Mortgage Forbearance: A Wolf in Sheep’s Clothing

Forbearance is a legal term that basically allows a borrower to put off or suspend partial or full payment requirements on a mortgage for a limited amount of time, usually 3 to 12 months.  This type of option is sold to borrowers on the idea that forbearance will stop foreclosure.  In reality, a mortgage forbearance agreement ultimately results in a higher monthly payment when payments start back up again.  Keep in mind that the word “forbearance” does not mean “forgiveness”.  A forbearance agreement may just cause a debtor to have to repay the amount deferred and the interest on the deferred amount at a later time.  The thing that makes mortgage forbearance such a gamble is that a person can’t make any guarantees as to where they will be financially in 3 to 12 months.  If the person happens to be in exactly the same spot, the mortgage forbearance would have done nothing but postpone the impending foreclosure and cost thousands in extra fees and payments.

While the intent of mortgage forbearance can be appreciated, little can be said of the actual results.  Some states allow lenders to offer forbearance packages under the guise of a plan to stop foreclosure when in reality the mortgage forbearance contracts are written with so much favor to lenders that foreclosure becomes a near certainty after the forbearance period expires.  Typically, a lender is authorized by the agreement to initiate a foreclosure proceedings during the forbearance period, and sell the property in question at a foreclosure sale if a payment is even a few days late. 

Bankers, accountants, and lawyers know this, but nobody usually explains this to tell the borrower.  Consider this fair warning.

Before considering a forbearance agreement the borrower is urged to read the fine print before making any more financial commitments to their lender.  It is wise to have an experienced contract or finance attorney review the fine print to ensure that every possible outcome is properly planned for, or better yet, have a qualified attorney negotiate any loan workouts directly.  It is best never to ask a representative of the lender to interpret a contract if anything is not understood.  The lender’s job is to collect money from borrowers, not explain the pitfalls of contracts. 

Hiring a qualified attorney will prevent the lender from intentionally or unintentionally misleading the borrower into signing something that they don’t understand.  Since written contracts generally supersede verbal contracts and verbal changes to contracts, the borrower would not benefit from following the incorrect advice of an agent for the lender.  In fact, it has become common for lenders to actually give borrowers wrong advice over the phone to get them to sign a burdensome yet binding contract.  Hiring a mortgage attorney is critical to the success of the borrower and can be the difference between keeping and losing the home.  The task of saving a home is far too important to leave to chance.

It is commonplace for borrowers to get taken in by lenders offering forbearance agreements as an alternative to foreclosure.  These arrangements typically do not result in any benefit to the borrower except to put off the inevitable foreclosure and cost large amounts of money.  There are much better, more effective ways to stop foreclosure than mortgage forbearance agreements.  Before entering into any such binding contract and attempting to save a home, borrowers are urged to consult with a qualified mortgage attorney with experience with mortgage forbearance.