COVID-19 FORBEARANCE

Before the COVID-19 emergency, there were two ways to delay with past due mortgage payments that did not necessarily involve bankruptcy. One: mortgage modification, where the borrower and lender agree to change the terms of the mortgage permanently to allow the borrower to get current on the past due mortgage payment, or two: deferral, where the lender agrees no payment will be due for some set period of time, and then the payments written out in the original mortgage will then begin again, along with any deferred amounts.

Since the COVID-19 emergency, government backed mortgages, mortgages insured by FHA, Freddie Mac, Fannie Mae, VA, USDA, have offered a COVID-19 forbearance. They have not required any payments on mortgages until the end of the forbearance period. Until recently, it was not resolved what would be due at the end of the forbearance. Would it be like a loan modification, with resumption of payment in a modified amount, or deferral, where all of the past due amount is immediately due?

Recently the agencies have explained that the past due principal and interest can be paid as additional loan payments due after the end of the original loan term. But the taxes and other escrow amounts will need to be paid in a lump at the end of the forbearance.

In a state with high property taxes and high escrows, that could mean an entire year's escrow amount is due on the day after the forbearance ends.

The lender is required to give you 12 months to catch up on any escrow shortage, so as the law stands now you could pay the total due escrow over the coming year, in addition to the regular monthly mortgage payment. But if that doesn't fit your budget, you could file a Chapter 13 Bankruptcy and stretch out the repayment of escrow obligation to 36 to 60 months, which would make it a lot easier.

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