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    • « Types of Real Estate Foreclosure Properties | Home | How Do Foreclosures Work? »

    Understanding Forbearance Agreements

    By Susan Willets | June 11, 2008

    A forbearance is a written agreement between the lender and the borrower that allows for a temporary reduction or suspension of monthly payments and offers more relief than a regular repayment plan. The debt is not erased, but the lender allows the borrower to pay it back at a later time. This option is available for individuals who have documented proof that they are going through short-term financial hardship with payments 3-12 months past due and the lender warrants that this agreement is necessary.

    Short-Term Forbearance

    A short-term forbearance allows for up to 3 monthly payments to be suspended or a reduction of payments for up to 6 months.

    Long-Term Forbearance

    A long-term forbearance allows for 4 monthly payments to be suspended or a reduction of payments for up to 12 months.

    Benefits of Forbearance

    Forbearance is typically used for individuals who are going through a temporary hardship, such as unemployment, and will be able to keep their mortgage current if they can delay a couple of payments. The largest benefit is that it keeps the mortgage from going to foreclosure and saves the borrower’s credit rating.

    Options for Military Members

    Your lender may offer forbearance options for military members who are having difficulty paying their mortgage. Some lenders are allowing active military to apply for standard forbearance with their active duty orders as their only documentation of hardship. This speeds up the process tremendously. They are also reporting military indulgence rather than forbearance to credit bureaus to protect credit history. Contact your lender and ask about their options and how they will be reported to the credit bureaus to see if this may benefit you.

    HUD Special Forbearance Information

    The HUD Special Forbearance Initiative was started in 2002 to help borrowers who are unemployed to avoid foreclosure and keep their homes. This program is for borrowers whose mortgage payments are at least 3 months but not more than 12 months delinquent. Also, the mortgage cannot be in foreclosure at the time the agreement is made. There are two types of HUD Special Forbearance options:

    Type I - Installments for this option are based on the borrower’s ability to pay. There is a minimum duration of 4 or 6 months to repay the arrearage depending on the situation. This option allows the borrower to prepay the deliquency at any time.

    Type II - This option can be used in situations involving unemployment when a good chance of future employment is present. The loan must be delinquent at least three months, but no more than twelve months. The borrower must verify the reduction in income or increase in living expenses along with their ability to make payments according to the new plan.

    HUD offers more details on the two types of HUD Forbearance.

    Am I Eligible for a HUD Special Forbearance?

    To qualify for HUD Special Forbearance, you must:

    Topics: Avoid Home Foreclosure |

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