Covid-19 Mortgage Forbearance: A Cautionary Tale

Many thousands of Americans are suddenly concerned about making their monthly mortgage payments due to the coronavirus pandemic, or will soon, if the crisis continues to drag on. In the past month, nearly 17 million Americans have filed for unemployment after nonessential business closures went into effect. Homeowners with government-backed loans are seeing headlines about mortgage forbearance programs that provide up to 12 months of forbearance, doled out in 90-day chunks, but I recommend caution. Forbearance is not forgiveness. In many headlines I see forbearance programs marketed as offering relief now with no obligation to make up the missed payments until the very end of the mortgage term. That certainly sounds enticing I’ll admit but unfortunately many homeowners are discovering that forbearance relief is short-lived. Forbearance is not forgiveness and many homeowners are reporting that the details of the forbearance offer includes 3 months of no payments, no late fees, and no reporting to the credit agencies as being late or in any stage of foreclosure. All good things. But once that period is over? All of the missed payments come due at once when the forbearance ends. If you can’t make one mortgage payment now, is it smart for you to contractually agree to pay three mortgage payments all at once 90 days from now? If this program is not fixed soon, there may be a wave of foreclosures and bankruptcies just around the corner. And while this may not be the case for every lender, it is happening with enough frequency that if you are considering a Covid-19 mortgage forbearance you should proceed with caution and consider speaking to one of our attorneys about your bankruptcy options.