A Mortgage Forbearance Might Not Get You a Mortgage Deferment

A mortgage forbearance under the CARES Act is NOT the same as a deferment.

At the end of a mortgage forbearance, you are behind by the exact number of payments they allowed you to skip.  A deferment means you are not behind.

Mortgage companies are handing out forbearance agreements left and right, to allow people to skip some house payments because of the covid crisis. The mortgage company agrees in November 2020 (for example) that you don’t need to make a payment until May 2021. So far that’s a forbearance.

When May 2021 comes, they can say, ok now you are six months behind!  What?

After a six month forbearance, you are six months behind. You are behind for the payments they said you could skip.

When the mortgage company gives you a forbearance they agree they won’t pester you for a payment.  But you still owe those payments!

They Are Supposed to Work With You to Change the Forbearance into a Deferment

Back to the CARES Act.  The mortgage company cannot demand the whole six months all at once.

But the burden is on you to “make arrangements” to pay.

What kind of arrangements?

If you are still struggling financial, you can ask for a loan modification.  You can ask for lower payments, based on lower interest rate, or stretching the loan out longer. They don’t have to give you a modification, but you can ask.

A deferment means they take those six months you skipped and put them on the end of the loan.

A repayment plan might be something like this: since you skipped six months, we want double payment for the next six months.

This is all new

Since this is all new, nobody knows whether the mortgage companies will be reasonable when these mortgage forbearances run out.  Congress, when they passed the CARES Act, expected them to be reasonable. And the mortgage companies learned something from the housing crisis.   Looking back to 2007 and 2008, the mortgage companies probably hurt themselves by forcing foreclosures instead of working with people.  (Obviously, they hurt the homeowners way more than they hurt themselves.) They started to figure that out in about 2010.  So we can hope they will work with you, but there’s no guarantee.

How the Problem Pops Up in Bankruptcy

The reason that people ask for a forbearance can be the same reason they need to file bankruptcy: not enough money.

And when people file bankruptcy in the middle of a forbearance they think they are current on their mortgage–and shocked to find out they are NOT. Unless the forbearance has been turned into a deferment, those months you skipped under the forbearance are now months you are behind. So, you’re behind on the mortgage and now filing bankruptcy? The mortgage company can start to panic.

Bankruptcy Strategies

If people can wait, I suggest we hold off filing bankruptcy until the forbearance has definitely been turned into a deferment.  Or a loan mod.

If we can’t wait, you need to plan a full court press on the mortgage company as soon as the bankruptcy is filed. It’s vital to let them know you are NOT giving up the house (unless you are) that you want a deferment or a loan mod, and that you’re glad to send them whatever papers they need to approve you.

It is vitally important to stay in touch.