If you were impacted by COVID-19, own real estate and were unable to make your usual monthly mortgage payments, you may have requested a life line from your mortgage servicer and asked that your mortgage payments be put into forbearance and are now looking for options after mortgage forbearance ends. This meant that you would not need to make a mortgage payments while your loan was in the forbearance program, but it also meant that you would still owe the back owned payments one way or another at some point in time. If you have a Fannie Mae, Freddie Mace, HUD, FHA or VA loan these forbearances last for 6 months and then could be extended for an additional 6 months and potentially another 6 months after that if you received your initial forbearance February 28, 2021 or June 30, 2020 respectively per the Consumer Financial Protection Bureau.
Even through forbearance can still be requested for another month or so, the program will eventually come to an end along with the foreclosure moratorium, and borrowers will need to know their options after mortgage forbearance ends to know what direction to go and have a plan for the future. Without further ado, here are some of the options that may be available to you depending on the type of loan you have and your mortgage loan servicer.
(1) Make up Missed Mortgage Payments in a Lump Sum after Forbearance Ends
Perhaps you put your loans in forbearance as a precaution or can get assistance from friends or family and have the means to make up all of your payments you have not paid over the last several months in a lump sum. If that is the case you should contact your lender and ask for a reinstatement quote in order to make a lump sum payment and get back on track if you do not want to seek out some of the other options listed below.
(2) Request a Post Forbearance Payment Plan from Your Lender After Mortgage Forbearance Ends
Once your forbearance ends you can call your mortgage servicer and ask for a post forbearance repayment plan to get back on track. Under this option you would still need to make your normal mortgage plan payment in addition to your missed mortgage payment paid out over an agreed term. Under this option your mortgage payments are going to be higher than they were pre-forbearance since you are paying your normal mortgage payment in addition to your arrears. This would mean that you would need to be able to afford a higher mortgage payment than you had pre-pandemic and therefore this option may not be viable for many homeowners.
(3) Request COVID-19 Payment Deferral After Mortgage Forbearance Ends
Under this option you resume making regular mortgage payments, similar to the payments you had pre-forbearance. If you opt for this options, your missed deferred payments, including any escrow advances made on your behalf for taxes and/or insurance, would be added to the end of your loan without charging interest on such amounts. The deferred amount is due on the last mortgage payment date (or earlier whenever the home is sold, or the loan is refinanced or otherwise paid off). This may be a good option if available as it keeps the regular monthly principle and interest payment the same as before you requested forbearance. With that said, escrow payment adjustments for taxes and insurance may affect your total monthly payment.
(4) Request a Loan Modification from Your Mortgage Servicer After Mortgage Forbearance Ends
If you have experienced a hardship that impacts your ability to pay your regular monthly mortgage payment, applying for a loan modification may be your best option. Under this option you will need to supply your mortgage servicer with an application, hardship, letter, last 60 days of bank statement, last 60 days of paystubs/profit and loss at a minimum. Additional documents may also be required. Applying for a loan modification can result in you receiving a lower interest rate, a loan term and an extension of up to 40 years from the effective date of the modification. By extending your term, your payment may be reduced, but you may pay more total interest because the loan is extended over a longer period of time.
In Washington State you can apply for a loan modification directly through the bank or through the Washington State Foreclosure Fairness Act Mediation which I recommend as it prevents a foreclosure sale while you are involved in the mediation program and it also involves a 3rd party mediator, local attorneys for your lender and a decision maker from your lender must be involved at the mediation as well. Foreclosure Fairness mediation may only be requested by an attorney or housing counselor on a borrowers behalf.
If you are going to apply for a loan modification, you should think about applying when you do have income to show you can at least make close to your normal pre-forbearance mortgage payments after paying your living expenses. This is because the bank will also be making a business decision on whether to modify your loan and want to make sure you can afford new payments if offered. For instance if you are unemployed or just receive social security that may not be sufficient to obtain a loan modification unless you can show you can afford mortgage payments for the foreseeable future.
(5) File for Chapter 13 Bankruptcy
If all else fails you could file a chapter 13 bankruptcy petition in order to stop a foreclosure sale or make up missed payments over a period of 3-5 years. Chapter 13 bankruptcy has the added benefit of possibly eliminating other unsecured debts in the process and can help get you back on track over the plan period with the added benefit of stopping a foreclosure sale due to the bankruptcy automatic stay as soon as the bankruptcy case is filed.
(6) Sell Your Home with a Seattle Real Estate Broker
If you live in Washington State and have owned your home over the last few years, then it is likely your home has equity in it for you to access upon the sale of your home. Most people do want to keep their homes, but if you have exhausted all other remedies and your income situation has not improved, it may be wise to get as much equity out of the home as you can while the market is red hot. If the home does end up going to foreclosure, there could be other fees and costs involved but if it is purchased at auction, you may at least be able to access surplus funds held in the superior court of the county the property was located. This is an extra step and cost to consider as well and auctions can be unpredictable.