Strategies for Avoiding Loan Foreclosure

Forbearance Agreements | Repayment Plans | Loan Modifications

Times have been tough over the past two years as the pandemic has led to the loss of many jobs. If you are someone who has worked hard to stay current with your obligations, but fallen behind in your mortgage payments, you may have questions about your options for avoiding the foreclosure of your home. There are generally three ways, short of bankruptcy, to suspend or stop foreclosure proceedings and keep your home.

Forbearance—A Temporary Fix When You Expect Things to Return to Normal

If the impact on your job is clearly temporary—you know that you will be back to full earning capacity in a few months—your best option may be to ask your lender for a forbearance. A forbearance temporarily lowers or suspends payments so that you don’t continue to get deeper and deeper in debt. Lenders generally are willing to grant forbearance only if you can provide convincing evidence that your financial challenges are temporary. For example, if you need to take 12 months of FMLA leave to care for a sick family member, you may be able to get your lender to agree to suspend payments until you return to work. Don’t expect a long-term forbearance, though—most such agreements are for three-to-six months.

Catch Up on Past-Due Arrearages with a Negotiated Repayment Plan

Suppose that you lost your job but found a new one or returned to your old job after a number of months. While you were not working, you got behind on your mortgage payments. Now that you’re back to work, you can afford the monthly payments again, but you don’t have the resources to pay everything that is past-due. If that happens to you, contact your lender to see if you can negotiate a repayment plan for the amount of the arrearage.

Here’s how a repayment plan works:

• You negotiate an amount to pay on your arrearage every month;
• You pay your regular monthly payment every month; and
• You also pay the negotiated amount on the arrearage every month.

Though lenders will be flexible, based on your specific circumstances, repayment plans tend to be short-term, similar to forbearance agreements, typically lasting anywhere from three to nine months.

Permanently Modify the Terms of Your Loan

If you have a good job, but your income has diminished, you may want to ask your lender if you can modify your loan. Loan modifications are typically permanent, with the terms changed to make payments more affordable. Most lenders do that by extending the term of the loan rather than by reducing the interest rate. Often, in a loan modification, the lender sets up a three-to-six-month trial period in which you are allowed to make the reduced payments. If you honor your agreement, the new payment amount becomes permanent.

Summary

When you fall behind in your house payments, there are steps you can take to fend off foreclosure. You may be able to work out a forbearance agreement with your lender, allowing you to temporarily lower or suspend your mortgage payments until you are back on your feet again. You may be able to negotiate a repayment plan for any past-due amounts, paying your lender an additional amount per month until all arrearages are settled. Finally, your lender may be willing to let you modify your loan to reduce your monthly outlay and make your payments more affordable, though you may have to make payments for a longer period of time.