What Happens When a Mortgage Forbearance Ends and You Can’t Pay?

Mortgage companies and lenders sometimes offer homeowners a forbearance on their mortgage payments after a job loss, illness, natural disaster or other hardship, and many homeowners first used one during the COVID-19 pandemic. Under the terms of a forbearance agreement, a homeowner will not have to make monthly mortgage payments, or will make reduced payments, for a specific length of time. The length depends on the lender and the type of loan, and some forbearances are extended if the hardship continues.

When the forbearance period comes to an end, the homeowner must start making payments again. These payments include the regular monthly mortgage payment and an additional payment to catch up on the payments that the homeowner is behind. In many cases, catching up is not feasible – especially if the homeowner is a year behind in mortgage payments.

However, a homeowner has options. They could pay the arrears in full, negotiate a short period to pay the arrears, request a loan modification, or sell the property. Another option for homeowners who are unable to pay the full amount is to file for a Chapter 13 bankruptcy. Below, these options will be discussed in more detail. If you are worried about losing your home, call the experienced Philadelphia bankruptcy attorneys at Young, Marr, Mallis & Associates at 215-639-5297.

What is a Mortgage Forbearance Agreement?

Mortgage forbearance is a temporary modification of your mortgage terms. In a typical forbearance, your mortgage payments will be reduced or suspended for a specific period. Mortgage lenders offer these temporary modifications under certain circumstances when a homeowner is experiencing a momentary financial hardship. To assist homeowners during the COVID-19 pandemic, many lenders offered forbearances.

Depending on the agreement, missed payments may not be reported as delinquent while the forbearance is in effect. However, missed payments are not forgiven. You are expected to pay everything back when the forbearance ends. If you are worried about your mortgage forbearance coming to an end, contact our experienced Pennsylvania bankruptcy lawyers.

Paying Back Suspended Mortgage Payments After the Forbearance Ends

For many homeowners, a forbearance often seems to be a lifesaver. However, when the agreement ends, harsh reality returns. If you are unable to pay the mortgage payments that were suspended or reduced, your mortgage lender has the right to foreclosure on the property.

Lump-Sum Payment

One option homeowners have is to pay the months they missed in one payment. For COVID-19 forbearances on loans backed by Fannie Mae, Freddie Mac, FHA, VA or USDA, servicers generally could not require a lump-sum repayment when the forbearance ended. For other forbearances, the terms of your agreement control. In most cases, a one-time payment is not feasible.

Negotiate a Short-Term Period

It might be possible to negotiate with your lender. Some mortgage lenders will agree to a short-term repayment plan – usually six months. During this time, a homeowner would have to pay their regular monthly mortgage plus any additional amount to cover the months that were suspended. If the forbearance lasted six or twelve months, this option could more than double your mortgage payment. While this option is rarely the most optimal, our Montgomery County bankruptcy attorneys are available to assist you in trying to negotiate workable terms.

Loan Modification

Some lenders will offer loan modifications. For example, if you were in forbearance for six months, your lender could add an additional six months to the end of your loan. Mortgage lenders are not required to offer homeowners a loan modification. The loan modification process is often confusing – requiring a substantial number of documents and statements. Having an experienced Philadelphia bankruptcy attorney representing you will help you avoid some of the common errors and omissions. It is important to note that filing for bankruptcy does not preclude obtaining a loan modification. In some cases, obtaining a loan modification is easier after you have filed.

Sell Your House or Allow the Mortgage Company to Foreclosure.

In some cases, if there is equity in the property, a homeowner might decide to sell their home. However, if the house did not appreciate or if the homeowner wants to keep their property, this is not a viable option. In other cases, a homeowner might just feel overwhelmed and allow the property to be foreclosed on and sold at sheriff’s sale.

Filing a Chapter 13 Bankruptcy to Save Your Home

Another option available is filing for bankruptcy. Chapter 13 was designed for people with a steady income to restructure their debt. If you are five or six months behind in your mortgage payments, a Chapter 13 bankruptcy will give you five years to pay the money back.

When you file for bankruptcy, you are forcing your lender to accept a payment plan. Once your case is filed, you will begin making your regular mortgage payment directly to your lender. You will also be required to make a payment to a court-appointed trustee to pay your mortgage arrears. This payment will be the money you are behind divided by 60. For example, if you missed six payments of $1,200, your base bankruptcy plan will be $120 a month. That figure will likely be higher because of other factors, including attorney fees, trustee fees, and any other debt you might have. In many cases, a homeowner will not only save their property, but they will also eliminate their unsecured debt. Every case is unique, so it is critical to go over your situation in detail with one of our experienced Bucks County bankruptcy attorneys.

Call Our Experienced Bankruptcy Lawyers if Your Forbearance is Coming to an End

A mortgage forbearance might have helped you get through a difficult time. However, when the temporary agreement ends, you are still responsible for every payment that was missed. Our Bala Cynwyd bankruptcy attorneys understand what you are going through. We can help you try and negotiate a loan modification or help you file for bankruptcy. If you want to save your home, call Young, Marr, Mallis & Associates at 215-639-5297.