Forbearance

What is Forbearance?

Forbearance refers to a temporary postponement of mortgage payments granted by the lender or creditor as part of an agreement with the borrower. This term is particularly relevant in real estate and finance, where lenders exercise leniency to allow borrowers additional time to rectify a situation of default or missed payments. Instead of enforcing immediate and severe legal actions such as foreclosure, the lender opts to pause interest or principal payments, giving borrowers the opportunity to recover from financial disruptions.

Examples:

Home Mortgage Forbearance:
- A borrower facing financial difficulty due to losing their job completes a forbearance agreement with their mortgage lender. The lender agrees to reduce the mortgage payments for six months.
Student Loan Forbearance:
- A graduate struggling to make student loan payments due to a recent medical emergency obtains a forbearance from their loan servicer, halting required payments temporarily while they regain financial stability.
Commercial Real Estate Forbearance:
- A small business owner with a commercial property lease negotiates forbearance terms with the bank after a natural disaster disrupts daily operations, thus allowing for payment delays.

Frequently Asked Questions:

1. How long does a typical forbearance period last?

Forbearance periods vary depending on the agreement, lender, and borrower’s situation. Commonly, forbearance can range from 3 to 12 months but may extend longer based on lenders’ assessments and circumstances.

2. Does forbearance mean forgiveness of the missed payments?

No, forbearance doesn’t imply forgiveness. The deferred or reduced payments must be paid back eventually, either through a lump-sum payment, increased future payments, or a repayment plan.

3. Does forbearance affect credit scores?

Lender-documented forbearance typically does not negatively affect credit scores if managed properly and terms are followed. However, failure to comply with forbearance terms might be reported to credit bureaus.

4. Can you apply for forbearance multiple times?

In some recoverable situations, lenders may allow subsequent forbearance plans. However, approval for multiple forbearances will depend on borrower’s continued financial distress and lender discretion.

5. What is the difference between forbearance and deferment?

Forbearance typically results in paused or reduced payments and may still accrue interest, whereas deferment postpones payments altogether, sometimes without accruing additional interest depending on the terms.

6. Is interest accrued during forbearance?

Yes, unless explicitly waived in the forbearance agreement, interest will generally continue to accrue on the unpaid balance during the forbearance period.

7. Can forbearance help in avoiding foreclosure?

Yes. Forbearance agreements are designed to help borrowers avoid the severe consequence of foreclosure by providing a structured relief period to catch up on overdue payments.

8. Are there any fees for entering a forbearance agreement?

Some lenders might charge fees for processing forbearance agreements, although charges are not uniform and can depend on negotiation and lender policies.

Default:
- The failure to meet the legal obligations of a loan, such as missing payments.
Repayment Plan:
- A scheduled payback arrangement established to repay missed payments over an extended period following a period of forbearance.
Loan Modification:
- A legal restructuring of a loan agreement to change terms such as interest rates or payment schedules.
Deferment:
- Authorized postponement of loan payments, sometimes without interest accrual during the period.

Online Resources:

References:

United States. Dept. of Housing and Urban Development, “Avoiding Foreclosure,” accessed [Month, Year], [URL].
Consumer Financial Protection Bureau, “Forbearance and Mortgage Repayment Options,” accessed [Month, Year], [URL].

Suggested Books:

“Foreclosure Survival Guide: Keep Your House or Walk Away with Money in Your Pocket” by Stephen Elias
“The Homeowner’s Guide to Foreclosure” by James Wiedemer
“Mortgage Loan Forbearance and Reinstatement: A Complete Guide” by Rob Lydick

Real Estate Basics: Forbearance Fundamentals Quiz

### What is forbearance in the context of real estate? - [ ] A final legal action taken by lenders. - [ ] Immediate foreclosure prevention. - [x] Temporary postponement of mortgage payments. - [ ] Elimination of loan obligations. > **Explanation:** Forbearance is a temporary postponement of mortgage payments granted by the lender to give the borrower additional time during financial difficulties. ### During a forbearance agreement, is the borrower obligated to later repay the missed payments? - [x] Yes, the borrower must repay the missed payments. - [ ] No, missed payments are forgiven. - [ ] Only half of the missed payments need to be repaid. - [ ] Repayment depends on the lender's discretion. > **Explanation:** Forbearance delays repayments but does not forgive them, meaning the missed payments will need to be repaid later. ### How long does a typical forbearance period last? - [ ] 1 month - [ ] 2-3 months - [x] 3-12 months - [ ] Indefinitely > **Explanation:** A typical forbearance period ranges from 3 to 12 months, depending on the agreement and borrower’s situation. ### Does forbearance affect credit scores if managed properly? - [x] No, it will not negatively affect credit scores. - [ ] Yes, it always reduces credit scores. - [ ] Only for government-backed loans. - [ ] It depends on the amount of missed payments. > **Explanation:** Properly managed forbearances, documented and agreed upon by lenders, do not negatively impact credit scores. ### Is interest accrued during forbearance? - [x] Yes, unless specified otherwise. - [ ] No, interest is paused. - [ ] Only principal accrues interest. - [ ] Interest accrues only for the first month. > **Explanation:** Unless explicitly waived, interest typically continues to accrue on the unpaid balance during the forbearance period. ### What is the difference between forbearance and deferment? - [x] Forbearance may pause or reduce payments, deferment often halts payments. - [ ] Forbearance accrues interest; deferment never does. - [ ] Forbearance is only for mortgages; deferment is for student loans. - [ ] They are the same terms with different names. > **Explanation:** Forbearance may reduce or pause payments but interest may still accrue, whereas deferment usually halts payments altogether, sometimes without accruing interest. ### Can forbearance help in avoiding foreclosure? - [x] Yes, it provides time to catch up on payments. - [ ] No, foreclosures automatically proceed during forbearance. - [ ] Only for government-backed loans. - [ ] Forbearance does not directly relate to foreclosure. > **Explanation:** Forbearance agreements are designed to offer borrowers time and structure that helps in avoiding foreclosure. ### Are there fees associated with forbearance agreements? - [x] Sometimes, depending on the lender. - [ ] No, they are always free. - [ ] Fees are always high. - [ ] Only non-government lenders charge fees. > **Explanation:** Some lenders may charge fees for processing forbearance agreements; it varies based on lender policies. ### Can a borrower apply for forbearance more than once? - [x] Yes, depending on the lender's discretion. - [ ] No, it is a one-time relief. - [ ] Only in exceptional circumstances. - [ ] It depends on the amount of loan. > **Explanation:** While lenders may allow subsequent forbearance plans, approval for multiple forbearances depends on the borrower's ongoing financial hardship and lender's discretion. ### What type of legal remedy does forbearance prevent in the short term? - [ ] Eviction - [ ] Loan forgiveness - [x] Foreclosure - [ ] Debt collection calls > **Explanation:** Forbearance provides a temporary halting of payments to prevent severe legal action like foreclosure.