Maybe you are one of the approximately 4.1 million Americans who took part in the opportunity for a mortgage forbearance provided by the CARES Act. Now your forbearance is ending. What can you do? You might be feeling a lot of stress right now. Take a deep breath because you do have options!
First, learn about your repayment options. Many people might believe that the only option is to make a lump sum payment to reinstate their mortgage. This is simply not the case. If this is the only alternative your mortgage servicer offers, ask about other options (unless, of course, you have a lump sum available to reinstate).
Besides reinstatement, here are some other options:
- Loan Modification
- Deferment or Partial Claim
- Repayment Plan
- Chapter 13 Bankruptcy
The CFPB website has some useful information on your options depending upon what federal agency backs your loan. If your loan is backed by Fannie Mae or Freddie Mac, a lump sum payment is not required. You may enter into a repayment plan, payment deferral, or loan modification. More information about your agency's options can be found here: CFPB Website.
But what are these options, and are any of them right for you? A loan modification might be right for you if you have experienced a long-term reduction in income. A loan modification alters the terms of your mortgage to make the payments more affordable. Paperwork is required, and it's important that you stick to the deadlines for submitting documentation provided by your mortgage servicer. Beware – you do not need to hire someone to submit a loan modification on your behalf! Many consumers get taken advantage of by businesses and individuals charging thousands of dollars to submit a loan modification. Be careful!
Another option might be a repayment plan. This will require you to make your mortgage payment along with an additional amount to catch up with the forbearance amount over a few months. This is only a good option for your if you are in a position where you can afford your monthly mortgage payment, plus a catch-up amount each month over a short period of time.
If you are eligible, your servicer may allow a deferral. This will move your payments to the end of your loan. Of course, if you sell your home or refinance before the deferral payments are due, you will have to pay the deferred payments at that time. This is only a good option for you if you can make your regular monthly payments now.
What if none of these options are right for you? If you have a source of income, a Chapter 13 bankruptcy may allow you to save your home. You will be required to make your regular monthly payment to your mortgage company, and you can pay the back payments over a three to five year period. Depending upon what area of Texas you reside, the regular monthly payment may be paid by you directly to the mortgage company or by a Chapter 13 Bankruptcy Trustee as part of your proposed repayment plan. Your back payments will be forwarded to your mortgage company by a Chapter 13 Trustee as proposed by your bankruptcy plan.
Again, bankruptcy is an area where you need to exercise care. The process itself is an excellent option for qualifying consumers; however, many attorneys are taking advantage of the opportunities to appear by video or telephone due to the pandemic and file cases in areas in which they do not live or regularly practice. Unfortunately, some are not familiarizing themselves with local practices and procedures, which has resulted in bad results for some clients. For example, I googled “bankruptcy attorney near me” last night, and a firm over 200 miles from me was the first to appear in the results. Even though bankruptcy is federal law, local practice and procedure can vary widely from district to district. It's important to interview more than one attorney as they will be your attorney for 3 to 5 years, and you may be better served by a local attorney.
When making your decision to exit your forbearance, review all of the options and carefully decide what might be best for you.