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Forebearance agreements in California foreclosures

Forebearance agreements in California foreclosures are the topic of this blog post. Forebearance agreements in foreclosure in California are essentially an agreement between the lender and the borrower to delay a foreclosure sale.   The word forebearance literally means “holding back.”

Due to the economic crisis that began in 2008 and has still not completely abated many homeowners do experience difficulty in making regular and timely mortgage payments. When this happens the mortgage lender generally starts the foreclosure process after a certain period of months. However if they can agree on the specific terms both the lender or servicer and the borrower can enter into an agreement that is commonly known as a forebearance agreement.

The basic terms of the forebearance agreement would be that the lender will delay their right to proceed with the foreclosure proceeding if the borrower is able to resume their regular payment schedule in a certain specified period of time, generally no more than three to six months. The period of time and the particular payment plan depend on the specific details of the agreement entered into by both parties.

I want to stress at the beginning of this blog post that any homeowner in California that is considering asking their mortgage lender to enter into a forebearance agreement MUST have a written forebearance agreement if they really want to protect themselves as in the great majority of situations oral forebearance agreements are unenforceable due to what is known as the statute of frauds found in Civil Code section 1698 which governs modifications to contracts. See Jones v. Wachovia Bank (2014) 230 Cal.App.4th 935, 943–944 and Granadino v. Wells Fargo Bank, N.A. (2015) __ Cal. App. 4th _ certified for publication on April 29, 2015.   There are exceptions to this rule but in my personal opinion a written forebearance agreement provides MUCH more protection to the homeowner.

To view the PDF version of this latest opinion from 2015 use this link: http://www.courts.ca.gov/opinions/documents/B256511.PDF

In most cases a lender will only grant forebearance for borrowers that are experiencing temporary or short-term financial difficulties. As I mentioned previously the great majority of forebearance agreements are for a short period of 3-6 months, longer term agreements are extremely rare. A borrower whose financial difficulties are more serious is much less likely to succeed in convincing their mortgage lender to enter into a forebearance agreement as the lender will likely be skeptical as to the ability of the borrower to resume their regular payment schedule in the near future.

Each lender or servicer usually will have their own unique forebearance offers but I have listed some common examples below:

A short term full moratorium on payments;

A reduced repayment plan that is still above Interest-only, this is known as Positive-Amortizing;

A reduced repayment plan that is below Interest-only, this is known as Negative-Amortizing, and

An Interest-only repayment plan.

I need to emphasize again that borrowers who are experiencing short term financial difficulties are much more likely to be approved for either a short term full moratorium payment plan or a Negative-Amortizing payment plan than a borrower who is experiencing log term financial difficulties as lenders will most likely want to make sure that the principal balance will continue to be reduced even slightly with each payment.

The author of this blog post, Stan Burman, is an entrepreneur and freelance paralegal that has worked in California and Federal litigation since 1995 and has created over 300 sample legal documents for California and Federal litigation.

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DISCLAIMER:

Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is unable to provide any specific legal advice. The author is NOT engaged in providing any legal, financial, or other professional services, and any information contained in this blog post is NOT intended to constitute legal advice.

The materials and information contained in this blog post have been prepared by Stan Burman for informational purposes only and are not legal advice. Transmission of the information contained in this blog post is not intended to create, and receipt does not constitute, any business relationship between the author and any readers. Readers should not act upon this information without seeking professional counsel.

 

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