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Archive for the ‘Mortgage’ Category

Paying Missed Mortgage Forbearance Payments

June 1st, 2020 at 7:00 am

If you receive forbearance on your mortgage payments under the CARES Act, when do you have to catch up on those missed payments?  

 

Last week we presented the new law allowing forbearance—skipping payments—on federally backed mortgages during the pandemic. Basically, if you’ve been financially affected by the pandemic you can request and receive a 6-month forbearance on payments. This can be extended another 6 months if the declared emergency continues at that point.

The obvious question this raises is when do these missed payments need to be paid. This is the topic of today’s blog post.

Major Confusion about Timing of Repayment

The CARES Act provided what is essentially a right to forbearance on federally backed mortgages. But CARES doesn’t say a word about the terms for payment of those payments missed during the period of forbearance.

There are several possibilities potentially available for paying the missed payments:

  • in a lump sum at the end of the forbearance period
  • through payments spread over a period of months beginning after the forbearance period
  • in a lump sum at the sale or refinance of the home
  • through extending the length of the mortgage at the back end

The differences in these options are huge. Assume, for example, that you have a monthly mortgage of $1,100. (That’s the current national median mortgage amount.). If you get a 6-month forbearance, that could mean a lump sum payment of $6,600 due at that time. For most people coming out of a financially challenging time, coming up with that money would be impossible. Even if the amount due was spread out over a year or several years, many would not have this extra money, on top of their regular mortgage, each month.  Paying the missed payments by extending the length of the mortgage is much easier. So is paying at the time of sale or refinance of the home.

Unfortunately Forbearance Can Be Complicated

The foremost federal agency tasked with protecting consumers is the appropriately named Consumer Financial Protection Bureau. It says the following about mortgage forbearance under the CARES Act:

  • Forbearance doesn’t mean your payments are forgiven or erased. You are still required to repay any missed or reduced payments in the future.
  • Make sure you understand how the forbearance will be repaid. There can be different forbearance programs or options, depending on the type of your loan.

For example, if you have a Fannie Mae, Freddie Mac, FHA, VA, or USDA loan, you won’t have to pay back the amount that was suspended all at once—unless you are able to do so.

At the end of the forbearance, your options can include paying all of your missed payments at one time, spread out over a period of months, or added as additional payments or a lump sum at the end of your mortgage.

So, a big part of the confusion is that different loans have different options for paying the missed payments.

The Fannie Mae (FNMA) Example

Among all the federally-backed mortgage holders Fannie Mae (Federal National Mortgage Association) “is the largest backer of 30-year fixed-rate mortgages.” Already as of May 1, 2020, more than 1 million Fannie Mae mortgages were in forbearance. Many more were expected during the month of May. So by way of example let’s see how Fannie Mae allows customers to deal with payments missed because of forbearance.

Here is their recent announcement: Fannie Mae reminds homeowners they are not required to repay missed payments all at once. It’s main message:

At the end of the forbearance plan, the homeowner will be provided with several options from their mortgage servicer for making up the missed payments and will not be required to pay everything back all at once.

This announcement contains a link to their separate KnowYourOptions.com website, which provides more information on the post-forbearance options.

One practical source of information is this COVID-19 Forbearance Script that Fannie Mae has their mortgage services use with homeowners. It provides this script in order “[t]o continue to ensure clarity and transparency for mortgage servicers and homeowners alike.” It’s an interesting and informative read.

If You Have Another Federal Agency’s Mortgage

If your mortgage is instead owned or backed by one of the following agencies, here are similar resources for you:

Additional Charges and Curing Your Mortgage Arrearage

October 28th, 2019 at 7:00 am

Resolve disputes with your lender in Chapter 13 about 1) additional fees and charges, and 2) whether you’ve cured the mortgage arrearage.  

Last week we described a Chapter 13 procedure to force mortgage lenders to resolve mortgage accounting disputes. This procedure focuses on changes to the monthly mortgage payment amount during the case. These are often just the normal contractually mandated changes arising from adjustments to the mortgage interest rate, and in property taxes and homeowners’ insurance. You and your lender need to be on the same page on the monthly amount so that you can stay current. Because of the importance of this, Rule 3002.1 of the Federal Rules of Bankruptcy Procedure provides an enforceable way within Chapter 13 for you to timely learn about mortgage payment changes and to efficiently resolve any related disputes.

This Rule also addresses two other practical problems about mortgage accounting:

  • Determining the appropriateness of fees or charges a mortgage lender wants to add to your mortgage debt
  • Determining at the end of a Chapter 13 whether you have in fact fully cured the mortgage arrearage

Determination of Fees and Charges

During the course of a Chapter 13 case, a mortgage lender may add what it considers to be a contractually appropriate fee or charge to the mortgage balance. Common examples include residence inspection fees, late charges, and the lender’s attorney fees. Rule 3002.1 (c) requires the lender to give an itemized notice of any such fee or charge. It must provide this notice within 180 days of incurring the fee or charge. It’s served on you, your bankruptcy lawyer, and your Chapter 13 trustee.

Then either the trustee or you have a year to dispute the fee or charge. The bankruptcy court then determines “whether the fees, expenses, or charges set forth in the notice are required by the underlying agreement or applicable nonbankruptcy law to cure a default or maintain payments.” Rule 3002.1 (e).

Determination of Final Cure of the Mortgage

Chapter 13 effectively gives you up to 5 years to pay, or “cure,” any amount of your mortgage that you’re behind on. But what if you don’t know how much you need to cure because of miscommunications or disputes with your lender? You get to the end of your case believing that you’ve cured the arrearage but your lender says you haven’t.

Rule 3002.1 (f) of the Federal Rules of Bankruptcy Procedure addresses this. After you complete your Chapter 13 plan payments the trustee gives notice that you’ve done so. This notice goes to you, your bankruptcy lawyer, and your lender within 30 days after you’ve completed payments. Then within another 21 days the lender responds, stating whether you’ve cured the arrearage and are current on monthly payments. “The statement shall itemize the required cure or postpetition amounts, if any, that the holder contends remain unpaid as of the date of the statement.” Rule 3002.1 (g). Then both you and the trustee have another 21 days to ask for a bankruptcy court determination about these issues.

If your lender fails to provide the required information it is subject to sanctions. The court can award you “appropriate relief, including reasonable expenses and attorney’s fees caused by the failure.” Rule 3002.1 (i)(2).

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