A lender may use a Loan Forbearance Agreement to avoid foreclosing on a property. When a borrower can't meet loan requirements, they risk getting hit with a foreclosure notice and having the property taken away. However, the lender might agree to reduce the loan payments or even postpone them.
In that case, the two parties would enter into a Loan Forbearance Agreement. The agreement provides relief for the mortgagor and takes foreclosure temporarily off the table.
A Loan Forbearance Agreement is temporary. The deferral period is most commonly three to six months, though the mortgagee could always agree to extend that period. After that, the mortgagor will have to continue making payments on the loan. To be eligible for a Loan Forbearance Agreement, the mortgagor may have to prove they can resume making regular payments in due time.
Depending on your state, a Loan Forbearance Agreement may also be known as:
A mortgagor who's unable to meet mortgage payments may ask the mortgagee for a Loan Forbearance Agreement. For example, an individual on extended sick leave may need such assistance.
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A Loan Forbearance Agreement needs to be created with extreme attention to detail. You cannot afford to make any mistake that could jeopardize your home.
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Both the borrower and the lender must sign the document. Most states require a witness signature but not notarization.
Before creating the document, check the laws of the state to confirm the signing requirements.
After generating your Loan Forbearance Agreement on 360 Legal Forms, print a copy and get both the lender and the borrower to sign it. Supply each party with a copy of the Loan Forbearance Agreement for safe-keeping with the original loan agreement. Depending on the jurisdiction, it might have to be filed with a governing body, though this is usually the lender's responsibility.
A Loan Forbearance Agreement is a temporary solution when a borrower is unable to make payments on a loan (any loan, although mortgage loans are most common) for any reason. In effect, the lender agrees to postpone the monthly payment for a period of time, extending the original loan repayment period. This may or may not come with a change in the interest rate. At the end of the forbearance period, the borrower can resume making payments on the loan according to the original loan agreement.
On the other hand, a loan modification is permanent. It establishes new terms that modify the original loan agreement. A loan modification may help borrowers who have trouble meeting the terms of the original loan.
A repayment plan is a plan to pay back the loan over an extended period of time. Usually, the payment is fixed and can be used with a mortgage loan, a car loan, a student loan, or a negotiated credit card debt settlement. Borrowers who are unable to fulfill the obligations of a loan may attempt to renegotiate the terms and come up with a repayment plan, as long as the lender agrees.
It is no guarantee that a lender will extend a Loan Forbearance Agreement. To be worth its while, the lender might require the borrower to show income verification, current liabilities, and a reasonable explanation for needing a Loan Forbearance Agreement.
After the expiration of a Loan Forbearance Agreement, the terms of the original loan agreement will resume. Any amount skipped will be added to the loan principal, and the repayment schedule may be extended. One option would be to use a payment plan to make up the difference or extend the number of payments. If the borrower is still unable to resume payment on the loan, they can ask the lender for a loan modification.
Most of the time, lenders will report a Loan Forbearance Agreement to the credit bureaus. If the borrower has missed multiple payments before being granted the forbearance, this will be reflected in the credit score. If not, entering into a Loan Forbearance Agreement alone might not affect a borrower's credit score.
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