Everything You Need to Know About Foreclosure and Forbearance

Here’s What You Need To Know About Mortgage Forbearance and Preventing Foreclosure

Foreclosure and Forbearance with Piggy Bank

The Current Situation

To say that these are uncertain times is an understatement and you may be hesitant when considering listing your house for sale. We are all living through a unique event in human history and it’s understandable to be apprehensive about what lies ahead, should you need to buy or sell real estate.

The effects of the COVID-19 outbreak and its impact on the job market are still being played out.  Many states continue to have restrictions on business openings and occupancy rates, while other states remain in lockdown.  As a result, many home owners are facing job losses and furloughs, which has impacted their ability to pay their mortgage.  The federal government has taken actions to help many home owners through this unprecedented time.  To help you keep track of your options, we put together a list of resources regarding mortgage forbearance and foreclosure moratoriums.

 What Is Forbearance?

Banks of all sizes are providing unprecedented assistance to customers affected by the coronavirus pandemic.  Many mortgage companies are offering forbearance plans, allowing homeowners to pause payments for up to one year, and is can be a option for preventing foreclosure.

Mortgage forbearance is an agreement with your mortgage company that allows you to pause your mortgage payments for a set amount of time.  It’s a possible remedy for homeowners unable to cover costs because of the impact of the coronavirus pandemic.  One important thing to note is that mortgage forbearance is not a waiver or a grant – you’ll still owe the full amount of those missed payments.

How Long Does Forbearance Last?

Mortgage forbearance is intended to provide relief while you’re dealing with a short-term financial crisis, so it generally does not last more than one year. Most mortgage companies today are offering forbearance for 180 days with an option to apply for an additional extension of 180 days.

Some mortgage companies will ask you to provide them with updates during the forbearance period. If it looks like you will need an extension or a different type of assistance, work with you your lender to figure out what additional options may be available. 

What Happens When The Forbearance Period Ends?

When the forbearance period ends, you’ll have to pay your lender back according to the terms of the forbearance agreement. Some lenders offer different options for making up the missed amount. With reinstatement, you repay all the payments you skipped in a lump sum.  A repayment plan spreads the payments you missed over a specified time period by adding a set amount to your regular monthly payment.  Another option offered by some lenders is to add the repayment amount to the end of the mortgage, lengthening its term.

Does Forbearance Affect My Credit Score?

Unless your lender has agreed not to report it, your forbearance will be reported to credit bureaus and could have a negative impact on your credit score. However, forbearance is less damaging to your credit than a missed payment.  Additionally, if you’re working closely with your lender throughout the process, forbearance can help you avoid foreclosure, which is very damaging to your credit. 

Note also that credit reporting companies are not yet sure how they will implement the CARES Act rules. Be sure to check your credit report often to make sure that it is accurate. Transunion, Experian, and Equifax will all provide free weekly credit reports through April 2021.

How Do I Know If My Lender Is Offering Forbearance?

Depending on whether you have a government-backed or privately-owned mortgage, your forbearance options might differ.  The CARES Act contains provisions for borrowers facing economic hardship because of COVID-19 that have a government-backed mortgage.  These provisions state that borrowers with a government-backed mortgage can get forbearance for up to one year. During this time, lenders cannot foreclose on your property.

Before you apply for forbearance, find out from your lender which type of loan you have.  A government-backed mortgage includes FHA, VA, and USDA mortgages as well as home loans owned by Fannie Mae and Freddie Mac.

Borrowers with privately-owned mortgages are not covered under the CARES Act. However, most lenders are offering forbearance for borrowers with privately-owned mortgages. Before deciding if forbearance is the best option for you, make sure you understand exactly how the missed payments must be repaid to your lender.  If the missed payments are due in a lump sum, you’ll need a plan to be able to pay the lump sum to keep the lender from starting the foreclosure process.

How do I know if my mortgage qualifies for CARES Act protections?

Fannie Mae: You can check to see if you have a Fannie Mae loan online or call 800-2FANNIE.

– If you have a Fannie Mae loan, they’ve provided some detailed information on their website regarding forbearance assistance.  

Freddie Mac: You can check to see if you have a Freddie Mac loan online or call 800-FREDDIE.

– Freddie Mac has also set up a page outlining the options they offer for home owners impacted by COVID-19.

If your loan statement does not make it clear whether you have a qualifying government-backed loan, contact the loan servicer listed on your monthly statement.

Does A Forbearance Stop Foreclosure?

If you have a government-backed loan, you also have temporary protection against foreclosure.  On August 27th, 2020 the federal government announced, as part of the CARES Act, that it is extending its moratorium on foreclosures through at least December 31st, 2020.  A moratorium is a temporary suspension placed on the foreclosure process until future consideration warrants lifting the suspension. The moratorium applies to borrowers with government-backed mortgage, including FHA, VA, and USDA mortgages as well as home loans owned by Fannie Mae and Freddie Mac.

A forbearance agreement may allow you to avoid foreclosure until your financial situation gets better.  If you have a government-backed mortgage and have experienced financial hardship due to the coronavirus pandemic, you have a right to request and obtain forbearance for up to 180 days.  You also have the right to request and obtain an extension for up to another 180 days (for a total of up to 360 days). You must contact your loan servicer to request this forbearance.   

It very important to note that if you have not contacted your lender to request forbearance, you still owe mortgage payments even you qualify for foreclosure protections. This means that even if the protection under the CARES Act applies to your mortgage, you could still lose your house for nonpayment when the foreclosure moratorium ends. Your lender or servicer could also report you to credit agencies for missing payments even if it is not currently allowed to foreclose. If you cannot make a payment, it is vital that you try to work out a forbearance agreement with your lender and to get the agreement in writing.

What To Do Next

The first step is to determine who owns or backs your mortgage to see if one of these mortgage relief options may be available.

Unfortunately, it can be confusing to figure out who owns or backs your mortgage. There is a difference between the mortgage owner (typically a bank or a government-backed entity) and a mortgage servicer (the company that collects your monthly payment).  Many mortgage loans are sold and the mortgage servicer you pay every month may be the same company that owns your mortgage. If you don’t know who owns your mortgage, the easiest way to find out is to call the servicer listed on your account statement.  The servicer has an obligation to provide you, to the best of its knowledge, the name, address, and telephone number of the mortgage owner.

Foreclosure is never a good option. For most home owners, their home is their single biggest investment. If the bank forecloses on your home, you could lose any equity that you’ve built up by owning the home. Additionally, a foreclosure on your credit will mean that you can’t get approved for another mortgage for seven years. By selling your home, you can prevent foreclosure before it’s too late, which will save your credit and allow you to turn your equity into cash. If you think that selling your home may be a good option, fill in any of the forms so you can tell us about the house and leave us a way to contact you. Or you can simply call us at (972) 850-8655 today.   We’ll do our best to help you quickly and safely navigate your options during these challenging times.

As a bonus, just for contacting us, we’ll prepare a free home valuation report so that you can have the information you need to make the best decision for your situation.

At Dallas' Best Home Buyers we are continually monitoring changes that the federal and local governments are making with regard to forbearance and foreclosure.  If you’re considering buying or selling in Dallas Fort Worth during coronavirus, we are here to answer all of your questions and help you every step of the way!

Click here to learn more about how we buy houses fast in Dallas Fort Worth and nearby areas! You may also visit our Facebook page to learn more about us and our services.

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