Forbearance Agreements

A forbearance agreement is an agreement with your lender to temporarily reduce or to suspend your mortgage payments for a limited period of time.  Forbearance agreements are typically entered into when the borrower can establish an unforeseen circumstance that has caused a temporary inability to make his/her mortgage payment.  The most common types of unforeseen circumstances that will be considered are things like job loss, medical conditions, and natural disasters.  The lender will not (or at least, should not) foreclose during the forbearance period.

Depending on what type of loan you have and who your lender is, forbearance agreements typically range from 90 days to 1 year.  Most lenders tend to limit the forbearance agreement for a shorter period (90-180 days).  But federal guidelines prevent them from allowing a forbearance agreement that would cause the borrower to become more than 12 months delinquent on the property.  It is important to note that the interest will most likely continue to accrue during any forbearance period.  When the forbearance period ends, the unpaid interest will likely be added to the principal balance of the loan.

Most lenders have a requirement that a borrower not be delinquent prior to the unforeseen circumstance in considering a forbearance agreement.  The rationale is that you are being granted forbearance based upon a situation beyond your control, not simply an inability to make payments. 

As a practical matter, you should probably only consider requesting a forbearance agreement if there is a light at the end of your hardship tunnel.  The lender will expect you to repay all of the missed payments after the completion of the forbearance period.   Some lenders might even try to get you to agree that if you fail to meet the terms of the forbearance agreement, that you will agree to give the property back.  Therefore, if you were injured and will miss 2 months of work, but will then be able to go back to work and resume your payments, a forbearance agreement might be the right foreclosure option for you. 

If you have a Fannie Mae or Freddie Mac loan, and you are seeking the forbearance due to unemployment, a forbearance can be requested for 6 months, and then can be extended for an additional 6 months.  During the initial 6 month period, forbearance can be obtained to either reduce or fully suspend the mortgage payments.  If requested and approved by Fannie Mae or Freddie Mac, an additional 6 month forbearance can be obtained.  During this second 6 month forbearance, the borrower must make payments of at least 31% of the borrower’s gross monthly income (not including unemployment benefits).

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