Guest Author: DiAnna Jackman, Chicago Title Maricopa County
Our “new normal” has its ups and its downs. Something to be aware of, as we slowly come to grips with all the changes in our industry due to COVID-19, is Forbearance. What is it and how might it affect your next deal?
Forbearance is a temporary postponement of a borrower’s mortgage payments. It is an agreement between the lender and the borrower to give the borrower an opportunity to avoid foreclosure by non-payment of the loan.
This is really just a fancy term for loan modification.
Fannie Mae is currently offering borrowers forbearance options for anyone who has been affected by COVID-19.
This may delay the collection of payments for 90 days or more. It may be that the borrower can skip principal payments but still be responsible for the interest etc.
The first question you should be asking during your contract negotiations is if the seller is currently on any kind of work out program with their lender or lenders.
What a lot of borrowers don’t understand is those funds will still need to be collected for and may involve contacting two sources for a full payoff of the liens: the servicer of the loan and Fannie Mae. Sometimes you will even see a second lien for the forbearance amount.
If you do not have much wiggle room in your deal, a surprise second payoff could kill the deal. For example, say the monthly payment on the loan is $2,000.00, and the borrower has a 90 day forbearance. That would add $6,000.00 to your payoff. It will also add additional time to calculate the payoff so don’t expect to get that in less than 5 days in some cases.
Be aware of the new forbearance trend and be prepared to jump through a few extra hoops to get the deal closed and title clean.
As the largest title company in the nation and a Fortune 500 company, Chicago Title is committed to protecting you and bring you the resources needed to navigate our changing market. If you would like to learn more about how we can help you, please do not hesitate to reach out!