Realtor® Attorney Joint Committee

Forbearance is Still a Thing

By: Lisa Gonzalez Moore, Attorney, LGM Law, PLLC

The $2 trillion Coronavirus Aid, Relief and Economic Security, or CARES, Act, passed in March in response to the global pandemic caused by the coronavirus, included special aid for homeowners in the form of foreclosure relief and forbearance. Forbearance is an intentional delay in collecting a debt or demanding performance on a contract, usually for a specific period of time, and can save your home from foreclosure without as much negative affect on your credit when negotiated properly.

FORBEARANCE OPTIONS

Through the CARES Act, homeowners with federally backed mortgages have the right to request forbearance for up to 180 days, with the possibility of another 180 days if they are still under financial distress. As part of the relief program, eligible homeowners will also be given a mortgage payment reduction option, where future make-up payments will be spread out over 12 months or added to your mortgage payment once the reduction period is over.

The process to request and document a request for forbearance has been streamlined, and to safeguard borrower credit scores, Congress temporarily amended the Fair Credit Reporting Act (FCRA) to protect borrowers’ credit from circumstances beyond their control. Under the new rule, direct servicers of mortgages, the companies that bill you, must report accounts that receive relief such as a forbearance, as “current” to the main credit reporting bureaus. However, there are important factors to consider when negotiating the terms of the forbearance of a loan secured by a mortgage on your home.

TERMS & OBLIGATIONS

It is crucial to understand that forbearance is not forgiveness of the obligation to repay the loan. The borrower is still obligated to repay the full loan amount; however, forbearance agreements pause the borrower’s obligation to make payments. Borrowers should indicate to their servicers that their hardship is due to COVID-19 and inquire about their options: how

long of a forbearance do they qualify for, and what are their options at the end of that forbearance period. These terms are negotiable, and the service lender could face up to thousands of dollars for failure to respond to eligible borrowers. Consider honestly whether you will be financially able to pay a balloon payment of the amount of the payments deferred, or whether you need to more steadfastly demand that the deferred amount be amortized over the life of the loan or that the deferred payments tack on at the end of the loan period.

REVIEW THE AGREEMENT

Once the terms of the forbearance have been agreed upon, the borrower should demand that the forbearance agreement be reduced in writing. This not only allows the borrower to review the terms to make sure they understand it completely, but also provides protection for the borrower in the event that any missed payments are negatively reported contrary to the recently enacted relief legislation and the borrower needs to request the restoration of their credit score. While the pandemic may be causing financial and emotional distress, there continues to be options for relief. Taking advantage of those options requires understanding your legal rights and remaining focused on a hopeful future.

This article is meant as a guide for educational purposes only. It is not intended to serve as legal advise and should not be used as a substitute for consultation with an attorney.