Chrstian M Dillon on Forbearance Agreements

Simply stated a forbearance agreement is an arrangement between the lender and the burrower which states that the lender will not act against the burrower (issue a notice of default; initiate foreclosure proceedings, etc.) for default or missed payments if the burrower agrees to a payment plan that will bring the loan current.  The burrower must also be able to show the ability to pay presently or the ability to pay at the end of the forbearance period.

In some cases, a forbearance agreement may also include a time period where the lender postpones payments.  The time during the forbearance when no payments are being made is termed a “curing period.”  During the curing period, although no payments are required, interest accrues on the past due amount and may be added to the amount that must be repaid by the burrower.  A forbearance agreement may also include a period where payments are reduced.  The reduced payment may be a combination of principal and reduced interest payments or simply a payment on the interest.  An arrangement where the burrower makes a payment of some amount to the lender shows the lender that the burrower is serious about keeping the property.  This arrangement also reduces the amount that must be repaid at the end of the forbearance period.

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The specific terms of the forbearance is negotiated between the borrower and the lender.  These terms typically include the length of the forbearance (usually a few months), the reason for the forbearance (e.g., loss of employment, illness, etc.), the interest that will accrue during the forbearance period, any additional fees and penalties that are to be paid, and the structure of these payments.  Oftentimes, the payments may be divided over the next several months of the loan.  A forbearance agreement must be agreed to by both parties. Christian M Dillon has yeas of expertise in arranging forbearance agreements.

Why do burrowers enter into a forbearance agreement with the lender?  Forbearance is a good way to work with the lender to develop a plan to get payments back on schedule. Christian M Dillon believes this is a good choice for those burrowers who are a few months behind but can and are willing to work out a payment schedule with the lender that will bring the mortgage account current.

This option is particularly good for those burrowers who had a minor set-back but have already recovered or are on their way back to financially stability and simply need additional time to catch up with their debts.

In those instances where the burrower cannot work out a deal with the lender regarding forbearance, a loan modification may be another option.  A loan modification adjusts the terms of the current loan (no new loan is established so credit ratings are not an issue).  A loan modification may be used to reduce the interest rate, move missed payments to the end of the loan, extend the loan period, or in some cases, reduce the principal owed.  If neither a loan modification nor forbearance will work given the burrowers’ current circumstances, the next viable option might be to give the bank a deed in lieu or conduct a short sale of the property.  These final two options involve returning the property to the bank or selling the property to another buyer. Contact Christian M Dillon for more in formation on forbearance agreements and loan workouts.