submitted by F. Alex Fehrman, Esq.
With the escalation of the Covid-19 pandemic throughout the state, there has been a lot of confusion over the past few weeks when it comes to homeowners making their mortgage payments. As an attorney who focuses on foreclosure prevention I have received many questions on this issue over the past few weeks. To clear up some of the confusion, here are some of the most common questions I’ve received, with answers:
I heard on the news that I don’t have to make my mortgage payments for the next three months. Is that true?
As with any good legal question, the answer is “it depends.” At this time there has not been a shutdown on mortgage payments and banks are still accepting and processing regular mortgage payments. If you are current on your mortgage and are able to make your normal mortgage payment during this time, you should continue to do so. Failing to make your normal payment may result in additional late fees and could potentially put the loan into a default or pre-foreclosure status.
Alright, I want to make my normal payments, but I just got laid off and now I don’t think I can make those payments. What do I do now?
This is where the 3-month hold on payments comes in, but can be misinterpreted. This is not a state-mandated halt on mortgage payments. Missing a payment during this time will still count as a missed payment on your mortgage account but there is a relief option you may be entitled to use. This is a temporary loan forbearance that many banks are implementing at the direction of the federal backers (HUD, FHA, Fannie Mae, & Freddie Mac), and would suspend your normal obligation to make mortgage payments. This option does not automatically kick-in on your loan, you will need to apply for the forbearance, and not everyone qualifies for this option. In order to qualify for the temporary forbearance you as the borrower will need to demonstrate a hardship caused by the Covid-19 outbreak. These hardships include unemployment related to the outbreak, you need not show that you or a family member contracted the virus. You will need some documentation demonstrating the hardship, and may want to contact your employer for that paperwork.
How do I apply for the forbearance?
You should contact your mortgage servicer, the institution to which you normally make payments, to inquire about applying for the forbearance as well as other relief options that may be available. Mortgage companies do have some leniency on how they apply these relief options so your lender may have a slightly different requirement than your neighbor’s lender. It is always best to follow up with your lender to see what they require. Keep in mind that the review process for relief options can take a week or two to go through. Applying for relief sooner rather than later is always recommended.
How long does the forbearance last?
This depends on your lender, but the forbearance period can last anywhere from 3 to 6 months as the standard length. Again, each bank is different so you should discuss this with your lender.
Suspending my mortgage payments sounds too good to be true. Are banks willing to give up on 3 to 6 months worth of payments?
The short answer to this is that you will still owe the money you do not pay during the forbearance. A loan forbearance is a suspension of payments, not a forgiveness of the payments and does not release your obligation to pay at some point in the future. Most banks are either planning on starting a repayment plan after the forbearance, deferring the suspended payments to the end of the loan’s term (in which case you will need to pay the owed balance when the loan reaches maturity), or are extending the term of the loan. The idea behind these programs is that it is a temporary relief to get homeowners through this difficult time. Additionally, banks are required to review accounts for this option, not automatically grant them. If your hardship is not related to Covid-19, for example, expect your forbearance request to be denied.
I’m already in a repayment plan and now I’m unemployed due to the Covid-19 outbreak, what do I do?
Contact your lender. They may be willing to extend your payment plan to work around your hardship. Lenders have more discretion for people in repayment plans during this time, but are generally willing to work with homeowners. The important factor is time. You should make every effort to contact your lender before you miss a payment on your repayment plan to try to work out a solution. Getting ahead of the situation will only increase your chances of getting an extension on your repayment plan.
I heard that New York State was directing lenders to suspend payments and freeze the credit impact associated with that. Is that true?
New York State has provided guidance to that effect, but since the vast majority of home loans are backed by federal agencies, they can take New York’s guidance as just that, guidance. They would not be bound to follow New York’s directive. They are, however, directed to follow the guidelines of the federal backer. At this time those directives are to implement procedures to review lenders for the forbearance options already discussed. During this forbearance period, lenders are not allowed to report changes in status or nonpayment to credit reporting agencies. They are also not allowed to accrue late fees during this period, and must work with borrowers to establish an affordable repayment plan once the forbearance ends.
These are some of the most common questions homeowners have been asking. If you have a question not covered in this FAQ please contact the Center for Elder Law & Justice’s Legal Advice Helpline at 1-844-481-0977 for free advice on your legal questions.