Many homeowners were relieved and in some cases eager to take advantage of their mortgage servicers willingness to grant them a COVID-19 forbearance. However, homeowners may not have fully understood the effects of accepting that forbearance. The Covid-19 forbearance on average are for 3 to 6 months but could be extend longer. Only time will tell.
A forbearance is when your mortgage servicer or lender allows you to pause or reduce your payments for a limited period of time. A forbearance does not erase what you owe. You’ll have to repay any missed or reduced payments in the future.
Typically at the end of the forbearance the home owner must come up with all the missed payments. However, often mortgage servicers will agree to put your missed payments on the back end of the mortgage while you resume payments. Putting the mortgage payments on the back end of the mortgage means that you will ultimately being paying interest on interest.
Another problem with simply putting those missed mortgage payments on the back end of the mortgage is that it most likely will create an escrow shortage. If your taxes are paid through your mortgage then your account has a special escrow account. The mortgage servicer is permitted by law to keep the equivalent of 2 months of monthly tax payments. When you do not pay your mortgage the mortgage servicer uses your escrow funds to help pay your property taxes which in turn will leave your escrow account short.
So what do you do? Only take a forbearance if you absolutely and only take it for as long as you absolutely need it. If you feel like you are falling further and further behind you could speak to your mortgage servicer about applying for a loan modification. If they are unable to help then give us a call.
A Chapter 13 bankruptcy may be able to greatly assist you by reorganizing your debt, including your mortgage, giving you a some time (as much as 60 months to catch up on missed mortgage payments while beginning to make regular payments. We can tell you how we may be able to help you.