Forbearance Agreement

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 2,724 reviews

Jump to Section

Need help with a Forbearance Agreement?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

What Is a Forbearance Agreement?

A forbearance agreement is made between a mortgage lender and a borrower that has gone delinquent on the repayment terms. In this agreement, the lender agrees not to foreclose on the mortgage, while the delinquent borrower agrees to a revised mortgage plan that will bring them current on the owed payments. A mortgage forbearance agreement will often suspend or reduce the payments for a period of time, allowing the borrower to fulfill the mortgage obligation without having the property foreclosed on by the lender.

If you have ever wondered what a mortgage forbearance is, understanding how this option works may benefit you if you struggle to make your monthly mortgage payments due to a financial struggle. A mortgage forbearance agreement can be a viable short-term solution to a financial challenge, but the borrower must follow the timeline and adhere to the guidelines to avoid foreclosure on the property.

Mortgage Forbearance Requirements

In order to qualify for home loan forbearance, a borrower must meet certain criteria. They must be able to provide the financial hardship they have encountered, whether due to the loss of income, a disaster that has damaged or destroyed the property, or a health problem that has impacted their financial situation. The borrower must be able to submit proof of the hardship that has affected their ability to repay the mortgage loan. Some lenders also require borrowers to request mortgage forbearance within a certain number of days or weeks after the hardship has occurred.

A lender may request proof of financial hardship, so it's helpful to gather any necessary documentation before beginning the forbearance process. The borrower may need to provide:

  • Mortgage statements
  • Additional debt statements (Auto loans, student loans, additional mortgage loans, credit card statements)
  • Income details (Tax returns, pay stubs, proof of other income)

What Is a Forbearance Plan?

If you have trouble making the agreed-upon payments on your mortgage loan due to a job loss, change in employment, health issue, or another problematic financial situation, you may qualify with your lender for a mortgage forbearance plan. The lender will create this plan, which includes an agreement on their end to not foreclose on your property as long as you agree to repay the loan on adjusted terms. During the forbearance period, the lender legally cannot foreclose on the property unless you do not meet your end of the agreement.

A forbearance plan may pause the monthly payments entirely or adjust the payment amount required. At the end of the period, the borrower must resume the full payment as agreed upon in the forbearance agreement. Additionally, the borrower will often have to pay an additional fee to become current on the payments missed during the forbearance period. This additional amount includes any applicable taxes and insurance, as well as the principal and interest.

Here is an example of a forbearance agreement, provided by the SEC.


Get Free Bids to Compare

Leverage our network of lawyers, request free bids, and find the right lawyer for the job.

Get Bids Now

Benefits of Mortgage Forbearance

If a borrower is on the verge of missing a payment or multiple payments, this can create a financial problem that impacts their credit score. Missing multiple payments can also result in a foreclosure, which damages the credit score and leaves the borrower without a place to live.

Mortgage forbearance is less damaging to the credit score than a foreclosure and can create a plan that allows the borrower to get back on track in repaying the loan. Some lenders agree not to report on the missed payments under a forbearance agreement, so the borrower's credit isn't impacted. When a short-term or temporary challenge arises, a borrower can use this option to suspend or lower the payment, providing time to improve their financial situation and resolve the issue.

Mortgage Forbearance Length

Mortgage forbearance is designed to be a short-term solution for temporary financial struggles experienced by the borrower. The length of the forbearance agreement mortgage ultimately depends on the lender and the terms of the loan, and there isn't a one-size-fits-all option because of the different factors in play. The lender, type of loan, and investor or owner requirements in the loan can all impact the forbearance options available to the borrower.

One example of a mortgage forbearance plan is a six-month paused payment option, which allows the borrower to stop paying on the mortgage for six months. However, this option often requires the borrower to pay the six months of mortgage payments at the end of the term, resulting in one large forbearance payment coming due. Interest on the paused amounts also continues to accrue.

A lender may be able to assist a borrower with a solution that adds the owed payments during the paused period to the end of the loan. Some borrowers choose to take out an additional loan to cover the owed payments, although this option depends on the borrower's financial situation and credit history.

If a borrower is able to pay something, a lender may offer a mortgage forbearance reduction plan, which lessens the amount due each month. In this case, the amount reduced could be spread out over a longer-term period, such as over 12 months, thus increasing the mortgage payment amount for that period of time.

Image via Unsplash by mari

Mortgage Forbearance Agreement vs. Loan Modification

A forbearance agreement differs from a loan modification in that the agreement is only for a short period of time. A loan modification is an option for borrowers who are unable to afford their monthly payment due to a change in the interest rate or other aspect of the loan, not due to a financial hardship that may be a short-term problem for the borrower.

A loan modification agreement allows the lender to work with the borrower to reduce the monthly payments going forward by:

  • Reducing the interest rate
  • Extending the length of the term of the loan
  • Converting a variable interest rate to a fixed interest rate

These options available to borrowers are meant to help those who aren't able to make their monthly payments, creating a permanent solution to an ongoing financial problem. In order to qualify for a loan modification, a borrower must demonstrate an inability to make the current payment on the mortgage loan due to financial hardship, as well as provide proof that they would be able to afford the modified monthly payment amount. This demonstration of the ability to pay often comes in the form of a trial period.

