Within a commercial loan period, borrowers are sure to land on times where paying a mortgage becomes more difficult than usual. Borrowers experienced this interruption en masse in the onslaught of the COVID-19 pandemic. It’s not uncommon for borrowers to miss payments during a difficult time, and lenders may seek to create a temporary stay on a loan to keep their borrowers in their mortgage. Forbearance agreements are useful alternative solutions, but they require lenders to carefully consider their borrower’s condition when agreeing to one.
What is a Forbearance Agreement?
A forbearance agreement is best applied when the borrower is experiencing a temporary setback. Lenders may offer the borrower a temporary stay on collection. Alternatively, the lender and borrower may agree that the borrower will make reduced payments for a set period of time, with either a catch-up provision or capitalizing the missed payments and reamortizing the loan. Forbearance agreements help lenders and borrowers by offering alternative resolutions that bypasses the need to enact a foreclosure.
It is important for the borrower to know that will likely still have to repay the missed amounts. Additionally, interest will continue to accrue for the months that payment is paused. Additionally, many forbearance agreements will have the lump sum of the unpaid amount due at the end of the forbearance period. However, the forbearance agreement gives the borrower time to rectify their difficult situation, without the added stress of missed payments for a time.
How Does a Forbearance Agreement Help Lenders and Borrowers?
The process of foreclosing a mortgage is time consuming and difficult, and often results in a loss for lenders. Lenders benefit from alternative resolution as a faster and possibly less expensive way to rectify delinquent borrowers than taking them through foreclosure.
Borrowers must often draft a statement detailing why they are in need of a temporary stay, which helps lenders decide whether to grant forbearance and what the terms of the agreement ought to be. The benefit to the lender: you can have the borrower reaffirm the loan and confirm that the borrower has no claims against the lender. At Total Lender Solutions, we suggest engaging competent counsel to draft the document on your behalf.
Keep Your Team Educated About Forbearance Agreements
At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensures that our clients feel confident in reaching a successful outcome. Contact us today.
