By Simon Volkov

A forbearance agreement is a deferred payment contract offered to borrowers who have become delinquent with loan installments. These contracts either reduce payment amounts or suspend installments to give borrowers time to get back on track.

Once a forbearance agreement is in place banks agree not to engage in foreclosure action as long as borrowers comply with the terms. Mortgage forbearance plans normally extend for 2 to 3 months. Borrowers must pay deferred amounts in full when the contract ends.

Real estate forbearance plans can be helpful to borrowers enduring temporary financial setbacks. If borrowers are unable to resolve financial problems there is a strong probability they could lose their home to foreclosure.

If borrowers default on the forbearance agreement they could lessen their chance of entering into other foreclosure prevention strategies. Therefore, it is important to explore all home-saving solutions prior to entering into a forbearance plan.

Mortgage payments that are skipped during the forbearance contract are often reported to credit bureaus as delinquent. Late payments are reflected negatively and can reduce borrowers’ credit scores. In turn, reduced FICO scores can position borrowers into a lower credit category.

Reduced credit scores may also affect borrowers’ ability to qualify for other foreclosure prevention remedies such as mortgage refinance or loan modification. Restoring good credit can take as long as 2 or 3 years. Much depends on the level of damage, but even minimal damage can require at least a year to recover previous FICO scores.

Borrowers should take time to calculate the level of funds in their escrow account. Mortgage payments include funds to cover the cost of mortgage insurance premiums and property taxes. Each time borrowers make a payment, funds are transferred to escrow to cover these expenses.

If mortgage insurance or real estate taxes are owed during the forbearance agreement, there might not be sufficient funds in escrow. Mortgagors are responsible for paying these expenses out-of-pocket. If they do not pay taxes and insurance they run the risk of having the forbearance contract revoked. If this occurs, lenders can proceed with foreclosure action.

On a more positive note, real estate forbearance plans can be a good choice as long as borrowers can make restitution of loan deferment payments when contract terms expire. Borrowers must be committed to finding financial solutions during the forbearance agreement to ensure they can comply with loan obligations.

Borrowers must request mortgage forbearance through their lender’s loss mitigation department. Those enduring long-term financial crisis stemming from lack of employment, death of a spouse, divorce, or chronic health problems should discuss all available options with their assigned loss mitigator. In some cases it may be better to enter into a loan modification or real estate short sale.

When applying for forbearance agreements borrowers must provide financial records and a letter of hardship. Hardship letters allow borrowers to explain circumstances surrounding their personal finance concerns and explain actions taken to cure money problems.

It is strongly recommended to contact lenders at the first sign of financial problems. Banks are generally more willing to work with individuals who are proactive in finding solutions. However, this is not always the case.

Borrowers who are unable to reach an amicable agreement with their lender may need to retain legal counsel or obtain housing counseling through the Department of Housing and Urban Development. HUD can assist borrowers with foreclosure prevention strategies and provide counsel to help borrowers determine if a forbearance agreement is the best option for their current situation.

About the Author: Take time to gather the facts before entering into a forbearance agreement. Real estate investor, Simon Volkov offers a complete home-saving and foreclosure prevention article library available at SimonVolkov.com.

Source: isnare.com

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