What is Forbearance Agreement Drafting?
A forbearance is when a lender lets a borrower temporarily pause or reduce their loan payments due to financial hardship. A forbearance agreement is a legal contract between a lender and a borrower to specify how long the forbearance period will last, how payments are treated, and more.
Read the rest of this article to explore key terms to include in a forbearance agreement, important things to consider when drafting it, and how a qualified lawyer can assist you with the process.
What are Core Terms to Include in a Forbearance Agreement?
A forbearance agreement should outline the following terms in a clear way that’s easy for both parties to understand.
- Duration. The agreement should specify how long the forbearance period will last. It’s usually between three and six months.
- Repayment. Include information about how missed payments will be paid by the borrower.
- Fees. Any fees that must be paid should be specified.
- Interest. This states if interest is added to the amount owing.
- Acknowledgement of debt. This is when the debtor admits that they have a default and how much is owing on the debt.
- Termination triggers. This outlines specific conditions that will end the forbearance period, such as if new defaults arise.
- Reporting. It must be made clear if the lender will report the forbearance to credit agencies.
What are Tips for Drafting a Forbearance Agreement?
When writing a forbearance agreement, there are important things that should be included.
Mention the Creditor’s Rights
The agreement should clearly state that the agreement doesn’t imply a waiver of rights by the creditor. Instead, the creditor is only agreeing to pause enforcement for a specific duration under specific conditions.
Outline the Debtor’s Financial Duties
During the forbearance period, it must be made clear what financial obligations belong to the borrower. Specify if the debtor can pay everything in one lump sum or will add payment amounts to their existing monthly payments. This must be clear so that there’s no ambiguity over what’s required.
Explain Prohibited Creditor Actions
During the forbearance period, the creditor will be prohibited from conducting certain enforcement actions, such as accelerating debt or possessing the debtor’s assets. These must be specified in the agreement.
Calculate Interest and Fees
For clarity, the forbearance agreement should explain how interest and fees will be handled. State if the interest and any penalties or other charges will accrue during the period or not. If they will, you should provide clarity by stating how they will be calculated.
Provide Forbearance Conditions
In order to use the forbearance period granted to them, the borrower must comply with all requirements. These should be listed in the agreement, such as making payments on time.
Set Clear Default and Termination Clauses
Your forbearance agreement should include specific circumstances in which termination will occur. This might include missed payments, breaches, or other events. Establishing clear provisions will prevent disputes between lender and borrower.
Avoid a One-Sided Agreement
While a forbearance agreement can provide the creditor with more bargaining power, it shouldn’t be drafted in such a way that it’s vague or unbalanced. This can create challenges and increase the risk of legal disputes over the agreement terms. A qualified lawyer can help you to ensure the forbearance agreement is balanced, fair, and clear.
Do You Need a Lawyer to Draft a Forbearance Agreement?
Although you don’t always need to hire a lawyer to draft your forbearance agreement, it’s worth doing if your arrangement is complex or you’re unsure of the process. A lawyer can assist you in various ways, such as by:
- Considering the underlying loan and debt. This helps them to provide terms that apply to your specific situation and arrangement.
- Defining what is being deferred for clarity. For example, they will specify that the interest, fees, or other amounts will be suspended, and for how long.
- Establishing clear repayment terms that both parties understand. A lawyer is skilled at providing specific terms regarding when payments will resume and how much the debtor will be expected to pay.
- Addressing default and remedies. A lawyer explains what will happen should the borrower miss a payment.
- Checking that the agreement is aligned with all relevant laws and requirements. This ensures consistency with other loan documents and legal compliance.
- Negotiating with the other party. If you’re the borrower in the situation, you can hire a lawyer to negotiate with the creditor for more favorable terms.
- Reviewing your forbearance agreement. If you have a first draft of the contract, a lawyer will conduct an in-depth legal review of it to ensure all its terms are fair and legally sound.
Where to Find a Lawyer for Forbearance Agreement Drafting
If you’re ready to hire a lawyer to draft your forbearance agreement, you don’t have to take lots of time to find one who’s reputable and experienced in these specific contracts.
On online legal platforms such as ContractsCounsel, you can find a lawyer quickly and get peace of mind that you’re selecting the right one for your contract requirements.
ContractsCounsel is one of the largest online legal marketplaces where you can connect with a curated network of vetted lawyers from the comfort of your home.
To request that a lawyer on the ContractsCounsel platform drafts your forbearance agreement, here are the simple steps to follow:
- Go to the ContractsCounsel marketplace, where it’s free to post your project.
- Receive lawyer bids. Instead of searching for a lawyer, you’ll receive multiple bids from lawyers on the platform.
- Review the lawyers’ profiles. The ContractsCounsel platform provides lawyer information that includes the lawyers’ credentials, client ratings for previous projects, years of experience, and field of expertise.
- Connect with a lawyer and hire them to draft your forbearance agreement for a flat fee.
