Real estate forbearance is a special type of legal agreement offered by mortgage lenders to borrowers facing foreclosure. The primary purpose of forbearance contracts is to help homeowners cure mortgage arrears over a period of time without entering into mortgage refinance or loan modification.
Once a real estate forbearance contract is in place, lenders are prohibited from commencing with foreclosure action unless borrowers default on the agreement. Mortgage forbearance contracts typically extend between three and six months, but may remain in place for up to one year.
Home loan payments are temporarily reduced or suspended during the forbearance period to help borrowers become current on their mortgage note. Lenders can roll past due payments to the end of the loan and extend repayment terms or allow borrowers to pay installment payments for a predetermined amount of time.
If borrowers are unable to fully cure mortgage arrears before the expiration of their forbearance contract they might be allowed to enter into a new agreement. Otherwise, lenders may require borrowers to pay additional funds with each normal home loan installment until delinquent amounts are fully paid.
In most cases, real estate forbearance contracts are reserved for borrowers facing temporary financial challenges. Homeowners must work with an assigned bank loss mitigator throughout the forbearance period. Once borrowers fulfill default resolution plans the mortgage loan returns to good standing with the mortgage provider.
In order to obtain forbearance approval, borrowers must provide evidence their financial hardship is temporary. Communication with loss mitigators is essential in order to orchestrate a successful real estate forbearance agreement.
Forbearance contracts are often the only option available to borrowers in the early stages of mortgage default. It is crucial for borrowers to contact their mortgage lender as soon as they realize they cannot pay their mortgage on time and in full. Borrowers have fewer options to prevent foreclosure once lenders issue Lis Pendens preforeclosure notices.
Real estate forbearance contracts can provide financial relief, but can also be financially restrictive. If mortgage arrears exist when the contract expires, borrowers must possess the financial means to contribute additional funds with each regular mortgage payment.
Additional payments can be as much as $200 or more until mortgage arrears are repaid. If homeowners defer $10,000 over the course of two years, they would increase their monthly home loan payment by over $400. Homeowners already struggling to make ends meet can quickly default on the contract and end up losing their home to foreclosure.
Mortgage lenders can initiate foreclosure proceedings the moment borrowers' default on their forbearance plan. Defaulting on home loan deferment plans places borrowers at a higher risk because banks are less likely to enter into mortgage refinance or loan modifications which can reduce mortgage payments.
Careful consideration should be given before entering into deferred payment contracts. It is best to retain the services of a mortgage specialist or real estate attorney. Borrowers can also obtain no- or low-cost housing counseling through the Department of Housing and Urban Development. HUD housing counselors can help borrowers determine which type of mortgage default resolution program is best suited for their needs.
