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Will Mortgage Forbearance Save Your Home From Bankruptcy?

Mortgage and rent forbearance were woven into the text of the Coronavirus Aid, Relief, and Economic Security Act, which was cobbled together quickly and we’re all still trying to figure out what it means, how it will be paid for, and what other measures are necessary to protect our economy from the shutdown. Meanwhile, many American homeowners are struggling to make routine payments on their bills or mortgage. They’re asking, “Will mortgage forbearance be able to save my home?”

While The CARES Act does provide basic support for Americans through this crisis, it may be far less than they need to pick up where they left off. Below, we’ll discuss more about The CARES Act and what it means for those displaced by the virus in the coming months when economic reopenings are likely.

Stipulations of Mortgage forbearance

Types of Mortgages Eligible Under The CARES Act

About two-thirds of all mortgages are backed by the federal government. It is only these mortgages that are entitled to forbearance under The CARES Act. These are also known as Fannie Mae or Freddie Mac mortgages.

If you’re unsure of what type of mortgage you have, you can check here by clicking the links provided:

  • Fannie Mae
  • Freddie Mac

These links will be able to tell you if you have a Fannie Mae or Freddie Mac mortgage and whether or not your mortgage qualifies for forbearance under The CARES Act.

Hardship Must be Related to Coronavirus

You are required to issue a statement to the federal government that the reason you cannot make your payments this month is due to the virus quarantine. Anyone who qualifies unemployment will not have to submit further proof.

While the federal government may not check the validity of this information, you are providing a statement under penalty of law that the information you’re providing is true.

Hardship Must be Related to Coronavirus

You are required to issue a statement to the federal government that the reason you cannot make your payments this month is due to the virus quarantine. Anyone who qualifies unemployment will not have to submit further proof.

While the federal government may not check the validity of this information, you are providing a statement under penalty of law that the information you’re providing is true.

What to Do if You Have a Private Lender

Those with private lenders were initially advised to call their lender and discuss their situation. Now, a couple weeks into that advice, homeowners are struggling to get through with so many others in the same boat.

Lenders, aware of the problem, have begun providing information on their websites that allow borrowers to apply for coronavirus hardship relief. You will want to provide proof of hardship backed by financial information.

Will Forbearance Help Consumers?

Forbearance places a moratorium on invoking the legal rights of the lender to forcibly remove delinquent mortgage-payers from their own property. That’s it.

So when people describe it as “pausing” their mortgage payments, that is flat out wrong. A true “pause” of mortgage payments would extend the loan term by the same number of months that the coronavirus quarantine lasts for.

Instead, forbearance says that you don’t have to pay during quarantine months, but once the timeframe of The CARES Act runs out, you will be expected to pay all the money you owed during the state of emergency.

The short answer to the question posed above is simply ‘no’. Many consumers who found themselves displaced during the coronavirus shutdown, will not necessarily have jobs waiting for them once the state of emergency has been lifted. In fact, we don’t know anything about what a post-coronavirus economy would look like. We assume that once it’s over, everything will simply go back to the way it was. But with companies deep in debt and also applying for bankruptcy, jobs may be scarce for years to come.

Forbearance Timeline

The forbearance requirements under The CARES Act put into place a six-month moratorium on foreclosure actions. After the law elapses, all mortgage payments will be due in full. However, the law allows individuals to request forbearance for another six months. However, at the end of those six months, you would have twelve payments all of which would be due in full.

Essentially, all The CARES Act does is kick the can down the road. It does not place a ‘pause’ on the mortgage contract. It just removes the bank’s legal remedy for nonpayment six or twelve months.

What happens then? The federal government says that every borrower will either need to get current with their lender, negotiate a revised loan contract, or face foreclosure.

What Happens After Forbearance?

This is where things will get a little tricky because we simply don’t know. In six months, when the provisions of The CARES Act are not with us any longer, there could be new legislation protecting consumers. The forbearance provisions of The CARES Act could be extended for another six months. But neither of those are a given.

The truth of the matter is that we really don’t know how this will play out, but many are predicting that there will a massive amount of foreclosures once the provisions of The CARES Act plays out. Is this something that federal regulators are hoping to avoid?

Talk to a Eugene, OR Bankruptcy Attorney Today

If you’d like to discuss your situation with a bankruptcy attorney, call Butcher Law Office, LLC today for a free hour-long consultation.