Tag: forbearance

When Forbearance Ends

in Bankruptcy

When Forbearance Ends

Because of COVID, most lenders have offered what’s known as a mortgage forbearance.  A forbearance allows a homeowner defer payments on their mortgage for a period of time.  Currently, these programs are very popular with American homeowners and scores of them are taking advantage of the opportunity to skip payments during these uncertain times.  We have been fielding numerous questions about forbearances and they all ask, “What happens when the forbearance ends?”

As with so many questions these days, we don’t always have a clear answer to this inquiry.  A lot of that is due to the numerous different types of mortgage contracts that exist.  In an attempt to help answer this question, we will outline a number of the ways this could all play out.  

Nothing

The offer of nothing at all will be what you get from some lenders.  They’ll expect you to write a check at the end of the forbearance period for the entirety of the balance owed.  If your mortgage payment was $1,000 and your forbearance period was 5 months, they’ll expect a check for $5,000 when the forbearance period ends. While it may have been beneficial for the period to avoid the payments, it will do you no good now unless you’ve been saving your payments up during that time.  Because of this situation, we believe that some lenders will offer different terms.

Repayment plan

Some lenders will offer you an option of spreading out the forbearance amount over a period of time yet to be determined.  Many institutions are looking at a 6 month period.  That means that if you have that $5,000 deficiency, that’ll be spread out over 6 months, adding $833 a month to your $1,000 payment.  Again, while this is more helpful, most of us don’t have an extra $800 a month just laying around. 

Loan Modification

If you qualify, some lenders are saying that they will roll the missed payments onto the back end of the mortgage.  While this catches you up, you’ll also be paying extra interest as well as paying for longer than your intended term.  While this is likely the most attractive option to many who have taken advantage of a forbearance, it likely won’t help that many people because it will be a subjective process with a long application and potential credit checks before approval.  

Separate Loans

Another potential option is creating what is effectively a second mortgage. This mortgage could require payments that start at the end of the first mortgage or in addition to the first mortgage but with separate terms and interest rates.  

How do I even know?

As we stated earlier, this is just an overview of what we have seen personally, heard about and speculated about.  Again, this isn’t an exhaustive list and your mortgage company may have other options they can propose for you.  Our best advice for you is to explore every option, including bankruptcy.

What if nothing works?

That’s where we will step in.  If your lender won’t work with you or isn’t able to help you at all, we can file a Chapter 13 to force them to accept OUR terms.  If you find yourself at a dead end with your mortgage lender, call us and let us step in and fight for you.  If they won’t work with you voluntarily, we’ll make them work with you. 

Escrow: The Forbearance Gotcha

in Bankruptcy, Credit and Credit Cards

Millions of people have applied for and received mortgage forbearances during the pandemic. It’s been a huge lifeline that has saved hundreds of thousands of homes from foreclosure.  There’s only one problem.  Once you stop making your mortgage payment, money stops going into your escrow account.  That leaves deficiencies in the account that pays your property taxes and your homeowners insurance.  

What’s an escrow

Most mortgage lenders require that you pay a portion of your monthly payment into what’s known as an escrow account.  Escrow accounts usually pay out for things like homeowners insurance premiums and property taxes.  Because those are things that have to be paid, the lender takes the money and sets it aside to make sure that it actually gets paid each year.  

Escrowed taxes after forbearance

At the end of your forbearance, whenever that may be, you will still be responsible for the payments you missed.  Some lenders are asking that the payments be made up in a lump sum while others are allowing the amount to be divided up over a period of months.  There’s simply no single way that says how something has to be handled.  There is no firm and solid rule yet. 

While the principal may not be due in one lump sum and could ultimately be spread out over years, one thing is certain. Skipped escrow payments will be due long before anything else is.  This could potentially add hundreds of dollars to payments each month when they do resume because lenders are allowed to recoup the escrow shortage over 12 months.  

Example: Your escrow is short $4,500 for the year.  If you make that up over the course of a year, that’s an extra $375 a month on top of your normal payment, not including any principal payments that must be added in.

Keep escrow in mind

The Covid emergency, coupled with numerous different terms laid out in mortgages, make the answer about what’s going to happen very complicated.  What makes it even worse is that the goal posts keep moving.  We don’t know what kind of legislative remedies are going to pop up in the future.  

The long and short of it is, be mindful of what’s happening to the escrow balance of your mortgage and ask questions now so you aren’t blindsided later.  

Finally, if uncertainty still exists and you’re financially able, set aside the escrow portion of your mortgage just in case you need to make up the balance quickly and if for some reason you don’t, at least you have a little bit of savings on hand for another emergency.  If you’re in trouble with your mortgage and need help, contact the attorneys at Harmon and Gorove.