect against pandemic, cyberattack, or other non-physical perils
- Evaluating whether parametric insurance or other alternative risk transfer mechanisms may be appropriate for certain portfolio exposures
- Incorporating insurance coverage review into due diligence processes for new originations
Force Majeure Provisions Under Stress
The pandemic put force majeure clauses under unprecedented scrutiny. Across the country, major retailers and commercial tenants notified landlords that they intended to invoke force majeure provisions to justify rent deferrals or temporary closures. The viability of these claims depended heavily on the specific language of each lease agreement.
Force majeure clauses that referenced “acts of God” and “government actions” became the subject of intense legal analysis. Courts generally held that narrowly drafted clauses listing specific qualifying events, such as earthquakes, hurricanes, or floods, without mentioning epidemics or pandemics, did not automatically extend to COVID-19. Conversely, broadly worded provisions using catch-all language or explicitly referencing health emergencies were more likely to support tenant claims.
The government-ordered closure dimension added complexity. While COVID-19 itself was not a government action, the mandated business closures that followed could potentially qualify under force majeure provisions referencing government orders or regulatory restrictions.
Practical Takeaways for Lenders
Private lenders should consider the following when evaluating force majeure risk in their portfolios:
- Review force majeure provisions in loan documents and in the leases underlying collateral properties to understand what events may excuse performance
- Recognize that ambiguity in contractual language tends to be resolved against the drafting party
- Consider whether loan documents should incorporate specific provisions addressing pandemic or public health emergency scenarios
- Monitor borrower compliance with lease modification restrictions, as unauthorized tenant concessions can trigger default provisions in mortgage agreements
Loan Default Triggers and Recourse Liability
The pandemic created a cascade of financial stress that rippled through tenant-landlord-lender relationships. As tenants requested rent deferrals and forgiveness from landlords, many landlord-borrowers discovered that their mortgage agreements contained lender consent requirements for lease modifications.
Standard commercial mortgage provisions typically require the borrower to obtain lender approval before amending, modifying, or waiving material lease terms. During the pandemic, landlords who granted rent deferrals to distressed tenants without first obtaining lender consent risked triggering default provisions under their own loan agreements.
More critically, unauthorized lease modifications could activate recourse carve-out provisions, converting what might otherwise be non-recourse debt into full personal liability for borrowers and guarantors. Some loan agreements also imposed full recourse liability upon any written admission of insolvency or inability to service debt obligations.
What This Means Going Forward
The pandemic experience highlighted the interconnected nature of lease and loan covenant compliance. For private lenders, key lessons include:
- Ensure that loan documents contain clear, enforceable lender consent provisions for lease modifications
- During periods of economic stress, establish communication channels with borrowers to facilitate timely consent requests rather than after-the-fact disclosures
- Understand that aggressive enforcement of technical defaults during a systemic crisis may not always serve the lender’s best interests, as preserving the borrower relationship and the underlying asset value may yield better outcomes than triggering full recourse liability
- Review recourse carve-out provisions to ensure they are appropriately calibrated to the risk profile of each transaction
Government Borrower Protection Programs and Their Legacy
The pandemic prompted an unprecedented wave of government intervention in the mortgage market. The CARES Act, signed into law in March 2020, included provisions for mortgage forbearance, foreclosure moratoria, and restrictions on delinquency reporting for federally related mortgage loans. Fannie Mae and Freddie Mac implemented forbearance programs offering up to 12 months of payment relief, while individual states enacted their own borrower protection measures.
California negotiated agreements with financial institutions for 90-day mortgage forbearance, paused foreclosures and evictions, and waived late charges. New York authorized emergency regulations through Executive Order No. 202.9, granting the Department of Financial Services authority to mandate forbearance, halt delinquency reporting, and postpone foreclosure proceedings.
These programs were primarily directed at consumer mortgage loans and federally related lending. However, the regulatory response had broader implications for the private lending sector as well, as courts in some jurisdictions applied the spirit of these protections more broadly, and borrower expectations shifted regarding lender flexibility during periods of hardship.
Enduring Implications for Private Lenders
The government response to the pandemic established precedents that continue to shape regulatory expectations:
- State and federal regulators demonstrated a willingness to intervene directly in lender-borrower relationships during systemic crises, and similar interventions may occur in future disruptions
- Private lenders should maintain awareness of applicable consumer protection regulations, even when originating business-purpose loans, as the regulatory perimeter can shift during emergencies
- Forbearance and workout capabilities should be incorporated into operational planning and loan servicing infrastructure
- Proactive borrower communication and willingness to explore reasonable modifications can reduce litigation risk and preserve asset value during periods of widespread distress
Building Pandemic-Resilient Lending Practices
Five years after the initial COVID-19 disruption, the private lending industry operates with the benefit of hard-won experience. The most successful lenders have incorporated the lessons of 2020 into their standard operating procedures, including more rigorous insurance review, clearer contractual provisions, enhanced digital capabilities, and more sophisticated approaches to borrower distress management.
The pandemic was not the last systemic shock the industry will face. Economic downturns, natural disasters, public health emergencies, and geopolitical disruptions all have the potential to stress real estate markets and test the resilience of lending portfolios. The lenders who will navigate future disruptions most effectively are those who have internalized the lessons of the pandemic and built them into the foundation of their business practices.
Contact Geraci LLP
Geraci LLP provides comprehensive legal counsel to private lenders on loan documentation, regulatory compliance, foreclosure and loss mitigation, and portfolio risk management. Our attorneys have guided lending clients through market disruptions and regulatory changes for years, and we understand the unique challenges facing the private lending industry.
To discuss how Geraci LLP can support your lending operations, contact us at (949) 403-3488 or visit us at 90 Discovery, Irvine, CA 92618.
