227 - Forbearance Does Not Mean Forgiveness

In this episode I’m going to talk about some of the pitfalls regarding mortgage relief programs that are in play lately.  A term I hear often is “forbearance” which leads some people to believe they are going to not have to worry about paying their mortgage...this is FALSE.

A forbearance is defined by Google as “the action of refraining from exercising a legal right, especially enforcing the payment of a debt.”

Note that the above definition says nothing about forgiving debt, instead it involves the lender’s ability to choose to refrain from taking legal action.

Many borrowers are being told by the “Facebook Expert Team” that they can call their lender and then be able to skip a couple of payments.  The reality is that although the lender may agree to avoid using legal remedies to collect a couple of late payments, however, those payments remain due and can be demanded in a short as a couple of months!

Imagine thinking you were off the hook, and then you get a bill in the mail for several months mortgage payments that are all due NOW or face foreclosure.

In many cases, a borrower can ask that the lender place the missed payments at the end of the loan, therefore extending the maturity date of the loan.  If you choose this route, be sure to read any agreements that are in place before you sign them.

Be sure to fully understand what you are agreeing to and if anything is unclear, consult with a local real estate attorney in your state to be sure you are protected and making a smart decision.

Note: In some cases where a lender forgives a portion of your debt such as is common in a short sale, you might be taxed by the IRS on that amount.  Hiring a CPA to consult you in this arena could save you a ton of money. 

Although we are in unprecedented times, I can’t stress enough how important it is to communicate with your creditors.  Most mortgage companies have plans in place to assist you in tough times if you ask them.  Simply stopping payments and refusing to communicate with them certainly wont make the situation any better.  Ignoring the situation won’t allow it to go away, instead it will mostly like get worse if ignored.

If you lost your job, apply for unemployment assistance as soon as possible, there are several programs recently voted into law to help people during these tough times. Unemployment does not need to be paid back (unlike a loan) and therefore are a better choice for many Americans.

Whatever you do, please try to avoid debt at all costs!