Servicers are offering forbearance agreement to protect against foreclosure from the Covid-19 Pandemic. The question is “should I sign a forbearance agreement?
Forbearance means “patient self-control; restraint and tolerance. The action of refraining from exercising a legal right, especially enforcing the payment of a debt.” Agreement is the “situation in which people have the same opinion, or in which they approve of or accept something . . .”
In considering a forbearance agreement, the first question that you should ask is “forbearance from what?” Is it forbearance from filing for foreclosure? Forbearance from taking steps to enforce the terms of the mortgage? Forbearance from filing a foreclosure is a part of forbearance from enforcing a debt. Under federal law a homeowner must be 120 days late before a lender can file for foreclosure:
The first question that you should ask is “forbearance from what?”
In essence, the lender is forbearing from _______ (fill in the blank – what are they forbearing from doing) in exchange for _________ (what are they asking you to do).
The most recent forbearance agreement was from SPS, Specialized Loan Servicing. Look at what the agreement said, and my comments:
|What the Forbearance Agreement Said
|[name of lender/servicer] has approved you for a Temporary Hardship Forbearance Plan.
|The lender must offer you this forbearance under the terms of the CARES Act if it is an FHA, Fannie Mae or Freddy Mac loan, and you ask for the forbearance because of Covid-19.
The lender/servicer is doing you no favors.
|You do not need to take any action to accept the Plan. Please retain a copy of this Plan for your records
|If you do nothing, you agree to the terms of The Plan.
Suppose that someone sends you a letter saying “I will mow your lawn for $200.” You don’t have to do anything to accept. The next day you have beautifully mowed lawn. You owe the $200.00 (subject to state or federal consumer protection laws).
|The Plan payments will take the place of your normal monthly mortgage payments during the term of the Plan. The Plan payments are due as follows
|I cannot go into detail on this. But read on.
|For example, if your payments listed above include April, May and June – the Balloon Payment includes the payments were not paid for those months, plus any prior outstanding payments, and fees, and the monthly payment due for July
|The payments listed said first, second and third payment. The payments did not designate the months being paid, only the due date for each payment.
Doing the math, it appeared that the servicer was forgiving one month, not a bad deal if true.
|What You Need To Do
Within 30 days of your balloon payment due date, SPS will contact you with options to resolve the amount outstanding. The options available to cure the amount outstanding will depend on your specific situation at that time, which is why we cannot discuss those options with you now.
|Were you required to make the Balloon Payment? I would say yes. However, the lender seems to give you options to make the Balloon Payment. The options? We will see.
One of the options included considering you for a loan modification at a future date.
|Terms Not Modified
All terms and conditions of the current mortgage documents pertaining to this account remain in full force and effect, and you agree to comply with those terms and conditions. However, during the Plan term you may make the monthly payments under the Plan instead of the payments required under the mortgage documents. Nothing in the Plan shall be understood or construed to be a satisfaction or release, in whole or in part, of any obligations under the mortgage documents.
|You should hear the blade of the guillotine falling to give you a free neck-cut. This says that if the terms of The Plan differ from the terms of the mortgage, then the terms of the mortgage prevail.
lenders/servicers are gearing up for massive foreclosures this year
I have spoken with attorneys who represent lenders in foreclosure actions. They have universally told me that lenders/servicers are gearing up for massive foreclosures this year. Columnist Rachel Brat of the Boston Globe recently published an opinion titled Forecasting an economic tsunami as foreclosures rise and mortgages sink underwater. Ms. Brat’s article is very informative, but I respectfully disagree with one point that she made:
Since there will be a lag between the current financial crisis and the impending foreclosure crisis, likely about two years, there is time to craft policies that will respond to the challenges.
Under either a forbearance agreement or the FHA/Fannie/Freddie guidelines, there is a six-month [note a correction, this blog originally said three months] deferral for mortgages payments. See above. Under the SPS example, the forbearance agreement only provided for a three-month forbearance. At the beginning of month four there are four payments due, the three deferred and the fourth month. The SPS example that I gave states that if not paid and the end of month four you will have options, possible loan mod, etc. SPS did not say that they also would have options. On the second day of month five the mortgage is more than 120 days late and they can start foreclosure proceeding.
More to come,
Stay safe and be well,