Forbearance agreement: An agreement between the bank and the homeowner to delay foreclosure.
Forbearance agreement: A special agreement between the bank and the homeowner to delay foreclosure. When homeowners are unable to meet their repayment terms, banks may choose to foreclose on the property.
Forbearance Agreement: Payment Suspension to Avoid Foreclosure
A forbearance agreement, an agreement to postpone, reduce, or suspend payment due on a loan for a limited period of time, which allows a homeowner to delay foreclosure proceedings, must be approved by a bank.
During the forbearance agreement period, interest will continue to accrue and remain the homeowner’s responsibility. When the forbearance ends, the unpaid interest will be added to the principal balance of the mortgage loan.
“A properly drafted forbearance agreement is an important and strategic tool for a creditor to assist in getting a borrower to cure defaults and return to a normal lending relationship, or in instances in which an exit is desired, to put an exit plan in place, while preserving the lender’s rights and defaults,” says Pittsburgh bankruptcy attorney Beverly Weiss Manne.
Forbearance agreements are usually recommended for those facing temporary setback not long-term difficulties. In some cases, the bank may extend the forbearance period if a homeowner’s financial troubles persist.
“It is important to understand that mortgage forbearance is typically granted to homeowners faced with short-term financial difficulties. If your mortgage is upside-down and you cannot keep up with your payments, forbearance may not be a workable solution. You may need a permanent loan modification,” says Miami attorney Daryl L. Jones.
In the end, despite seeming like a solution, forbearance agreements must ultimately be approved by the bank, which will assess your potential for repayment. In fact, many experts see forbearance agreements as a trap at best.
“Forbearance agreements are essentially a way for mortgage lenders to squeeze more money out of a borrower. Due to the loose California foreclosure laws, lenders often disguise a last grab at the borrower’s money as a “workout plan” for the loan, knowing they will be foreclosing on the property anyway. Forbearance agreements are stacked against the borrower and almost always result in foreclosure,” says Orange County real estate attorney Timothy McFarlin.