Forbearance Versus Loan Modification: Don’t Lose Your Home on a Technicality

With 15 million Americans having lost their jobs since the onset of the coronavirus pandemic, we’re seeing unemployment numbers pushed to their highest levels since the great depression. We are carefully following what options are out there for homeowners who are unable to make their mortgage payments. We want to be sure that if you find yourself struggling to make your mortgage payment, you take the time to really understand what is being offered to you. We would be heartbroken if you lost your property due to fine print and technicalities that weren’t clear to you when making your mortgage “stop-gap” decisions.

First, we have to say that we are not financial lawyers or advisors, so please call an expert in this field before you commit to anything in writing. Having said that, Kari worked the last recession and learned a thing or two that might be of help, and Erika is a lawyer who specializes in contracts (While Erika is not authorized to provide legal advice while serving in her capacity as real estate agent, we can provide you with recommendations for lawyers who can help you!)

How Forbearance Works

There is a big difference between forbearance and a loan modification. In most cases, forbearance only temporarily suspends your obligation to make your mortgage payment. The general term of suspension right now seems to be 90 days but it can be as much as one year, or as little as 30 days. With a forbearance option, you will be expected to pay back the amount you owed, but did not pay. That can mean a big, ugly balloon payment, required by your lender at the end of your forbearance term. This option will likely be very problematic for most people who aren’t able to come up with the funds for the balloon payment.

Do not assume that the amount you owe, will be added to the “back end” of your loan. Some lenders are expecting this payment at the end of your suspension period! Our advice is to ask detailed questions of your lender and make sure you understand the expectations of how and when you repay the amount you owe.

Be sure to ask what happens if you still are unable to pay your mortgage payment, once the forbearance term runs out. Find out what your options will be in advance if possible.

How Loan Modification Works

A loan modification is a negotiation undertaken with your lender to renegotiate the terms of your loan. That can mean a principal reduction, a lower interest rate, or an increase in the length of time the bank will allow you to pay back the loan. This will be the option you need if you are facing long-term financial hardship and can document your long-term hardship. If you can show your lender proof of a lengthy period of hardship, you may be able to change the terms of your loan to reduce your payments in some way, or your overall obligation.

Keep paying any amount you can towards your monthly mortgage payment. Even a small monthly payment sent to your lender, will put you in a better bargaining position, versus just stepping out. Showing your lender that you are responsible and trying to work out a payment plan, is a good negotiating tool.

Many lenders will want you to start with a forbearance option before offering you a loan modification. Keep as much documentation as you can regarding your hardship. Plan to speak with an attorney or a reputable loan modification company to assist you in your negotiations. A little money spent up front for knowledgeable counsel can save you a lot in the long run.

Please call us if you find yourselves in this position. We can help direct you to the appropriate professional to help you make a plan that will get you through these difficult times.

Erika & Kari

Broker-Esquire | Principal Broker | Seniors Real Estate Specialists | OR

Erika George and Kari McGee are the highly skilled HouseLove PDX team at Living Room Realty in Portland, OR. 

As designated Seniors Real Estate Specialists (SRES®), Kari and Erika help Seniors and their families navigate aging in place, downsizing, multigenerational housing, senior community living options, and probate sales. These exceptional real estate agents will help you prepare for life’s transitions with compassion and expert guidance. Principal Broker Kari McGee is an 11-year Portland Monthly 5-Star Realtor® and has helped clients successfully navigate the evolving Portland real estate market for almost two decades. Realtor® Erika George brings to the table 20 years of experience as an attorney specializing in construction and contracts and has been a full-service real estate broker since 2013. These experienced real estate agents will help you prepare for life’s transitions with a customized plan designed for your specific goals.  Erika and Kari's in-depth market knowledge and savvy data analysis will help you make educated, pro-active decisions that will reduce stress and provide better outcomes for your real estate needs.  Given our foremost duty as a fiduciary, be assured that your best interests will always be at the very center of every decision we make together. And, as the great-granddaughters (they're cousins!) of a professional baker, don’t be surprised if your real estate transaction with Erika and Kari comes complete with pie, cookies, or the best homemade toffee in the world. We would be honored to help guide you through your changing real estate needs in Portland Oregon. CONTACT Erika George and Kari McGee 503.349.5449 | 971.322.6612 Team@HouseLovePDX.com www.houselovepdx.com

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