Forbearance, Loan Modifications and Foreclosure
October 29, 2009
Forbearance agreements have been around for a long time, but it seems that only in the recent financial crisis has it come into prominence. On the surface, it sounds like a benefit to a homeowner who can no longer keep up with the monthly mortgage payments. Lenders will offer the borrower a forbearance agreement whereby the lender agrees to postpone, reduce or suspend payment on a loan for a limited and specific time period. By entering into such an agreement with the lender, the borrower avoids foreclosure; at least for the limited and specific time. These agreements may be beneficial for borrowers who believe that their financial duress is only temporary and that they will eventually be able to resume their mortgage payments plus repay the missed payments. Sometimes these missed payments are added to the existing mortgage balance. In a forbearance agreement, the borrower usually must agree that he will pay the lender all that is due. Sometimes the agreement also asks the borrower to not contest any actions taken by the lender to collect the debt. A borrower would be well advised to have an attorney review any forbearance agreement prior to signing it. An agreement to repay the entire debt may create a judgement lien against the borrower if the debt cannot be satisfied by the sale of the house or in a foreclosure proceeding.
Loan modifications have been the big news for 2009 as the government's Hope for Homeowners program and Making Homes Affordable Program have offered incentives to lenders to modify loans for borrowers who can no longer afford their payments or who cannot refinance their home because the existing loan is greater than the present value of the property.
Loan modifications can involve reducing the interest rate so as to reduce the payment. They can also involve reducing the amount of the loan. Lenders seemingly have been reluctant to do either of these loan modifications. However, the news articles do state that some 500,000 loan modifications have been done nationwide.
Foreclosure is the historical action that is taken by lenders when a borrower ceases to make payments on a loan. Since most homes in California are financed through deeds of trust, the lender will notify the trustee who then begins the foreclosure process. A Notice of Default is sent to the borrower. The borrower has 90 days to bring the payments current. After the 90 day period has passed, the trustee may then send and record a Notice of Trustee's Sale. The sale will be published in a local newspaper 3 times during a 21 day period. The published notice will include the date the property will be sold and where the sale will take place. Generally there will be an amount in the notice. However, lenders in today's environment have often reduced that amount when the sale actually takes place on the court house steps.
Short sales will be a topic for another day.
Forbearance agreements have been around for a long time, but it seems that only in the recent financial crisis has it come into prominence. On the surface, it sounds like a benefit to a homeowner who can no longer keep up with the monthly mortgage payments. Lenders will offer the borrower a forbearance agreement whereby the lender agrees to postpone, reduce or suspend payment on a loan for a limited and specific time period. By entering into such an agreement with the lender, the borrower avoids foreclosure; at least for the limited and specific time. These agreements may be beneficial for borrowers who believe that their financial duress is only temporary and that they will eventually be able to resume their mortgage payments plus repay the missed payments. Sometimes these missed payments are added to the existing mortgage balance. In a forbearance agreement, the borrower usually must agree that he will pay the lender all that is due. Sometimes the agreement also asks the borrower to not contest any actions taken by the lender to collect the debt. A borrower would be well advised to have an attorney review any forbearance agreement prior to signing it. An agreement to repay the entire debt may create a judgement lien against the borrower if the debt cannot be satisfied by the sale of the house or in a foreclosure proceeding.
Loan modifications have been the big news for 2009 as the government's Hope for Homeowners program and Making Homes Affordable Program have offered incentives to lenders to modify loans for borrowers who can no longer afford their payments or who cannot refinance their home because the existing loan is greater than the present value of the property.
Loan modifications can involve reducing the interest rate so as to reduce the payment. They can also involve reducing the amount of the loan. Lenders seemingly have been reluctant to do either of these loan modifications. However, the news articles do state that some 500,000 loan modifications have been done nationwide.
Foreclosure is the historical action that is taken by lenders when a borrower ceases to make payments on a loan. Since most homes in California are financed through deeds of trust, the lender will notify the trustee who then begins the foreclosure process. A Notice of Default is sent to the borrower. The borrower has 90 days to bring the payments current. After the 90 day period has passed, the trustee may then send and record a Notice of Trustee's Sale. The sale will be published in a local newspaper 3 times during a 21 day period. The published notice will include the date the property will be sold and where the sale will take place. Generally there will be an amount in the notice. However, lenders in today's environment have often reduced that amount when the sale actually takes place on the court house steps.
Short sales will be a topic for another day.
posted by shirley harry at 9:05 AM
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