If you have concerns about being able to pay your mortgage payments, you may find some relief in knowing that you have many resources available to you to help make your loan more manageable. These options may help you modify your loan with the lender, avoid penalty and late fees, or even avoid foreclosure all together.
It’s important to know what is available to you so you can make the best decision based on your situation. Unfortunately, we often find that homeowners either don’t know all their options, don’t understand the differences between them, and because of that fall for misinformation and mortgage scams.
As a trusted law firm in New Jersey, we often get asked what the difference is between a repayment plan, forbearance agreement, and a loan modification. Although these three options do have similarities, not all are good options for homeowners. There are some distinct differences that homeowners should be aware of when thinking about how they can deal with late or missing mortgage payments.
The attorneys at Denbeaux & Denbeaux Law often help homeowners going through foreclosure to help them understand all their options and know their rights as homeowners. Our goal is to make sure you have the knowledge you need to make the best choice for you and your family.
Mortgage Repayment Plans
A repayment plan may be a good option for homeowners who have missed a few mortgage payments due to a temporary, short-term financial hardship. It might provide some financial relief for a certain amount of time but still requires that the borrower continue making payments.
Repayment plans are generally not an effective option for homeowners who have had a financial setback. For example, you will have to pay more than your mortgage payment to catch up during a repayment plan—and not many people who have experienced financial hardship can pay more than they did before that hardship happened to catch up payments.
Your home loan repayment options will vary from lender to lender, but typically your lender spreads the overdue payments out over a period of time with increased payment amounts. During that period of time, a portion of each overdue payment is added on to your existing mortgage loan payments. The idea behind a repayment plan is that by the end of the repayment period, you’ll be up to date on payments and in a better position to continue paying your monthly mortgage.
There are two big downsides to most Mortgage Repayment Plans to consider:
First, most include a ‘poison pill’ that requires a balloon payment to catch up on the remaining due in order to become current, after paying double (or more) for months under the payment terms offered.
Second, a repayment plan is considered a form of ‘loss mitigation’ and it makes more difficult and expensive any Forbearance and Loan Modification workouts (also types of ‘loss mitigation’) that might be needed down the road.
Unless you’ve positioned yourself better financially after your hardship than you were before and your current mortgage interest rate is so low that adjusting the rate through a different type of loss mitigation makes no sense, then you shouldn’t try to use a repayment plan to avoid foreclosure. In many cases, repayment plans are more difficult to complete and homeowners miss payments during repayment plans and end up in foreclosure all the same.
Denbeaux & Denbeaux has been representing homeowners in financial distress for more than a decade, and of the thousands of homeowners I have represented, the repayment plan was the appropriate resolution for a grand total of two of my clients.
So, stay away except under the advice of an expert who can explain exactly what it is you are signing.
Mortgage Forbearance Agreements
What is the purpose of forbearance agreements? First, you should understand the two ‘types’ of mortgage forbearance agreements.
A ‘traditional’ mortgage forbearance is an agreement that allows homeowners some short-term relief. During the mortgage forbearance period, mortgage payments are either reduced or suspended to give homeowners a chance to avoid default and foreclosure. Even if your mortgage payments are suspended during forbearance, homeowners are still responsible for getting up-to-date on their loan.
The CARES Act forbearance agreements during COVID, however, were a different kind of forbearance agreements that are subject to different regulations and terms. If you used CARES forbearance, keep in mind that this was not a “traditional” forbearance agreement.
What happens at the end of a forbearance agreement? At the end of forbearance, the homeowner is still responsible for resuming monthly payments and may be required by the lender to become current on missed payments, including interest, tax, etc. The length of time during forbearance along with the specific terms of the forbearance agreement will vary depending on your lender and situation.
Forbearance agreements are not a long-term solution, but rather a temporary solution for homeowners experiencing a rough patch of financial hardships.The purpose of a forbearance agreement is to create a temporary pause in mortgage payments while a homeowner gets back on their feet. But unless your financial situation goes back to the same as before your financial hardship, which is rarely the case, you may still struggle to make payments after forbearance.
However, in the CARES Act Mortgage Forbearance Agreement the servicer is required to work in good faith to find an affordable monthly mortgage payment, usually by negotiating a loan modification agreement after the CARES Act Mortgage Forbearance Agreement has expired.
So, mortgage forbearance agreements are better than a repayment plan, but are generally not preferable to a loan modification agreement.
Loan Modification Agreements
A loan modification is an agreement between the borrower and the mortgage lender that modifies the original loan terms. Through a loan modification, a homeowner may be able to reduce interest rates, split payments into smaller amounts, extend the loan to reduce payment amounts or reduce the principal. Unlike repayment plans and forbearance agreements, loan modifications are permanent changes to the loan that remain in effect for the lifetime of the loan.
Loan modifications can be denied by lenders but denial has become increasingly less likely with the help of the new CFPB rules requiring lenders and servicers to do their due diligence in order to help homeowners that need a loan modification in order to avoid or stop foreclosure.
In order to qualify for a loan modification agreement, you have to meet certain requirements of your mortgage lender. These requirements can usually be found on a lender’s website. You may also find your lender on our list of mortgage servicers that the attorneys at Denbeaux & Denbeaux Law commonly deal with.
Get Help With a Loan Modification Attorney
Now more than ever, homeowners will be looking for resources to help make their mortgage loan more manageable and avoid foreclosure. Make sure you have the help you need to guide you through the process of getting a loan modification by contacting attorney Joshua Denbeaux at Denbeaux & Denbeaux Law.
Set up a free consultation today and find out how experienced foreclosure attorney Joshua Denbeaux may be able to help you get a solution that helps make your mortgage more manageable to avoid foreclosure.