Is a Mortgage Forbearance Under the CARES Act Right for You?

Is a Mortgage Forbearance Under the CARES Act Right for You?

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Date: April 22, 2020Author: Denbeaux & Denbeaux

A forbearance of payments on your mortgage may or may not be right for you. Here is a breakdown of the hidden pitfalls and opportunities built in that you need to understand before making this decision.

FHA Back Mortgage Loans and Forbearance

Postponing or reducing loan payments while interest continues to accrue is a forbearance.  FHA backed mortgage loans may be put under forbearance as a result of the CARES Act. You can look yours up here to see if your mortgage is still FHA backed.

Are non-FHA mortgages eligible for forbearance?

Mortgage servicers operating in New Jersey offer forbearance as a result of negotiations with Governor Murphy. Here is a list of cooperating mortgage servicers to see if your non-FHA mortgage is eligible for the forbearance

Forbearance is not a modification. At the end of a forbearance period, all the back money not paid to that point through the forbearance is still owed. Virtually no one taking the forbearance is going to be able to make up those payments all at one time.

Will taking forbearance cause default and foreclosure?

Almost certainly not.

The mortgage servicing industry is going to tell you otherwise because the industry is in terrible straits.  A mortgage servicer must make payments every month to the owners of the mortgage loans that they service.  They can’t collect on the monthly payments from those people taking the forbearance (or simply refusing to pay for other reasons).

The notifications you are going to receive are all going to warn you of the dire consequences coming at the end of the forbearance period.

But they are not telling you the truth.

Modifications Available for FHA Backed Mortgages

If you have reasonable income sufficient to cover the monthly payment, a modification is nearly assured of an FHA mortgage.

We can help you with the loan modification process to assure your chances of getting a fair deal as the law protects your right to file a modification application, and have it reviewed.

About Modifications for non-FHA Mortgages

Non-FHA mortgages may not have a modification process in place, at least as of this writing. Ideally, loan servicers would be proactive to try to help you now rather than wait and see what the government does for them.  In 2008 mortgage servicers automatically foreclosed on homes after 3 months of non-payments and a default on the loan whether there was a loan modification worked on or not.

Dual-tracking no longer allowed

This practice, known as dual-tracking, is no longer allowed.  We have experience with this mortgage servicing violation.  We have successfully sued the mortgage servicer for damages for this violation. In some cases, this action also got the homeowner the loan modification.

We Anticipate Servicing Errors on Loan Files

There is one other scenario coming up that is frightening the mortgage servicers.  We’ve looked at literally thousands of loan files where stopped, missed,  or changes in payments caused servicing errors. The probability of a servicing error increases with changes in handling the file. A mortgage servicer’s uncorrected servicing errors can result in a lawsuit unrelated to default.

File a Request for Infomation

A loan must be 100% correct when reinstated and payments resumed or the loan servicer can be sued. We aren’t guaranteeing that this will happen.  It is logical to assume that there will be a percentage of files where this will happen.

Check loans coming out of forbearance for any irregularities with a Request For Information. This is something you can do yourself, or we will help you at no charge.

More Resources to Prevent Foreclosure

Our Foreclosure Guide and the Foreclosure Infographic will help educate you as to the process and ease concerns.

Federal Housing Finance Agency Coronavirus Assistance Information

 

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