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What Is a Forbearance Agreement in Real Estate?

What Is a Forbearance Agreement in Real Estate?

Unexpected challenges can often disrupt the smooth flow of financial stability. Economic downturns, market fluctuations, or unforeseen circumstances can create a financial strain for property owners, whether residential or commercial.

When faced with financial hardship, individuals and businesses might consider a forbearance agreement a lifeline to navigate these challenging times. Forbearance, though it may sound complex, is essentially a brief pause of loa obligations. It’s a formal arrangement between the mortgage lender or bank and the property owner that permits the owner to temporarily defer a mortgage payment in case of unexpected financial challenges. Additionally, there are provisions for individuals who wish to discuss and modify the terms of their mortgage, potentially resulting in reduced payments.

Forbearance Agreement in Real Estate

From a real estate standpoint, a forbearance agreement is a contractual arrangement that prevents a mortgage lender from initiating foreclosure proceedings on your property for non-payment. These agreements bind mortgage lenders to show leniency toward borrowers who are experiencing temporary financial difficulties.

This affords mortgage holders additional time to fulfill their mortgage obligations. Forbearance agreements typically come into play when borrowers (i.e., homeowners) face financial hardships but aim to avoid foreclosure.

Different arrangements are available. As a potential choice for a mortgage forbearance, a buyer may opt to make reduced payments on their mortgage. Alternatively, this type of forbearance allows the borrower to halt mortgage payments temporarily (it’s important to note that this pause is not permanent).

This agreement allows homeowners to stabilize their finances, negotiate new repayment terms, seek loan modifications, or seek a potential buyer for their property.

Naturally, a mortgage holder who qualifies for a permissible reduction or pause in payments through a forbearance agreement is still responsible for repaying the mortgage. Additionally, it’s important to realize that mortgage forbearance agreements are not granted automatically. This implies that a responsible borrower must take the financial initiative to pursue the forbearance agreement themselves, provided the appropriate conditions are met.

Mortgage Forbearance–The CARES Act

The widespread impact of COVID-19 has placed a significant financial burden on a large portion of the American population, including homeowners and business owners. The virus has led to repeated shutdowns and social distancing measures, causing considerable strain on businesses. In response to citizens’ extensive challenges, the government implemented the federal Coronavirus Aid, Relief, and Economic Security Act, commonly called the CARES Act.

Under the provisions of the CARES Act, individuals who have fallen behind on their mortgage payments or have arranged a forbearance agreement with their lender will not face adverse consequences on their credit reports. Instead, lenders are encouraged to report payments as ‘current’ rather than ‘delinquent’ to the credit bureaus. However, it’s important to note that while mortgage forbearance will not negatively impact your credit score, it may still pose challenges when seeking future mortgages, home loans, or refinancing opportunities. Here are some additional considerations:

  • While forbearance during regular circumstances typically lasts for 180 days, under the CARES Act, certain lenders may grant an allowance of an additional 180 days.
  • Homeowners or property owners who have already established a forbearance plan during the pandemic will not be subject to late fees.
  • Once the forbearance period concludes, your lender must collaborate with you in devising a possible payment plan moving forward.
  • The deferred funds will have to be repaid either through a loan modification or second mortgage for the deferred amounts.

How Do Forbearance Agreements Help?

Having briefly covered forbearance agreements, let’s now explore how they can serve as a lifeline for protecting your home.

  1. Empowerment in Difficulty: Financial difficulties often leave individuals feeling powerless, especially when they lack resources like legal representation. Forbearance agreements instill hope in mortgaged homeowners, offering an alternative to passively witnessing the worst-case scenario unfold.
  2. Addressing Temporary Financial Hurdles: Common triggers for mortgage defaults, such as job loss, income reduction, or rising interest rates, can force borrowers into a precarious position. It’s crucial to recognize that these issues are typically temporary. A forbearance agreement provides a structured solution.
  3. Buying Valuable Time: Forbearance agreements extend a critical lifeline by providing the time needed to secure a new job or explore alternative income streams. This breathing room allows for resolution of temporary financial challenges without resorting to drastic measures like foreclosure.

Are Commercial Lease Forbearance Agreements Worth It?

