Avoid Foreclosure: Option 7 – Loan Forebearance


Definition of Forbearance: The act of a creditor who refrains from enforcing a debt when it falls due.

Loan forbearance is a new agreement with your lender to repay your past due payments when you are behind on mortgage payments. This will stop foreclosure sale of your home quickly.

Forbearance is easier to arrange prior to the Mortgage Company filing a foreclosure lawsuit. Some lenders will not consider this after filing, but it’s worth trying.

This is the most common way of resolving a loan default. You and the lender agree to work out a plan which will let you repay part of the delinquency each month, along with your regular monthly installment.

If you have incurred a short term financial hardship and your loan is 90 days to 365 days past due, you might consider submitting a request for a special forbearance. A special forbearance is designed to provide you with more relief than is possible with a regular repayment plan. There are usually two types of special forbearance available to you.

Type 1: Typical approval can result in spreading the repayment over 12 to 18 months.

Type 2: This option most often is utilized in an unemployment situation whereby the promise of future employment is present.

If you are temporarily unable to meet your monthly mortgage obligation, ask your lender’s loss mitigation specialist if this is an option for you. Under such an agreement, the lender suspends and/or reduces payments for a period, usually less than 6 months, although it can go longer. At the end of the reduced-payment period, a repayment plan kicks in. You agree to make the regular payment plus an additional agreed-upon amount that will cover all the payments that were not made during the forbearance period. The repayment period is usually no longer than a year. If the plan is successful, you will be brought current and the lender will suffer no loss.

However, the lender will only consider this approach if convinced that your financial problem is temporary. The burden of proof is on you to document the case. Lien holders will usually cooperate if you can show the ability to resume payments on a specific date in the near future. You may qualify for this if you have recently lost your job or your source of income, or if you had an unexpected increase in living expenses.

When coordinating a forbearance plan, you must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.

Please Note:
Unfortunately 85% of homeowners fall out of Forbearance within just 2 to 3 months. The reason is they can’t afford the higher payment amount. Also, understand that just because you work out a deal with the bank, you are NOT out of foreclosure. In fact, you are STILL IN FORECLOSURE until you complete the entire forbearance agreement plan. Then and only then will you get a foreclosure withdraw letter from your bank stating that your loan is current. In the mean time, the bank will usually keep passing the foreclosure sale date each month – moving it to the next month. But, if you don’t pay ON OR IN ADVANCE of the payment due date (even if you are just one day late!), the bank can sell your home ASAP at the next sale date. If this happens, to avoid that fast foreclosure sale, you should contact your bank immediately and try to work out a NEW forbearance agreement if possible – but understand that once again, you will need to come up with that large down-payment and you will get a new (even higher) monthly payment.

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