Moratorium

Definition of "Moratorium"

Written by

Norma L. Rodriguez, PA
Broker Associate

Berkshire Hathaway Florida Realty

Generally speaking, a moratorium covers a provisional or limited activity suspension. Temporary financial troubles or funding constraints can trigger issuing a lull. This postponement lasts until a future consideration enables the moratorium’s cancellation. 

A government, various regulators, or even a business can issue a moratorium. Note! Don’t confuse a moratorium with a grace period! The term grace period describes the period between the termination of the credit card billing cycle and a payment’s due date.

Financial moratorium

A company can place a moratorium on new staff recruitment if it has overstepped its budget. The delay can remain in effect until the next fiscal year. During bankruptcy, legal authorities can impose a moratorium on debt collection. Virtually, it functions as a delay permitted to repay an obligation. For example, a financial institution allows a real estate company another month to repay the balance due to a loan.

In short, the purpose of a moratorium is to lessen short-term financial troubles. Additionally, it safeguards time to address these economic hardships. In other words, your lender approves that you can discontinue your payments for a well-defined period until you get back on your feet.

A delay in the completion of a work assignment

Also, we call a moratorium a lull permitted to carry out particular legal responsibility. For instance, a homeowner gives the contractor two weeks to complete work beyond the contract completion date stipulated in the service contract.

Special cases

In exceptional cases, such as holidays, the contractor does not permit the finalization of a specific activity. For example, a homeowner does not allow work on their property during the Jewish holidays.

Another essential real-life example is when a crisis or disaster discontinues a business’ everyday routine. Governments can grant a so-called emergency moratorium on business activities in a flood or earthquake’s direct aftermath. 

A third example is the Center for Disease Control issuing the CDC Eviction Moratorium when the global pandemic broke out in 2020. According to this, people should stay indoors at home to stop the Coronavirus from spreading under any circumstances. Thus, landlords could not evict indebted tenants during the pandemic.

Real estate moratorium

We all know that the mortgage payment starts once the lender has granted the loan. Now, a moratorium puts the equated monthly installment (EMI) on hold for a certain period and under extraordinary circumstances (see COVID-19.) Therefore, the property owner has obtained a so-called EMI holiday, a delay before paying off their monthly mortgage.