Can you really stop paying your mortgage payments during COVID-19?
If you are suffering financial hardship or difficulty as a result of the pandemic then there are three things you need to know before you make this decision.
What Kind Of Lender Or Loan Servicer Do You Have?
As a homeowner, it’s vital to understand what type of lender or loan servicer you have.
Specifically, Do You Have A Federally Backed Mortgage Or Private Loan?
Recently, Congress has passed into law the CARES ACT, which allows for 2 Trillion in stimulus funding for individuals and business owners.
The good news is that for homeowners who have a Federally backed mortgage (think Freddie Mac or Fannie Mae), the CARES ACT provides certain protections for homeowners during COVID-19.
So What Is A Federally Backed Loan?
A Federally backed loan is a mortgage that is supported by government servicing agencies such as Fannie Mae Freddie Mac.
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Under the CARES Act, Congress enacted a foreclosure moratorium that allows for borrowers with loans backed by the federal government to withhold payments and defer interest for 6 months while preventing any foreclosure activity by any servicer of a Federally back mortgage loan for at least 90 days.
What If I Have A Private Loan?
If your loan is not federally backed, then you have to take extra care and communicate with your lender as to what options are available for you.
While some private lenders initially referenced deferment and or forbearance options for borrowers, we still do not have a clear definition or direction as to what happens if a borrower misses their mortgage payments.
As a result, you need to get any discussions you have with your lender in writing.
Private lenders are not necessarily offering the same deferment or forbearance options as federally backed loans.Equity Legal LLP
It’s quite common to hear the word foreclosure moratorium in the news these days. However, many homeowners need to understand that the Federal government, individual states, and even local municipalities have enacted their foreclosure moratorium laws.
Foreclosure Moratorium Laws have been enacted at the Federal, State, & Local Levels. Borrowers need to understand how each of these laws affects them.Equity Legal LLP
For example, at the Federal level, the CARES Act allows federally backed loans a 90-day provision to prevent foreclosure actions taken by their servicer. For private lenders, it all depends on the state or even the city you live.
California has enacted a foreclosure moratorium, which prevents any servicer or lender from pursuing or initiating foreclosure proceedings for a period of 60 days.
This was an executive order from the Governor and did not speak to whether it only applies to federally backed mortgages or private mortgages. As a result, you must be careful as loan servicers are not providing any directions in this regard.
- Without direction, you could end up in a foreclosure situation.
Have You Confirmed With Your Lender?
Before you decide to stop making your loan payments, it is best to get it in writing from your lender on how they will handle your missed payments.
In the media, and even on some bank websites, borrowers were being told that they were granted a 60 to 90 day forbearance period before their next mortgage payments would resume.
However, a borrower must be very careful, as this may still result in a default situation on potential foreclosure or loss of your home.
- Get it in writing is your best protective measure.
Forbearance, Deferment, Or Modification?
What is the difference between a forbearance and deferment or a loan modification?
- A forbearance is designed to put a pause on payments where you are having difficulty making payments such as the current situation resulting from the COVID-19 pandemic.
- In a traditional forbearance, interest will continue to accrue, and when the forbearance period ends the lender will calculate a new monthly mortgage payment that takes into consideration the higher principal balance resulting from the missed payments and new interesting charged on the new principal balance.
- A loan deferment is when the lender completely defers both monthly payments and interest for the period That you withhold, making the mortgage payments.
- For example, if the lender is providing you a 60-day deferment, then they will not collect mortgage payments for the 60 days they will not collect interest for those 60 days and only add the missed principal amount for the 60 or 90 days to the back end of the mortgage.
- A loan modification is a form of loss mitigation typically only provided to borrowers that have entered into default (meaning they have missed a mortgage payment even as little as one payment). It is designed to allow a modification of the mortgage terms.
Banks have not been clear as to what options will be available to borrowers as a result of missing mortgage payments. This is the major cautionary issue to be aware of because as some borrowers have received communications that their full three months of payment will be owed when their 60-90 days is up.
How Can An Experienced Foreclosure Defense/Mortgage Attorney Help?
An experienced attorney that understands how to deal with mortgage servicers or understands how to review mortgage-related loss mitigation options is crucial.
In the 2008 financial crisis, many borrowers were told that they had options. However, that ended up being the exact opposite of what they were being told, while the banks took size-able bailouts.
Speaking with an attorney can help you clear up any confusion, and help you decide if you may safely stop making your mortgage payments.