Lenders considering a loan modification will also require documentation, which may include:

  • Financial statements
  • Tax returns
  • Bank statements
  • Proof of income
  • Statement of financial hardship

A lender may also offer a loan modification as an option at the end of the mortgage forbearance period if the borrower is eligible.

How To Request Mortgage Forbearance

A borrower can request information about mortgage forbearance by contacting the lender and asking for additional details and options available to them under the terms of the loan. Some lenders require that the forbearance process be started within a certain period of time after a qualifying event, such as a disaster, health problem, or job loss.

The federally funded “Hardest Hit Fund” also provides assistance to homeowners throughout the U.S. It may include options like a reduction in the principal amount owed, assistance in transitioning out of a home into a more affordable living situation, or mortgage payment assistance for those who are underemployed or unemployed. Here is additional information about the Hardest Hit Fund by state.

The purpose behind a forbearance plan is to help the borrower avoid foreclosure during a temporary financial hardship that renders them unable to make the monthly payments on the loan. This article provides additional detail on mortgage forbearance agreements. When drafting a forbearance agreement, consult with a lawyer to ensure it covers all necessary elements.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Forbearance Agreement Lawyers

View Maxwell
Member Since:
September 24, 2020

Maxwell L.

Lawyer, Owner
Free Consultation
Get Free Proposal
New Berlin, WI
11 Yrs Experience
Licensed in WI
Marquette University Law School (JD)

Firm rated best ADR firm for Wisconsin and won an award for cultural innovation in dispute resolution from acquisition international magazine in 2016 and it was rated "Best of Brookfield" by Best Businesses in 2015. Attorney Maxwell C. Livingston was rated 10 best in Labor & Employment Law by American Institute of Legal Counsel and 40 Under 40 by American Society of Legal Advocates for 2016; he also won 10 Best by American Institute of Family Law Attorneys. He is licensed in Wisconsin in all state and federal courts, and in the 7th Circuit Court of Appeals, wherein he won a landmark decision in McCray v. Wielke.

View Richard
Member Since:
October 1, 2020

Richard E.

Senior Partner, Attorney
Free Consultation
Get Free Proposal
Dallas-Fort Worth
14 Yrs Experience
Licensed in TX
Juris Doctor – University of LaVerne College of Law

Richard is a wizard at taking on bureaucracies and simply getting the job done. His clients value his straight-forward counsel and his ability to leverage a top-notch legal staff for efficient and effective results. Richard is a professional engineer, professor of law, and has been named among the top 2.5% of attorneys in Texas by the Super Lawyers®. When he is not driving results for his clients, Richard can be found with his small herd on his Texas homestead.

View Seth
Member Since:
September 30, 2020

Seth S.

Attorney
Free Consultation
Get Free Proposal
New York
8 Yrs Experience
Licensed in NY
Touro Law School

I am an attorney admitted in NY, with over 6 years of experience drafting, reviewing and negotiating a wide array of contracts and agreements. I have experience in Sports and Entertainment, Real Estate, Healthcare, Estate Planning and with Startup Companies. I am confident I can assist you with all of your legal needs.

View Rishma
Member Since:
October 1, 2020

Rishma E.

Attorney-at-Law
Free Consultation
Get Free Proposal
Miramar, FL
8 Yrs Experience
Licensed in FL
St. Thomas University School of Law

Rishma D. Eckert, Esq. is a business law attorney who primarily represents domestic and international companies and entrepreneurs. A native of both Belize and Guyana, she remains engaged with the Caribbean community in South Florida: as a Board Member and General Counsel for the Belize American Chamber of Commerce of Florida, and Member of the Guyanese American Chamber of Commerce. She holds a Bachelor of Laws degree (LL.B.) from the University of Guyana in South America, a Master’s degree in International and Comparative Law (LL.M.) from Stetson University College of Law in Gulfport, Florida, and earned a Juris Doctor degree (J.D.) from St. Thomas University School of Law in Miami, Florida. Licensed to practice in the State of Florida and the Federal Court in the Southern District of Florida, Mrs. Eckert focuses her passion and practice on domestic and international corporate structuring and incorporation, corporate governance, contract negotiation and drafting, and trademark and copyright registrations.

View Mark
Member Since:
October 1, 2020

Mark A.

Attorney
Free Consultation
Get Free Proposal
Jacksonville, FL
18 Yrs Experience
Licensed in FL
University of Florida

Mark A. Addington focuses his practice primarily on employment litigation, including contractual disputes, restrictive covenants (such as non-competition, non-solicitation, or confidential information restrictions), defense of wage and hour, harassment, retaliatory discharge, disability, age, religion, race, and sex discrimination.

View Kiel
Member Since:
October 2, 2020

Kiel G.

Principal
Free Consultation
Get Free Proposal
Hollywood, FL
5 Yrs Experience
Licensed in FL
Florida State University

Founder and Managing partner of Emerald Law, PLLC, a business law firm specializing in contract drafting and corporate transactions. Kiel worked as in house counsel for a variety of companies before launching his own firm, and most recently served as the Chief Legal Officer for an international private equity firm.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call