Special Forbearance

Unexpected financial hardships such as unemployment or natural disasters can be devastating. What's worse is the fear of losing your home because you can't make your mortgage payments. Luckily, your lender may grant you a special forbearance. This gives you a temporary break from your loan payments while you get back on your feet. Although mortgage forbearance may only last for a short time, it can help prevent foreclosure.

What Makes This Type of Forbearance So Special?

Loan forbearance is a type of loss mitigation. It is the process by which a mortgage lender agrees to reduce or suspend a borrower's monthly mortgage payments. While the lender has the legal right to start the foreclosure process, it “forebears" this right. Instead, the lender works with the borrower to bring the mortgage loan balance current.

A special forbearance presents a greater variety of relief to borrowers. It also offers more time to catch up on missed payments. Borrowers have the option to delay repayment of the back amount owed on the home loan. Typically, a special forbearance plan is available to those who have missed no more than 12 months' worth of mortgage payments.

It is important to note the difference between loan forbearance and loan modification. Loan modification aims to maintain or reduce your monthly mortgage payment. This includes changing the actual terms of your mortgage loan, including the interest rate and principal amount. Other forms of mortgage relief or modification include refinancing, loan deferral, and partial claims. With a deferral or partial claim, the homeowner can pay off any missed payments when refinancing or selling the home.

Do I Qualify for a Special Forbearance?

The circumstances in which a lender will consider a special forbearance vary. A lender will grant a forbearance due to these sorts of events:

• Loss of employment
• Death of co-borrower
• Impact of a natural disaster
• Pandemic/Coronavirus
• Temporary illness or injury
• Other emergencies

Millions of homeowners qualified for mortgage forbearance through the CARES Act. Any mortgage sponsored by the federal government qualifies for forbearance under the Act. This includes USDA, Freddie Mac, and Fannie Mae loans.

Your eligibility for special forbearance depends on whether your hardship is temporary. A good example is if you have to live in a hotel after your home floods, and you are waiting for an insurance payout to cover the cost-of-living expenses. Your lender may grant you a special forbearance on your mortgage payments until your payout arrives.

If your loan is insured by the Federal Housing Administration (FHA), you must show a loss of income due to unemployment to obtain a special forbearance. The FHA special forbearance program extends the forbearance period for up to 12 months. This gives the homeowner time to find a new job.

How To Get a Special Forbearance

Obtaining a special forbearance begins with contacting your lender. Explain the nature of your financial difficulties and ask about your forbearance options. You need to prove that your situation is short-term. You also need to show that you will be able to resume your regular mortgage payments in the near future. Be prepared to demonstrate your good faith efforts to pay your mortgage and reduce expenses. Your lender will likely request that you submit certain documentation. This will include information about income and monthly expenses.

Keep in mind, loan forbearance is not loan forgiveness. Once your financial situation improves, you must repay the past amount due, including principal, interest, taxes, and insurance. You may need to make higher monthly payments until your loan is current or make a lump sum payment of the full past-due amount. Your lender may agree to add the full amount due to the back end of your mortgage, which will extend the length of your mortgage until you pay off the entire balance. The terms of your repayment plan will be set out in your initial forbearance agreement, so be sure to carefully review this document, preferably with an attorney. It is also important to note that your loan servicer will report any mortgage forbearance to your credit bureau. Forbearance will not affect your credit score, but future lenders will see it on your credit report.

If you're having trouble communicating with your lender, talk with a housing counselor from a housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD). An experienced housing counselor may be able to assist you for free or at a minimal cost. Another great resource is the Consumer Financial Protection Bureau, which ensures that borrowers are treated fairly by their banks, lenders, and mortgage servicers.

Get Legal Help with a Special Forbearance

If you're struggling financially and considering requesting a special forbearance or other loan repayment options, consider talking with a lawyer. A real estate attorney experienced in foreclosure alternatives can help you understand the options available and allow you to make an informed decision.