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A forebearance agreement is an arrangement to postpone a borrower's monthly payment for a limited and specified time period. The loan continues to accrue interest during a forbearance. A forbearance request must be approved by your lender. Most lenders are willing to enter into such an agreement if the borrower can pay at least 50% of the mortgage arrearage or 1 full months payment and is willing to pay the remainder in 24 months.

Forbearance agreements are designed to delay or suspend the foreclosure process, as long as the terms are followed. In general, they are good for a short-term fix and generally are not a long-term solution. They can be valuable tools for lenders at the first sign of trouble by providing the borrower additional time to attempt to solve their financial problems.

The typical forbearance agreement places the delinquent amount on top of your monthly mortgage payment. As soon as an agreement is reached, payments will need to be commenced per the specified start date.

A simple example would be if the total amount past due is $6,000, you will be allowed to pay an additional $500 (added to your normal payment) for 12 months. Forbearance plans can go as long as 36 months. A less common form of forbearance is a temporary hold on foreclosure proceedings with an agreement that allows you to temporarily pay less than the full amount of your mortgage payment (or pay nothing at all).

A common reason lenders consider such forbearances is when you can demonstrate a windfall of money is coming via a bonus, tax refund, insurance settlement, or other source; providing you have enough funds to bring the mortgage current at a specific time in the future. Your lender will require you to submit a written agreement under which your mortgage payments are reduced or suspended for the agreed upon period. At the end of that period, you resume regular payments and bring the loan current through a lump sum payment or additional partial payments over a number of months (unless the loan has also been modified to make this unnecessary).

If you have multiple mortgages, you will have to keep them all current or go through the same process with the additional lenders to prevent them from moving forward on foreclosure proceedings. Be very leery of a forbearance commitment that you don't feel comfortable with. It is easy to agree to a forbearance agreement and often times much more difficult to fulfill one. It is a sad fact that the terms and conditions initially proposed by lenders are often formulated to fail from the beginning. Be cautious!

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The information contained in this report is deemed to be accurate but is not guaranteed.
Sources: "The Foreclosure Bible" and the California Association of Realtors®