Real Estate Forbearance
Real estate forbearance agreements are used when a homeowner falls behind on mortgage payments due to temporary financial situations. Forbearance agreements are legally binding documents which must be agreed upon between the lienholder and delinquent borrower. A repayment plan follows the real estate forbearance agreement with the goal of helping the borrower become current on their mortgage payments over a specific period of time.
A real estate forbearance agreement states the mortgage holder will not pursue foreclosure on the home for a specified period of time. The lienholder is legally bound to this agreement as long as the homeowner follows the conditions of the agreement. Real estate forbearance agreements are generally three to twelve months. Forbearance agreements either reduce mortgage payments or suspend payments for the time specified.
Once the real estate forbearance agreement is complete, the repayment plan begins. The purpose of the repayment plan is to repay past due mortgage payments, accrued interest and other fees. The payments made on the repayment plan are in addition to the homeowner’s regular mortgage payments.
Real estate forbearance agreements are used when homeowners have temporary financial hardships. Homeowners work with bank loss mitigators during the real estate forbearance agreement and repayment plan. Once the repayment plan is complete, the mortgage returns to good standing with the lending institution.
In order for lenders to approve forbearance agreements, the homeowner must be able to prove their financial hardship is temporary. Communication between the homeowner and bank loss mitigator is vital to successful real estate forbearance agreements. Oftentimes, forbearance agreements are only offered at the beginning stages of delinquent payments.
While a real estate forbearance agreement may seem like a good idea for the homeowner, it is important to understand what the process entails. After the forbearance period, when no mortgage payments are due or payments are a reduced amount, the homeowner will be paying the regular monthly mortgage payment along with the repayment of past due amounts.
This can oftentimes add an additional $200 or more to the homeowner’s debt until the repayment plan is complete. For example, during the forbearance the homeowner defers paying a total of $10,000 in payments, interest, and fees. The repayment plan requires repayment of the $10,000 over a 24-month period. The homeowner would have to pay their normal mortgage payment and an additional $416.67 for 24 months.
Real estate forbearance agreements have risks for the lender as well. If the homeowner defaults on the repayment plan, the bank will proceed with foreclosure proceedings adding additional costs to the mortgage note. These additional costs mean the lender will have to sell the property at a higher price or they will incur a loss on the property.