As a result of the COVID Pandemic many mortgage companies quickly stepped in to offer mortgage forbearance plans to customers. In some cases, even if a customer did not ask or request for a forbearance the mortgage company would enter into a forbearance plan automatically. There has been a lot of confusion around what a forbearance plan will do and what will happen when the forbearance comes to an end. Now that we are in January of 2021 we have seen some of these mortgage forbearance plans ending and our office is already seeing clients facing potential problems.
The problem with a forbearance plan is that a forbearance only allows you to miss the payments during the set time period. This does not mean that the mortgage company is waiving these payments or forgiving them. Many customers are under the assumption that once the forbearance plan is over then they can resume regular monthly payments and everything will be fine. In reality it seems there are going to be a great many complications as these forbearance plans come to and end.
In the most recent instance, our client received a letter from his mortgage company offering him his options as his forbearance comes to an end. One option was to extend the forbearance if he is still being affected by the pandemic. Option 2 was to pay the full amount that he missed due to his forbearance. In this case this was $8,500.00 and the client does not have anywhere close to that amount saved. Option 3 was to apply for a deferral that will put the payments into a balloon at the end of the loan. The letter states that this is only available with some mortgages and you must apply. Option 4 was to allow the client to apply for a loan modification if their income is permanently reduced.
The problem here is that hardly anyone will have the funds to simply pay what they have missed. The offered options for a loan modification or deferral of the payments means filling out paperwork with the mortgage company and applying for new programs. Even before the pandemic we were seeing clients get the run around from mortgage companies with modification options. I imagine this is going to be much of the same. My advice is to apply for the deferral plan and to make sure to keep making your regular payments on the mortgage at the same time. If the deferral plan is denied this is when you need to contact our office to discuss your bankruptcy options.
A Ch 13 bankruptcy can help you keep your home after a forbearance plan ends. Through the Ch 13 we can stop the collection from the mortgage company and set up a plan to catch up what you are behind over a five year time period. There is also an option in a Ch 13 to enter into a loan modification management plan to apply for a loan modification with the assistance of your attorney and the bankruptcy court. I believe that as these loan forbearance plans come to an end we are going to be seeing more clients needing to catch up their back payments through the Ch 13 plan. If you are coming to the end of a forbearance plan and you want to discuss your bankruptcy options please give our office a call for a free consultation.