A forbearance agreement is a short-term agreement between debtors and lenders to temporarily reduce or suspect some loan payments for a while. Forbearance can be done with various loans, including mortgages, credit cards, student loans, utility payments, and property taxes. This is designed to help debtors who have short-term financial difficulties, such as a medical crisis or financial setback that can be overcome, stay in their house without the lender filing a notice of foreclosure. Lenders carefully scrutinize applicants for such agreements to see if they’re being realistic in what they think they can repay during or after forbearance.
How Long Does a Forbearance Period Last?
The forbearance period varies from lender to lender. Usually, it lasts three to six months. Some lenders will approve an extension if that’s not enough time to catch up financially, possibly for as much as 12 to 18 months. Currently, there may be exceptions due to the COVID-19 pandemic. It’s vital to note that it may not just be the back loan payments that need to be repaid but any interest that accrues or late fees imposed by the lender.
What Happens at the End of the Forbearance Period?
By the end of the agreed-upon forbearance period, the debtor needs to become current on the loan. That can be done in several ways:
- Arrange for a payment plan.
- Repay the lender in one lump sum when the forbearance ends.
- Get an extension if the lender allows it.
- Pursue a loan modification that could change the overall loan terms.
What Is a Forbearance Payment Plan?
Rather than paying a lump sum, which can be difficult for many people, some lenders will agree to a payment plan. In these cases, the lender will take the past-due amounts and apportion them to a predetermined number of upcoming mortgage payments. Once the debtor has paid the outstanding payments, the mortgage payments return to the normal monthly amount.
How Does a Forbearance Agreement Affect My Credit Report?
Missed mortgage payments count as delinquencies on a credit report, which is never positive. However, it may not be as damaging as a foreclosure or bankruptcy. Further, payments not made during a forbearance can also be reported to credit bureaus as delinquencies. Some lenders will agree not to report the forbearance missed payments as delinquencies as part of the forbearance agreement.
Should I Hire an Attorney for Negotiating a Forbearance Agreement?
Technically it’s not required, but given how complex mortgage and loan contracts are, not to mention the documents involved in negotiations, it’s a good idea. An experienced foreclosure defense attorney will understand the legalese’s meaning and explain it to the debtor and advise them on their options and the best path going forward.
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If you or someone you know need help with bankruptcy or foreclosure processes, call us at 708-575-1500 to work with one of our experienced bankruptcy and foreclosure attorneys.