Bear of Forbearance
Since the beginning of March, the COVID-19 pandemic has transformed our lives, at least for the moment. One of the biggest concerns for our clients who are either renters or landlords is what to do during this exceptionally awkward time. The concern is simple enough, "How am I going to pay my rent", or "How am I going to pay my mortgage?"
Well, last month Brian Moynihan, Bank of America's president, announced their loan assistance program with great fanfare. The way that the media first interpreted the loan assistance was in the form of traditional forbearance. As most people understand forbearance, it is moving current payments, most often with interest accumulated and added, to the end.
When first announced on 3/19/2020, BOFA said that there would be no penalties if payments are deferred. But, a recent CNBC article states that one customer in Connecticut, whose husband lost his job recently, learned that while the couple could defer the payments for 90 days, at the end of the 90 day period, the full deferred amount would be due, providing little or no benefit. Ultimately, this would result in 4 payments due at the beginning of the 4th month. (Mortgage payments are typically due at the beginning of the month.)
To be fair to BOFA, most of the major banks are offering similar "forbearance" terms. The definition of forbearance is "holding back". It does not mean forgiveness. Our friend and lender, Russell Rivera has these words of caution.
- ONLY USE FORBEARANCE IF YOU MUST
- BE CAREFUL.
- SPEAK WITH YOUR LOAN SERVICING COMPANY. LET THEM KNOW YOUR INCOME STATUS.
- GET THE LOAN CONTRACT MODIFICATION IN WRITING BEFORE AGREEING TO THE TERMS.
- REVIEW THE CONTRACT CAREFULLY AND UNDERSTAND COMPLETELY.
- IF YOU DON'T UNDERSTAND SOMETHING KEEP ASKING QUESTIONS TILL YOU DO.
- UNDERSTAND IF YOU ARE NOT ABLE TO MEET THE AGREEMENT TERMS, THE BANK OR THEIR SERVICER CAN FORECLOSE.
- BY AGREEING TO A FORBEARANCE CONTRACT YOU MAY BE WAIVING YOUR RIGHT TO A JUDICIAL FORECLOSURE.
- SPEAK WITH AN ATTORNEY BEFORE AGREEING TO ANYTHING!
If you ask your landlord to suspend your rental payments for a period, and they, in turn, are forced to request a forbearance or a suspension of their mortgage payments due to your non-payment, you could be forfeiting your deposit, or be charged for the additional expense by the landlord as it relates to their getting either a suspension or forbearance. In short, if at all possible, keep paying your rent for as long as possible.
We always welcome questions and comments.
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