When you are listing a property for sale, it is very important to ask the homeowner if they have had a forbearance agreement or loan modification.
Another way to put this is to ask whether they have skipped any payments or made any sort of deal with a lender.
This is important because if you miss something like this, your seller could end up having to unexpectedly bring money to closing or end up doing a short sale and angering a lot of people.
Read on to learn more about forbearance agreements and how they work from our team at Diamond Real Estate Law in McHenry, Illinois.
What is a forbearance agreement?
A forbearance agreement is an agreement with a lender where the borrower (or homeowner) is allowed to skip or make reduced mortgage payments. The biggest misunderstanding about these agreements is that the homeowner still owes their lender the money they didn’t pay.
The time period the lender allows for reduced or missed payments is called the forbearance period.
Forbearance agreements can come in all shapes and sizes, meaning that the lender can do all sorts of creative things with the missed payments, fees and costs.
Many times, lenders will just put a balloon payment on the end of the loan. This payment is also due in full when the loan is paid off.
Forbearance agreement complications
Over the years, I have seen a lot of problems with forbearance programs.
Many times the credit reporting gets screwed up and the application of payments, interest, fees and costs can be a complete mess.
I have had clients come in after a forbearance program with an unintelligible pile of conflicting notices and letters leaving them hopelessly confused as to how much they actually owe their lender.
Another problem frequently occurs when the homeowner gets their mortgage statement because it is not always easy to clearly see the additional amount due.
When you ask the homeowner how much they owe, they may be looking at the principal line and they don’t realize that there is additional money due.
How to work with the homeowner to find the forbearance agreement
If you are listing the property and the homeowner knows they made a deal but are not sure exactly what it is, the easiest way to figure things out is to ask for a payoff.
A payoff statement is what we will use for closing and it should tell you if the homeowner owes a lot more than they think they do.
This all can seem a little uncomfortable or confusing, which is what makes it a great opportunity to refer your client to a local real estate attorney who can explain all this in more detail.
Many real estate lawyers are more comfortable asking these types of questions because we can explain why they are technically necessary for things like clearing titles and protecting the homeowner.
The moral of the story is when you are listing a property for sale, don’t forget to ask the homeowner if they missed any mortgage payment or made any sort of deal with their lender.
Contact Diamond Real Estate Law Today
Our team at Diamond Real Estate Law is ready to help you with your next deal in McHenry or Lake County. If you are ready to send over a contract, get in touch with our legal team and we’ll help you get started.
DISCLAIMER: This article and any information contained herein is solely for informational purposes. While it is important that you educate yourself, nothing herein should be construed as legal advice or create an attorney-client relationship. For specific questions, I always urge you to contact a local attorney for advice pertaining to your specific legal needs.