Commercial lease forbearance agreements are a common topic of discussion, especially during economic downturns and global crises, such as the COVID-19 pandemic. These agreements allow the parties to negotiate and reach a temporary understanding that accommodates the financial challenges faced by the tenant. The worthiness of such agreements depends on the specific circumstances and the negotiation skills of the parties involved.

Here are some factors to consider when evaluating the worth of commercial lease forbearance agreements:

  1. Financial Situation: Before entering a forbearance agreement, the landlord and tenant should carefully assess their financial situation. Landlords must evaluate whether they can afford to offer temporary relief, and should ensure their tenants genuinely need the relief.
  2. Duration: Consider the duration of the forbearance period. In some cases, the relief might be too short to make a substantial difference, and it may not be worth the administrative effort.
  3. Terms and Repayment Plan: Ensure the agreement outlines clear terms for the forbearance period and a repayment plan. The terms should be fair and reasonable for both parties.
  4. Communication: Open and transparent communication between the landlord and tenant is vital. A successful forbearance agreement often hinges on cooperation and understanding.
  5. Legal Advice: Seek legal advice when negotiating a commercial lease forbearance agreement. Attorney Carlos M. Amor can help protect your interests and ensure the agreement is legally sound.

 

Contact Carlos M. Amor at 954-453-7200 for a free phone, video, or in person consultation today!

 

Commercial Loan Forbearance Agreements

For commercial property owners with loans, the concept of a forbearance agreement is quite similar to that of a commercial lease forbearance agreement. It serves as a temporary financial relief mechanism, allowing borrowers to navigate turbulent financial waters.

These agreements can be valuable in helping businesses survive temporary financial crises, but they should be approached with caution. As with commercial lease forbearance agreements, borrowers should assess their financial capabilities, seek legal advice, and ensure clear terms and repayment plans are established.

How Can Carlos M. Amor Help With My Forbearance Agreement?

Carlos M. Amor, a qualified attorney with a focus on real estate and contract law, can be instrumental in helping you navigate and negotiate a forbearance agreement. Here’s how Carlos M. Amor can assist you with your forbearance agreement:

  1. Legal Expertise: Carlos M. Amor has more than fifteen years of experience and has a deep understanding of the legal intricacies surrounding real estate transactions and contracts. He can provide expert guidance on the legal aspects of forbearance agreements, ensuring that your rights are protected and your obligations are clearly defined.
  2. Guidance Through the Process: Carlos M. Amor will guide you through every step of the forbearance agreement process. He will explain your rights and responsibilities, helping you make informed decisions.
  3. Negotiation: If the initial terms of the forbearance agreement are not in your favor, Carlos M. Amor can negotiate with the lender, landlord, or counterparty on your behalf. He can work to secure more favorable terms, such as a longer forbearance period, lower interest rate, or a more manageable repayment plan.
  4. Legal Compliance: It’s essential to ensure that the forbearance agreement is legally sound and that all the required documentation is in place. Carlos M. Amor can ensure that the agreement complies with local and federal regulations and any specific regulations related to real estate transactions and financial relief programs.
  5. Documentation and Record-Keeping: Proper documentation is crucial in any legal agreement. Carlos M. Amor can help you prepare and maintain all necessary documents, ensuring you have a record of the agreement and all related communications.

Contact Carlos M. Amor For Legal Representation Today

Carlos M. Amor’s expertise in Florida real estate law and dedication to his client’s best interests make him an excellent choice for navigating forbearance agreements. Whether you are a homeowner or a commercial property owner, Carlos M. Amor can provide the guidance and legal support you need to navigate the complexities of forbearance agreements. He offers free consultations by phone, via video meeting, or in person. Contact him at 954-453-7200 for a free consultation.

ATTORNEY CARLOS M. AMOR

Carlos M. Amor is a skilled and experienced attorney and real estate broker. His legal practice in South Florida focuses on real estate litigation, real estate investments, tax deed and foreclosure auction purchases, traditional real estate transactions, short sales, foreclosure defense, and civil litigation. Carlos thinks “outside the box” and takes a practical approach to finding solutions that benefit his clients. [ Attorney Bio ]