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After the Covid 19 pandemic began in early 2020, many American families experienced a significant loss in income.  As part of the CARES Act, federally backed mortgage lenders offered loan forbearance programs to help the many homeowners struggling during the pandemic. Approximately 70% of all mortgages are government backed, although most private companies offered similar help. 

A forbearance allows the homeowner to temporarily pause a payment or typically reduce mortgage payments for a limited time.  Other Cares Act measures to protect homeowners include a moratorium on foreclosures until January 31, 2021.  Measures such as an increase in unemployment compensation and the stimulus checks also helped and protected homeowners.

Most mortgage forbearance agreements had a 12 month pause on payment.  Forbearance agreements do not forgive the debt, but usually apply that amount to the end of the loan. With the expiration of most of the Cares Act relief programs this year, many homeowners are finding themselves in a sticky situation.

What happens to homeowners and landlords when the federal, state, and local protections put in place during the pandemic go away?

While the moratorium on foreclosures held the disaster at bay, most of these protections have or will end soon. Federal Housing Finance Agency, FHA, VA, and USDA have extended most of the pandemic relief measures through at least June 30, 2021. After that date, families who cannot resume making regular payments will need to make an agreement with their lender to avoid foreclosure. Forbearance agreements are a pause on payment, but do not actually forgive the debt. Some lenders offered to put the missing payments to the end of the loan but there is no guarantee. Some lenders will demand all the missing payments immediately. This is impossible for most people to afford.

What should I do? Is filing for bankruptcy a viable option?

Many homeowners signed the forbearance agreements without fully understanding their implications. Unfortunately, lenders often do not have the homeowner’s best interest in mind. It is often difficult to get a helpful, human representative from the lender to explain the situation.  

The most common post forbearance issue I have seen arise is that the debtors were in default prior to the agreement. They assumed that the late payments were included with the forbearance, but they are not. In some cases, homeowners forgot that they were behind before the forbearance. One year, especially during a pandemic, is a long time! In this situation, the only option available to help save their house would be a Chapter 13 Bankruptcy.

It is very important to know your rights. If you or a loved one is facing uncertainty due to any Covid related issues, please call Kelley, Lovett, Blakey and Sanders to schedule a free consultation.  

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