Mortgage Forbearance...Good, Bad, and Sometimes, Ugly.
Due to the pandemic, there are a plethora of forbearance options popping up nationwide. We could write a novel about the pros and cons of mortgage forbearance, however, below are a few key concerns that have come up frequently as COVID assistance winds down.
Forbearance can be a very useful tool. What happens is the bank voluntarily suspends mortgage payments for a set period of time due to hardship the borrower is facing, such as job loss or illness. The borrower then resumes payments at the end of the term. Sounds great, right? Well, not always. Banks are not in the business of giving away money. Those payments you didn't make are still due under your mortgage. If you request a forbearance without determining how and when those payments will be repaid, you might be setting yourself up for trouble. Expect a balloon payment, all of those 'missed' payments, due at the end of the forbearance. Why? Because when you miss payments, the bank does not automatically tack them on to the end of your loan, nor can the bank unilaterally increase your remaining payments over the same term to make up for the missed payments.
You applied for forbearance. You had a hardship because your income decreased. You got that forbearance. Now, you are expected to pony up all of those missed payments in a lump sum? But...where is that money supposed to come from? That is the hard question many borrowers are asking. There is no perfect solution, but there are options. You can apply for a modification to change the terms of your mortgage and note. This is the most common solution. Keep in mind, however, that the bank is not required to modify your loan. The bank can say no. You can file for Chapter 13 bankruptcy and get up to 5 years to repay the missed payments. You can take a loan to pay the balance and make payments to that lender (caution: high interest). You can make that balloon payment and resume regular payments if you were able to save enough during the forbearance.
If you are already in a Chapter 13, your mortgage lender might file a notice of forbearance even if you haven't requested it. If you don't want the forbearance, be sure to notify your attorney so appropriate action can be taken. If you do want it, be sure to apply for a modification or discuss with your attorney the possibility of the bank modifying its claim, or modifying your plan, to reflect the missed payments as arrearage so you can use the remainder of your Ch. 13 term to catch up.
So what do we recommend? If you are struggling to make your mortgage payments, apply for a modification before you fall behind. (Call us - we can help with this step!) If you don't really need the forbearance don't apply for it; it may end up being more trouble than it's worth. If you do get a forbearance, be sure to plan ahead and start the modification process as well as setting aside any spare funds in case the lender turns down the request. When in doubt, give our office a call. We are here and available to help. (219) 865-8376