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Forbearance Agreement-vs-Special Forbearance Agreement

Forbearance Agreement

A forbearance agreement is an agreement to reduce, suspend, or postpone a payment on a loan for a limited and specific time period. This is a temporary agreement used to delay foreclosure and provide the borrower at the minimum, 4 months to catch up on missed payments. While there is no limit on months, the agreement may never allow the delinquency to exceed the equivalent of 12 monthly PITI – principal, interest, taxes and insurance – installments.

A forbearance request first must be approved by the lender and frequently, the lender will agree to not to foreclose on the property or increase payments due during this period. The debtor, in return, will agree not to dispute any proceedings taken by the creditor to collect the debt in the event that the debtor fails to make scheduled payments. In some forbearance agreements, the debtor may grant the creditor a deed in lieu of foreclosure if the terms are not met. Any accumulated interest during the deferment is the debtor’s responsibility and once forbearance expires, the unpaid interest is supplementary to the primary balance of the loan.

Special Forbearance Agreement

A Special Forbearance (SFB) is a written repayment agreement which contains a plan between Federal Housing Administration (FHA) insured mortgages and temporarily unemployed, creditworthy borrowers to reinstate an asset. The mortgage must be at the least 3 months, but not more than 12 months overdue. A loan must not be in foreclosure at the agreement time.

Eligibility

To be eligible**, the borrower must have an FHA insured mortgage and:
* Have a good payment record and a stable employment history prior to this default
* Have a verifiable loss of income or increase in living expenses
* Be actively seeking employment, but have not received a commitment of re-employment at the time the lender is reviewing the borrower’s financial information; and
* Be an owner-occupant, committed to occupying the property as a primary residence during the term of the special forbearance agreement

**The special forbearance initiative will not be offered to borrowers who have repeatedly broken past informal or formal forbearance plans without good cause

Additional: HUD requires that the lender verify the borrower’s employment status monthly the terms will be negotiated once re-employment is established. HUD also requires the lender to verify that the property has no physical conditions that might adversely impact the borrower’s continued use or ability to support the debt. A borrower will not be able to obtain a special forbearance if the property is in such a deteriorated condition that repairs drain the borrower’s monthly resources.(“Hud – fha,” 2009)
Hud – fha special forbearance initiative. (2009, April 29). Retrieved from http://www.thhf.org/blog/2009/04/hud-fha-special-forbearance-initiative/

To learn more information about forbearance agreements and special forbearance agreements, please contact United Financial Counselors.

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