Forbearance ≠ Forgiveness: Don’t be a Victim of the Forbearance Trap
E.J. Simonsen | Apr 9, 2020
As the Coronavirus crisis rolls on, tens of millions of Americans are out of work, and that number will continue to swell. The government has stepped in and temporarily halted foreclosures and offered some relief for homeowners through The CARES Act, but neither is a long-term cure-all.
Many mortgage companies are offering help for homeowners, but that typically comes in the form of a forbearance, not payment forgiveness. Forbearance is when the mortgage company allows the borrower to halt making payments for a specified period of time, typically to help borrowers in time of economic crisis.
Forbearance simply reduces (or suspends) your mortgage payment during the forbearance period.
The benefit to homeowners is that they don’t have to make a payment for a few months. Sounds too good to be true? It is. As soon as the forbearance period is over, the bank typically wants all missed payments in full immediately, or they’ll start foreclosure proceedings.
For most people, forbearance is just a trap – tempting you with the idea of not having to make a payment for a while, only to have the trap snap shut on you when you least expect it! In order to release the trap, you’ll have to pay in full, which is unlikely to happen for most Americans who have lost their jobs or have been underpaid for weeks or months at a time.
To stay in your home long term, you’ll likely have to apply for a loan modification, as banks can’t just automatically tack on payments to the back of the loan without your consent and paperwork being signed. Although a confusing provision in The CARES Act seems to allow just that. If you can’t qualify for a modification due to inability to pay (or for any other reason), they’ll move forward with foreclosure and kick you out of your home.
That’s when you may need the professional services of a law firm to help slow down the foreclosure proceedings and negotiate a loan modification, short sale, or other negotiated settlement such as a Deed in Lieu of foreclosure. Bankruptcy may also provide you relief, but in most cases should be used as a last resort.
Tips to avoid default and foreclosure:
- Continuing making payments if you are able, even if a forbearance is offered.
- Communicate with your bank or mortgage company regarding your hardship.
- Apply for a loan modification as soon as you are able to resume payments.
If you are a small business owner, most of the government assistance is long gone. Contact our office for specialized assistance.
Call us at 877-408-3328 with any questions.