What is a Forbearance Agreement?

A Forbearance Agreement is a written document between a creditor (lender) and debtor (borrower) (or landlord and tenant) wherein the party owed money (lender or landlord) agrees to waive and not require monthly mortgage payments (or rent payments) from the party owing the money.

Issues to be addressed in a Forbearance Agreement include the following:

(a) Duration. How long will the lender wait until monthly payments have to recommence? At this time, we are seeing a typical two to three months forbearance period with six months for certain government backed loans.

(b) Payments during Forbearance? Depending on the lender, sometimes no monthly payments are required (including insurance and tax escrows). Other lenders require payment of at least the monthly escrow, or sometimes interest only payments only.

(c) What Happens after the Forbearance is Over? Depending on the Lender: (a) regular monthly payments commence. This will result in some negative amortization and extension of the initial maturity date of your loan; or, (b) the lender may require you to pay the unpaid principal and interest payments in a lump sum once regular payments commence; or, (c) the lender may permit the unpaid principal and interest to be paid back over a set number of months. In any event, the lender still expects to be paid the principal and interest (or rent) at some point during the mortgage term. Those payments are not typically forgiven like money from your parents.

I urge you to work with your lender or landlord if you are experiencing financial difficulties. They understand what is going on in the general economy and typically will try to work with you. However, be aware and understand the terms of the forbearance agreement, and how future payments are impacted.