There are countless circumstances that can lead to homeowners falling behind on their mortgages. Hurricane Harvey has forced thousands of coastal Texans into financial hardship. When going through a hardship, homeowners might want to ask for a break from their lender and at that time, they could be offered a forbearance.
What is forbearance? The definition of forbearance is an agreement to not enforce something (such as a debt, right, or obligation) that is due. When it comes to mortgages, a forbearance is a special agreement between a lender and a borrower to delay payment(s) or even postpone a foreclosure.
What are the benefits? A forbearance can lower or temporarily suspend your monthly payment, giving you time to get back on your feet and improve your financial situation. It is much less damaging to your credit report than a foreclosure and can be a tool to help you avoid foreclosure altogether.
How do they work? A forbearance is an agreement you and your lender make. Some lenders will talk about forbearance as a form of “loss mitigation,” meaning it’s a tool lenders use to help people avoid the loss of their homes. The agreement can be to reduce your monthly mortgage payment—or suspend it completely—during the forbearance period. NOTE: You will have to repay any payments not made during the forbearance period. If you qualify for forbearance, you and your mortgage company should discuss the forbearance terms:
- length of the forbearance period,
- reduced payment amount (if the payment is not suspended), and
- the terms of repayment.
Here is where it gets tricky – After the forbearance period has ended, you will need to repay the amount that was reduced or suspended. Usually, this means that you must pay a lump sum (sometimes called “balloon”) payment of the amount that was due and accruing during the forbearance period.
What if you can’t afford a lump sum/balloon payment? Your lender should give you other options, assuming you qualify, to help you stay in your home and avoid foreclosure. They could agree to add a specific amount to your payments each month until the entire amount is repaid or they could offer you a modification that would eliminate the past due amount and extend the overall term of your loan.
An attorney can help you fully understand all of your foreclosure prevention options and/or provide you help in navigating through the process. Lone Star Legal Aid’s Foreclosure Prevention Project can evaluate your situation and provide assistance if you’re eligible. To apply for assistance with Lone Star Legal Aid, call 1- (800) 733-8394.
Lone Star Legal Aid is a 501(c)(3) nonprofit law firm focused on advocacy on behalf of low-income and underserved populations. Lone Star Legal Aid serves the millions of people at 125% of federal poverty guidelines that reside in 72 counties in the eastern and Gulf Coast regions of Texas, and also 4 counties of southwest Arkansas. Lone Star Legal Aid focuses its resources on maintaining, enhancing, and protecting income and economic stability; preserving housing; improving outcomes for children; establishing and sustaining family safety and stability, health and well‐being; and assisting populations with special vulnerabilities, such as those who have disabilities, or who are elderly, homeless, or have limited English language skills. To learn more about Lone Star Legal Aid, visit our website at www.lonestarlegal.org.