With all the financial challenges in today's Market... it's important that you understand your options. 

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Options typically include Loan Modification, Negotiating a Forebearnce, A Deed in Lieu of Foreclosure, or a Short Sale.  

A Forbearance Agreement:

A written agreement between a lender and a borrower that details a specific loan payment plan that adds to the regular payment for a period of time or tacks amounts on to the end of the loan—all designed to help the lender recover delinquent amounts.  The plan usually puts a stop to any foreclosure actions so long as you meet the terms of the agreement.

A written agreement between a lender and a borrower that details a specific loan payment plan that adds to the regular payment for a period of time or tacks amounts on to the end of the loan—all designed to help the lender recover delinquent amounts.The plan usually puts a stop to any foreclosure actions so long as you meet the terms of the agreement.

The Forbearance arrangement may allow the homeowner to delay or adjust their monthly payment, typically for a short time, to allow you time to recover from a temporary financial setback.  The payment plan in the agreement includes provisions for repayment to the lender of delinquent interest and fees, and could include extending the life of the mortgage beyond the original term.

Once the details of the Forbearance terms are settled, you and your lender enter into a formal written Forbearance Agreement—and the you get to keep your home.  The key to working our a Forbearance Agreement  with your lender is to demonstrate to the lender the circumstances that led to your mortgage delinquency were temporary and beyond your control.  Further, the lender wants to be convinced that you are back on solid financial ground, and likely to keep the loan current going forward.

A Loan Modification Agreement: 

In a Loan Modification Agreement a lender agrees to modify the terms of a mortgage, usually adjusting the minimum payment downward, so that you can manage the payment.  Since the lender does not want to acquire the property through foreclosure, you should not hesitate, when mortgage trouble is unavoidable, to ask for help from your lender.  The modification of loan terms might be temporary or in some cases they might go on for an extended period of time.  In either case, the lender is extending the courtesy of a modification because it makes business sense to do it.

Like a Forbearance Agreement, you need to show the lender that once the Loan Modification is agree to , you will be able to remain current on the mortgage.  It’s true, the lender does not want to foreclose, but the lender also wants to know that in agreeing to the modification the problem is being solved.  

Important considerations for Forbearance Agreements and Loan Modifications

Be Realistic

Be realistic about your finances.  Before you go through the process of pursuing either a Forbearance Agreement or Loan Modification, ask yourself if this is the right course for you and your financial circumstances.  If you are not in a position to make an absolute commitment to your mortgage once the terms have been adjusted, a Forbearance Agreement or Loan Modification may not be the best option for you.

Getting a Forbearance Agreement or Loan Modification approved will require time an effort on your part.  You will be asked to provide the information and documentation needed to show that once your loan terms are adjusted you will be able to meet your mortgage obligation going forward.  Some of the questions you will be expected to answer may touch on difficult and personal issues.

Take an honest look at your financial situation.  If you are working on a Forbearance Agreement, are you truly back on solid financial ground?  If not, a Forbearance agreement is probably not your best option.  A Forbearance Agreement is a great tool to help those who have experienced a temporary financial upset that led to a mortgage delinquency.  A Forbearance Agreement is not a good option for those who see more financial instability in the foreseeable future.

If you are requesting a Loan Modification, make sure that you can reasonably afford the monthly payment that you will have if the lender approves your request.  After all, what’s the point of going through the process of getting a Loan Modification approved if you end up with a new payment you can’t afford?  When requesting a Loan Modification, know that you can afford to pay for your mortgage—and ask for it.  Your lender may be unwilling to make the adjustment you need, but that does  not change what you can afford.  You need to request an adjustment that puts your payment at a number you can afford every month.

Both Forbearance Agreements and Loan Modifications are important tools to help lenders and homeowners get through the current mortgage delinquency problem.  Families and communities benefit tremendously from the stability that home ownership provides.  These agreements help preserve home ownership for many who need assistance at a critical time.  Just keep in mind that Forbearance Agreements and Loan Modifications are not the right answer for everyone.

Hardship Letter

A hardship letter is your opportunity to outline for your lender the situation or circumstances that make it necessary for you to request assistance.  A good hardship letter not only lays out the facts of the hardship but also includes a compelling personal element.

Bring your situation to life by sharing some of the details of your hardship.  Your hardship letter will be reviewed by a living, breathing person, give your letter a real feel—without going overboard.  Support your hardship letter with documents, letters, notices and such that help the lender see and feel what you are going through.  Letters from doctors, layoff notices, notices of cancelation of auto or medical insurance, anything that legitimately contributes to an understanding of what you are up against should be included. 

For those seeking a Forbearance Agreement, your hardship letter will focus on three things:

1.  The problem or circumstance was beyond your control.

2.  The temporary nature of your hardship.

3.  The fact that you have now recovered and are back on your feet. 

NOTE:  When you go through the process of evaluating your financial situation to determine what sort of Loan Modification you will need, take a hard look at your personal expenses.  Be prepare to make adjustments to your spending habits to reduce your “discretionary” expenses.  You will be asking your mortgage lender to forego monies to which they are entitled, you should be willing to make some personal adjustments as well.  Always check with your Tax Advisor & and your Attorney to see what your liabilities and ramifications might be. 

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