Foreclosure Information

We often get the question "Can you stop a foreclosure with a forbearance agreement?" The answer is not a simple "yes" or "no" because it depends on the homeowner's situation.

A forbearance agreement is a contract with conditions agreed upon between the lender and the delinquent borrower. The lender agrees not to immediately foreclose on the property while the borrower agrees to bring the loan current over an agreed upon amount of time. It provides for more time to repay the debt. This works well for those in temporary problems that have a foreseeable conclusion, but it is not for those with long term financial problems. It does not work well for those who are in crisis due to an adjustable rate mortgage. In that case, the loan needs to be restructured or modified by switching to a fixed rate or changing the loan's length or interest rate.

Before considering a forbearance agreement, make sure you honestly evaluate where you are financially and that you can afford the increased payment terms. If foreclosure is indeed inevitable, any money you have given the lender will be lost. Before contacting your lender, you must document your financial trouble for the lender by writing what is called a hardship letter. It will explain what financial trouble you are having, when it started, and offer proof as to why it is temporary. It is up to you to prove your case otherwise the lender will assume your money trouble is long term. Also, estimate the equity in your home. With a great deal of equity, you might want to consider other options such as selling your home. However, if you have very little equity, it is usually an incentive for the lender to make arrangements with you to be able to stay in the home. Foreclosure would be costly for them in that case. This is contingent though that your financial woes are due to involuntary reasons.

Contact your lender and ask for the direct number of the person dealing with your file. Ask for a homeowner's assistance package. Document everything you do and what is said and when. Review the package carefully. It is important to consult an attorney to help with the terms of the agreement so that your interests are defended. Do not abandon the property if you are considering this forbearance option. Make sure you have written documentation of the agreement made with your lender or it will not stop the foreclosure from happening.

There are no set terms for a forbearance agreement. It is ultimately what you and your lender negotiate. However, there are some typical inclusions. Mortgage payments are reduced initially (less than 6 months), then the increased payment schedule begins (usually not lasting longer than a year). The agreement will give an established finish date. It will usually state that the lender has the right to foreclosure upon you and that you have no defensible way to stop it. It includes the debt amount and sometimes conditions such as the borrower agreeing to financial counseling or selling off certain assets. The new payments typically include higher interest rates and a good faith fee to be paid prior to the agreement starting (generally.25 to 2% of the balance of the loan).

The agreement falls apart if the borrower abandons the property outright or fails to make the payments or meet the stated conditions for 60 consecutive days. The lender then has 90 days from that period of time to start foreclosure proceedings. Be aware though that a forbearance agreement can be reviewed and renegotiated if your circumstances change, but the loan must not be more than 12 months delinquent.

Dave Dinkel has been a real estate investor since 1975 and has always has a passion for helping people get out of their foreclosures. His best-selling book "32 Ways to Quickly Stop Foreclosure" remains a leader in the field of self-help books that allow a homeowner to regain control of this personal crisis - http://www.StopMyForeclosureMess.com

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