Wednesday, June 13, 2012

Pros and Cons of Real Estate Forbearance Plans

Real estate forbearance can be a good choice for borrowers facing temporary financial setbacks that prevent them from paying their full loan installment. Forbearance plans are used to suspend payments or reduce payment amounts and give borrowers a few months to get caught up.

Once a real estate forbearance contract is in place, banks agree to cease foreclosure action unless mortgagor's default on contract terms. Forbearance plans typically extend for 1 to 4 months, but lenders can suspend payments for up to 12 months.

The primary disadvantage of this foreclosure prevention strategy is borrowers are required to pay skipped payments in full once forbearance contracts expire. If borrowers are unable to fulfill payment obligations, banks can commence with foreclosure action.

Depending on the circumstances, banks may allow borrowers to obtain a new forbearance plan. If lenders are unwilling to extend terms, they might let mortgagors pay additional funds with each monthly installment until mortgage arrears are cured.

Real estate forbearance is generally only available to borrowers who have a solid payment history and possess the financial means to pay past due amounts. The only way to know if this option is available is to contact the servicing lender's loss mitigation department.

Borrowers are required to provide financial records to the lender. Upon approval, mortgagors work with an assigned loss mitigator. In order to orchestrate a successful outcome, communication with loss mitigators is essential. Once past due payments are paid, the mortgage loan returns to good standing and borrowers commence with regular payment schedules.

Mortgage forbearance is normally only available during early stages of loan default. Therefore, borrowers must be extremely proactive in contacting their lender. The moment mortgagors realize they cannot meet loan obligations they should be on the phone with the bank. Fewer options are available to stop foreclosure once banks issue a preforeclosure Lis Pendens notice.

Real estate forbearance plans can provide the financial help borrowers require to get back on track. Unfortunately, they can so be financially restrictive. For example, if mortgage payments are ,000 per month and banks defer 3 payments, borrowers must be able to pay ,000 plus accrued interest, late fees, and penalties within 90 days. Otherwise, their home saving efforts might be in vain.

If borrowers default on active forbearance plans, banks can immediately initiate foreclosure proceedings. Defaulting on mortgage forbearance can actually place borrowers at a higher risk for foreclosure because banks are less likely to offer other strategies such as loan modification or mortgage refinance.

Individuals who are unable to reach amicable payment agreements with their bank, or uncertain of available options, should consider obtaining housing counseling through the Department of Housing and Urban Development. HUD housing counselors can help borrowers devise payment plans; negotiate with lenders; and provide information and resources to all available mortgage default resolution programs.

Careful consideration must be given before entering into real estate forbearance plans. It can be beneficial to obtain legal counsel to review contract terms and help determine if this is the best option.

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