In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) was enacted into law to provide certain relief measures for certain borrowers (including business owners and individuals) as a result of the COVID-19 pandemic. In particular, borrowers with federally backed mortgages were entitled to request temporary loan forbearance for up to 180 days or to apply for an extension of another 180 days of forbearance.
Borrowers who desired to take advantage of the temporary loan forbearance were required to certify to their lender or mortgage servicers that they are enduring financial hardship as a result of the COVID-19 pandemic. The lender or mortgage servicer are required to offer the forbearance once a borrower requests hardship forbearance due to the coronavirus.
The CARES Act is not specific as to what happens once the forbearance period ends. As a result, it appears individual lenders and servicers are setting different rules about how borrowers must “catch-up” or pay the delayed payments. It is important to review the forbearance agreement carefully in order to understand what your responsibilities are after the expiration of the forbearance period. The borrowers need to understand the forbearance or deferral of loan payments does not mean the payments are forgiven or erased.
It is possible that the borrower may be required to make a lump sum payment to essentially catch up on loan payments upon expiration of the forbearance period.
Other options include:
- Adding any delayed payments to the end of the loan and extending the term of the loan by the number of months the payments were deferred; or
- Giving the borrower a specific period of time following the expiration of the to make up the deferred payments.
In most instances, in the event the borrower is not able to comply with the terms of the forbearance agreement with respect to making up the deferred payments, then the borrowers will likely be responsible for additional late fees and risk having the lender call the loan for default.
If a borrower has concerns regarding its ability to abide by the terms of the forbearance agreement, it is important to contact the lender to find out if any other options or solutions may be available. Note that the CARES Act forbearance requirements apply only to federally backed or owned mortgages; however, more mortgage relief options may be available, through separate relief options from your mortgage lender.