Many homeowners get behind on their mortgage payments as a result of short term financial problems. For these homeowners, mortgage loan forbearance may be the answer.
What is Loan Forbearance?
Loan forbearance allows a homeowner to bring her mortgage payments current over a short period of time, usually six months to a year. Unlike loan modification, loan forbearance does not involve a permanent change to any of the loan terms. Typically, a loan forbearance agreement will require a homeowner to cure the mortgage delinquency in equal installments over the term of the forbearance agreement. During the term of the forbearance agreement, the homeowner must make her mortgage payments on time each month.
Some forbearance agreements may also involve the temporary reduction or suspension of mortgage payments. In such cases, any principal and interest which accrues during the forbearance period will be added to the principal balance of the loan and will be due in a balloon payment when the loan matures.
How Does a Homeowner Negotiate a Mortgage Loan Forbearance Agreement With Her Lender?
A homeowner must contact her lender and request loan forbearance. Most lenders will require proof that the homeowner’s financial hardship is temporary and may want to review the homeowner’s finances as well.
Does Forbearance Stop a Foreclosure?
Most lenders will agree not to foreclose or make other collection efforts against the homeowner during the forbearance period. However, before signing a forbearance agreement, a homeowner must be sure that the agreement contains a clause which states that the lender will not move forward with foreclosure proceedings as long as the debtor is in compliance with the terms of the forbearance agreement. If a homeowner defaults on the forbearance agreement, however, the lender may foreclose. Typical events of default in a forbearance agreement include:
- Failure to make the payment necessary to cure the delinquency;
- Failure to make regular monthly mortgage payments;
- Failure to pay property taxes;
- Failure to maintain homeowner’s insurance; and
- Filing bankruptcy.
What Happens if the Lender Initiates Foreclosure Proceedings While the Homeowner is in Compliance?
If the lender initiates foreclosure proceedings while the homeowner is in compliance with all the terms of the forbearance agreement, she may have a claim for breach of contract. Of course, whether the homeowner has a valid claim depends on whether the lender waived its right to foreclose during the forbearance period.
Getting Legal Help
Before negotiating or signing a mortgage loan forbearance agreement, a homeowner should consult with an experienced real estate attorney. A real estate attorney will work diligently to ensure that the forbearance agreement does not contain unfair or illegal provisions and that it is as advantageous as possible to the homeowner.
