IF you are a homeowner struggling with mortgage payments during this pandemic, you are not alone.
A mortgage forbearance can provide temporary relief by allowing you to make either reduced payments or no payments at all, for a specific period of time. Usually, it is not automatic, and you will need to call your lender to request one- although I have seen several lenders offer it automatically, in which case, you will receive a letter from your lender notifying you that it is available for you if you wish to accept it.
Please understand that a forbearance is NOT debt forgiveness; and this means that you will still need to catch up on the missed payments when the forbearance period is over and your financial hardship has ceased (at least that’s what the lender is hoping).
The type of mortgage you have will determine what options are available to you. For example, homeowners who receive a forbearance under the CARES Act will not be required to pay back all the missed payments in a lump sum. This applies to all federally-backed mortgages including FHA, VA, USDA, Fannie Mae and Freddie Mac mortgage loans. You can call your lender to find out if your loan is one of these. If it is, you have the right to a forbearance of up to 180 days and can request an extension for the same amount of time after that. In other words, the forbearance period can be a maximum of one year. If you inform your lender that you have a financial hardship, they need to give it to you by law and no proof of the hardship is even required.
Even if your mortgage loan is not one of the above, this doesn’t mean that you are out of options. Most lenders I’ve dealt with generally have their own relief options and it’s just a matter of contacting them to find out what is available. Due to the number of calls that lenders are receiving, it may sometimes be tough to get a hold of someone by phone but be patient as many lenders are doing their best to be more responsive to their customers.
If they do grant you a forbearance, make sure that you have something in writing and keep good records as you might need them in the future.
After the forbearance period, again, you will still need to make up the missed payments. You can reinstate by simply paying everything back in a lump sum if you are able. If not, the lender may allow you a repayment plan over a period of time during which the lender adds a set amount to your regular monthly mortgage payment. If you are still struggling financially, of course, this may not be helpful to you. In other words, if you were already struggling with your regular monthly mortgage payment to begin with, how can you afford the additional amount if your income has remained the same?
If you are still in a financial hardship when your forbearance ends, another possible way to resolve the delinquency is by applying for a loan modification. A loan modification is NOT a refinance and so good credit is not required. Rather, with a loan modification, you are simply asking the lender to modify your current loan by changing the terms to make the payments more manageable. For example, the lender may lower the interest rate, extend the term, partially modify the principal, or a combination of the above.
One thing you may want to ask your lender is whether or not they will require you to impound your property taxes and insurance once they reinstate your loan after being delinquent. In case you don’t know what this means, it means whether or not the lender will require you to open an escrow account in which they set aside a certain amount each month for your property taxes and insurance. If they do this, they will increase your monthly payment to account for such expenses so that you no longer have to pay the property taxes and insurance on your own.
While this is convenient for some people, it’s not for everyone. Some people prefer that they pay their property taxes and insurance on their own and keep their monthly mortgage payments the same. For example, I have clients who wait to get their tax refund every year to pay their property taxes. They would rather do this than having high mortgage payments throughout the year. You may feel the same way about this so keep this in mind when applying for a forbearance and make sure to ask your lender about it.
If you are unable to resolve the delinquency for whatever reason, at some point the bank will have no choice but to foreclose on your property, and so it is important to plan ahead of time. In some cases, it may be necessary to file Chapter 13 bankruptcy to save your home if no other options are available. Chapter 13 allows you to pay back all your missed payments over a 5-year period. And if you have other debts such as credit cards, personal loans, taxes and all other debts, all of these can be consolidated into one monthly payment that you can afford.
If you need help in figuring out your options, I’ll be glad to help. For a free evaluation of your case, please call our office at Toll-Free 1-866-477-7772 to schedule a free consultation.
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NOTE: Due to the virus lockdown, I am currently offering consultations via phone or video. Please call the office to schedule your appointment with me. Questions? Email me at [email protected].
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 5,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call RJB Law Offices at TOLL FREE 1-866-477-7772.