Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
Given the current virus situation…this is a timely topic. So what is Forbearance?
Answer: Forbearance is a temporary postponement of mortgage payments.
It’s a form of repayment relief granted by the lender in lieu of forcing a property into foreclosure. Loan owners may be willing to negotiate forbearance options because the losses generated by property foreclosure typically fall on them.
Forbearance provides the borrower time to repay delinquent mortgage sums. This is advantageous to the struggling borrower…and offering forbearance benefits the loan owner which frequently loses money on foreclosure after paying the fees associated with the process.
Note: On the other hand, loan servicers, who collect payments but do not own the loans, may be less willing to work with borrowers on forbearance relief because they do not bear as much financial risk.
The terms of a “Forbearance Agreement” are negotiated between the borrower and lender. The opportunity for such an agreement depends on the likelihood that the borrower will be able to resume monthly mortgage repayments once the temporary forbearance is over.
Moreover, the lender may approve a full or only a partial reduction of the borrower’s payment depending upon the extent of the borrower’s need and the lender’s confidence in the borrower’s ability to catch up at a later date.
In some cases, the lender grants the borrower a full moratorium on making mortgage payments for the forbearance period. Other times, the borrower is required to make interest payments but not pay down the principal. In other cases, the borrower pays only part of the interest with the unpaid portion resulting in negative amortization. Another forbearance option is for the lender to reduce the borrower’s interest rate on a temporary basis.
Being awarded forbearance on a mortgage requires contacting the lender, explaining the situation, and receiving approval. Borrowers with a history of making payments on time are more likely to be granted this option. The borrower must also demonstrate cause for repayment postponement, such as financial difficulties associated with a nationwide virus shutdown.
(FREE PROMOTION) Find out how much your property is worth, for free, before you list it for sale. Get the blueprint to sell your property for the highest price the market will pay (click here)
How to get an unfair advantage. Click here to join Sell for More Club today.
Own a business? 90% of business owners don’t know the market value of their business. If you’re considering selling a business, click here for a free business valuation.
About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com