A mortgage forbearance agreement is one made between a delinquent homeowner and their mortgage lender, which the lender agrees not to take foreclosure actions on a given mortgage in default, while a homeowner is allowed to miss or make partial payments for a temporary period. Typically, forbearance lasts no longer than six months, but can ideally allow a homeowner experiencing temporary hardship to retain their financial footing and make future mortgage payments on time and in full. Forbearance is not a foreclosure prevention solution for those homeowners with more fundamental flaws in their current debt to income ratio, such as those homeowners that have had a variable rate mortgage reset or some other indefinite hardship occur.
Negotiate Lender Approval for Forbearance
Before even negotiating the terms of a forbearance agreement, homeowners must first consult their lender and inquire whether a lender is willing to offer forbearance on their individual mortgage. The best chances a homeowner will have to obtain forbearance will occur if a homeowner contacts their lender early after their mortgage falls behind, or even before this occurs.
Once contact between a lender and homeowner is established, discussions with the lender’s loss mitigation department will occur, which may verbally suggest forbearance as a possible workout to the existing mortgage problems. While this does not guarantee approval of forbearance, a lender may request the homeowner forward a formal hardship letter to the loss mitigation department, which will outline the reason for the current hardship and propose a potential remedy request from the lender, which can be forbearance, if applicable.
Negotiate the Terms of a Forbearance Agreement
In the hardship letter, the first formal outline of a desired forbearance request should be made by the homeowner. The homeowner must include the following elements in their hardship letter, which is part of the negotiations of the terms of the possible forbearance request, including:
- Homeowners should request forbearance terms and lengths that will actually allow them to recover their financial footing and make future mortgage payments, but on the other hand, a lender is typically not willing to allow forbearance periods of more than three to six months
- Homeowners should convey and document in their hardship letter how the interim forbearance period will allow them to find other sources of income or reduce expenses. The key here is to document these factors, if applicable. A lender wants to see what a homeowner can change during the forbearance period, or more importantly, what the homeowner can do to make meeting future mortgage obligations manageable.
- Homeowners should convey the temporary nature of the hardship in a financial sense, which documents how a given hardship has reduced income or increased expenses drastically
- Homeowners should document other attempts to prevent default, before seeking forbearance
With this information on hand, a lender will make decisions on whether to approve the proposed forbearance period and proposed terms. Homeowners should make the following considerations about the terms of their forbearance agreement:
- Does the forbearance period require partial or no payment on a given mortgage, and in either case, how long does this period last
- How will the unpaid sums from the forbearance period be built back into the life of the home loan
- Does the forbearance period include any rates increases, adjustments, or other modifications
- How will future payment obligations play out after the forbearance period, especially the amount of those in the first twelve months after forbearance
- Can the homeowner convey their ability to fulfill their current mortgage obligations assuming a forbearance period is approved
- Can the homeowner convey their past payment record on a mortgage as good faith on meeting future obligations and direct lender’s attention to a given temporary hardship as the sole reason for the delinquent mortgage payments
Getting Legal Help with Forbearance Negotiations
With so many homeowners facing default and foreclosure, most lenders have taken a uniform approach to dealing with struggling homeowners requesting forbearance, though each lender’s policies and practices will differ. Having legal counsel decipher your overall foreclosure prevention options, as well as scrutinize any proposed forbearance agreement is important. Many lenders will include terms and adjustments to an existing mortgage that goes into forbearance that are not going make future payments manageable for homeowners. In other cases, lenders may not initially be willing to offer helpful forbearance terms, but with the advocacy of an attorney, may be willing to see the benefits of proposed forbearance agreement.
