When COVID Mortgage Forbearance Ends

Be careful that you fully understand the terms of your COVID mortgage forbearance otherwise you may end up in foreclosure. To see why you need to be so careful when the COVID mortgage forbearance ends, we need only to look back to the housing crisis of 2009. During the 2009 real estate foreclosure crisis I saw a lot of my clients deceived by their mortgage lenders in this same way. I never thought that I would see that kind of deception again…but history does repeat itself and here we are. In 2009, a lot of people lost their sources of income and were not able to keep current with their mortgage payments. As a result, the bank filed foreclosure lawsuits and flooded the courtrooms with more foreclosure cases than ever before seen. While a lot of people lost their homes and investment properties right away there were others that were offered a temporary solution that did little more than slow down the foreclosure process. This solution was called a temporary mortgage modification and currently it is called a mortgage forbearance.

The 2009 Mortgage Modifications Were Deceptive

While there were a select few number of people that actually got mortgage modifications that worked most of them left people worse off than before. Here is what happened. When a person fell behind on their mortgage they were contacted by their lender who inquired as to why the payments were missed. As a result of this conversation the bank offered a temporary mortgage modification. This modification resulted in a lower monthly payment but was only to last for between 3 and 6 months. When this arrangement was accepted by the homeowner many people made the new trial payments for the scheduled 3 to 6 months…and in month 7 they were served with a foreclosure lawsuit! What happened to the trial modification? Simple, the bank lied by omitting a key piece of information which was that at the end of the trial modification the missing portions of the mortgage payments would all be due at once; if it was not paid then foreclosure would begin. As an example of this: imagine that you had a monthly mortgage payment of $2,000 per month. Because of a loss of income you fell behind 3 months in your monthly mortgage payments. You are now $6,000 behind in your mortgage payments. The bank contacted you and you were only able to afford a monthly payment of $1,000 per month. The bank said that they could put the missing $6,000 on the back of your loan and instead enter a trial mortgage modification payment of $1,000 per month for 6 months. You agree and make the payments of $1,000 per month every month for 6 months. At month 7 the bank tells you that the trial modification is over and that you owe $2,000 for month 7 plus the missing $1,000 per month for the prior 6 months. This means that you owe $8,000 in month 7 or else the foreclosure proceeds. You are now in a worse position than before the trial modification started. Simply put, the banks lied.

COVID Mortgage Forbearances Are Also Deceptive

I have feared that this would happen again and yesterday my fears were confirmed. I received a call from one of my clients wondering why she was being placed into foreclosure when she had entered into a forbearance agreement with her lender when the COVID pandemic started. The forbearance agreement allowed my client to stop making mortgage payments temporarily with payments to resume in October. After speaking to her for a few minutes I mentioned what had happened in 2009. The client told me that when they contacted the bank to ask why they were considered delinquent in their payments. They were told by the bank that the forbearance period had ended and that the entire balance of the payments was currently due. Nobody told my client that the forbearance deferred payments would be due all at once. My client now owes over 6 months worth of full payments to the bank right now otherwise the bank will initiate foreclosure proceedings. Just as in 2009, the bank did not tell my client that the entire amount would be due at the end of the forbearance period. My client is now left with an unpayable lump sum payment to save their home.

Chapter 13 Bankruptcy Can Stop Foreclosure

Fortunately, my client and others like them have an option to save their homes by filing for Chapter 13 Bankruptcy in Illinois. Chapter 13 Bankruptcy allows an individual to stop any foreclosure case using the automatic stay. This is a court order that is in effect as soon as the case is filed. A Chapter 13 Bankruptcy Plan allows any person up to five years to catch up on missed mortgage payments. This means that the forbearance deferral that the bank is demanding immediately can instead be paid out over 5 years in Chapter 13. Using the example above, the forbearance deferral amount of $6,000 plus the current mortgage payment of $2,000 paid over 5 years amounts to $133.33 per month. This is a lot better than having to come up with $8,000 right away. The best part is that the bankruptcy plan payment is interest free and the bank cannot continue with their foreclosure case. This is a very complex kind of case and it is important to consult with a qualified Chicago Chapter 13 Bankruptcy in order to get it right. 

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