About Forbearance Agreements
If a debtor falls behind on a loan, he may be able to get caught up on his loan payments without giving up property. These agreements prevent the lender from taking action against the borrower for a specified time, allowing the borrower time to solve temporary financial problems. Forbearance agreements can be made on any type of loan but are most often used with mortgages.
Other People Are Reading
-
Benefits
-
Forbearance agreements are beneficial to the borrower and lender. Lenders benefit by getting the opportunity to get caught up on their mortgage payments without losing their property. Lenders enter into forbearance agreements in hopes of being able to collect the debt and avoid the hassle or expense of foreclosure and the subsequent sale of the foreclosed property. Lenders are able to grant a borrower some leeway on loan repayment without ultimately giving up their right to foreclose on the property after the forbearance agreement has ended.
Features
-
Because forbearance agreements are formed between the borrower and lender, they allow for much flexibility in their terms. It may be possible for a borrower to temporarily lower or even suspend loan payments. In return, the lender may be able to increase the interest rate on the loan. Many lenders also insist that the borrower seek the help of a professional financial planner or counselor.
-
Clauses
-
Although the terms of a forbearance agreement can be very varied, there are a few clauses that are found in almost all forbearance agreements. One of these clauses is the one in which the lender agrees not to foreclose on the home (or repossess property if the loan is not a mortgage). Another clause confirms that there is, in fact, a valid debt. There is often a clause in which the borrower agrees that she is delinquent and that the lender does have the right to foreclose under the loan terms. Many contracts also contain a "drop dead clause," which states the date on which the foreclosure process will begin if all of the forbearance agreement terms have not been met by the borrower.
Considerations
-
Forbearance agreements are designed to assist borrowers who have a temporary financial problem caused by illness, hospitalization, unemployment or other unanticipated problems. These agreements are not designed to help people with chronic financial problems. Most lenders will not enter into a forbearance agreement if they do not feel that the borrower will be able to resolve her current financial issues.
Warning
-
Forbearance agreements do not release a borrower from loan repayment, and they usually contain a date on which the foreclosure or property-seizing process will begin if the debtor has not met all of the agreement terms. These agreements protect borrowers by allowing them more time to repay a loan; they do not, however, materially change or neutralize the lender's rights.
-
