Forbearance agreement is a short term agreement between the lender and the borrower which can be very beneficial to the lender, especially during financial difficulty. In this agreement, the foreclosure can be delayed. Foreclosure is a legal process in which the lender can recover the balance amount from the borrower.
Foreclosures can happen when the lender is not able to pay the mortgage loan due to some unforeseen circumstances, like medical emergencies or unemployment. Foreclosure is a costly process even for the lender and thus it must be avoided.
It is essential to form a forbearance agreement where the lender can delay the foreclosure for a specific period of time. The lender can either temporarily suspend the payment or reduce it for a certain amount of time.
Terms of Forbearance:
- The agreement must be negotiated between the lender and the borrower, and must be accepted by both parties.
- The lender may decide whether he or she wants to approve temporary suspension of the payment or reduce the payment amount.
- There are many other forbearance options, like reducing the interest rate of the borrower on the temporary basis or the borrower may have to pay only the interest and not the principle.
Conditions for receiving the Forbearance:
- Explaining the lender the exact situation and asking for his or her approval for the forbearance.
- Providing financial records.
- Being aware of all the details related to the forbearance agreement.
It must be noted that people may get confused about the difference between a loan modification service and a mortgage forbearance. The difference between the two is that a mortgage forbearance alters the terms related to mortgage for a certain period while a loan modification permanently changes the terms of the mortgage. The only similarity between the two is that both help in avoiding foreclosures. Taking advice of a loan modification expert can be of great help before deciding which option to opt for.