Forbearance Agreement

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A forbearance agreement is a contract in which a lender agrees with a borrower that he or she will not take action against them that could legally be taken. For example, if a borrower missed consecutive loan payments to their lender, he or she would likely be facing foreclosure or repossession. There are times, though, when a borrower has a legitimate reason for missing consecutive payments (such as a job loss, death in the family, etc.) and is not able to make their payments. Even thought the lender may have legal rights to foreclose on property, they may feel that it is best to give the borrower some additional time to make their payments.

Forbearance agreements are particularly common if the borrower writes a hardship letter to stop foreclosure. This type of agreement is very helpful if you find yourself struggling to make loan payments due to an injury, emergency, illness, or a job loss. In most cases, the lender agrees not to take any property and to avoid filing a lawsuit against the individual that was not able to pay back the money that was owed on time. Does this mean that borrower never has to pay back their money? Absolutely not - the borrower is still required to pay off all of their loans, but this agreement gives them extra time to save up money and work through their struggle before they start making more payments.

What is the time extension that will be given to the borrower in a forbearance agreement? The amount of added time that a person will get to pay off their loan is determined by the lender. If you do not have a very long term problem, you will likely not be given a lot of time. In cases where a person needs an extended period of time to make payments, they will usually get that time that is needed.

However, people that attempt to get long-term forbearance agreements usually do not succeed due to the fact that lenders cannot wait very long before they are going to need their money. Think about it from the perspective of the lender: If you lent your money to someone and they wanted a year extension on their payment date with no increased interest, you would probably not be able to stay in business for very long. For this reason, it is always mandatory for the lender to specifically agree in a contract to "forbear" from the original terms.

In most cases, a mortgage forbearance agreement benefits the borrower and does not do much harm to the lender. Sometimes, these agreements can actually benefit the lender as well because they are able to write a brand new set of terms and conditions. Both the lender and the client must sign the new contract and agree to the forbearance. If the individual that borrowed money is not able to pay back money to the lender by the date agreed to in the forbearance contract, then the foreclosure process is likely to ensue.

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