Now that it’s 2017, the federal government’s Home Affordable Modification Program (HAMP) has expired. Maybe that’s a bad thing for struggling homeowners, but investigative reporting found that HAMP was a dismal failure. It rejected millions of applications, and only several hundred thousand made it past that stage. Thus homeowners might want to know about other options, and while chapter 13 New York bankruptcy might be the best alternative for many, some might want to know about “mortgage forbearance agreements.” What are these?
Essentially, a mortgage forbearance agreement means what it sounds like: A lender agrees with a distressed borrower to not pursue its rights on the mortgage for a certain period of time while offering the borrower a chance to continue payments at a reduced rate, or suspend them altogether. The borrower must submit a financial disclosure to the lender to qualify, and the forbearance period usually lasts up to six months.
Once the period ends the lender will require the borrower to resume payments, but at the same time, the borrower will need to pay back all the extra accrued principal and interest. Often, lenders require debtors to repay a portion of the arrearages in a lump sum at the end of the forbearance period, sometimes up to half the deficiency. After that, borrowers repay the remaining amount over a number of payments to become current again.
It should be clear, then, that forbearance agreements are only short-term solutions to mortgage problems. Some lenders might allow debtors to extend the forbearance period, but even if they are granted, they are not a long-term solution to mortgage problems. Debtors facing tougher circumstances are better off trying to obtain loan modifications because they reduce borrowers’ monthly payments over the life of the loan.
Mortgage forbearance agreements work best for borrowers with immediate, but transient financial problems. Examples include losing a job or dealing with a serious health problem. By contrast, debtors with high adjustable-rate mortgages probably should consider more permanent solutions. Because the arrearages incurred in a forbearance agreement can be quite significant, borrowers need to plan for the reduced take-home income once they are back in full repayment.
If you are falling behind on your mortgage payments, then a forbearance agreement might help you. Another option that may work better for debtors is a chapter 13 bankruptcy. Debtors can keep their homes while continuing their mortgage payments, including arrearages, for between three and five years. If that sounds like it can help you, then you should consult with an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.