When a borrower defaults on a loan, it doesn’t just affect the borrower but lending institutions as well, who may have the ability for foreclose on a home or demand full payment of a defaulted loan. Even with these methods to mitigate your losses, when a borrower defaults on a loan, you still lose out on the full amount you loaned to the borrower along with the interest you would have earned had the borrower been able to continue to make payments. Our New Jersey collections lawyer understands how forbearance agreements are beneficial, even if it means you may not receive payments for a short period of time.
What Is a Forbearance Agreement?
Forbearance agreements are between you and borrowers who are unable to pay their loans. You agree to provide borrowers temporary relief from financial obligations without fear of legal action in exchange for the borrower’s promise to resume payment once the forbearance period is over.
How Does It Work?
The borrower must meet certain requirements, such as unemployment, loss of income, or disability, to qualify for forbearance. A collection attorney suggests you require borrowers to present documentation to substantiate their assertion of financial hardship.
If the borrower meets these requirements, then you may agree to permit the borrower temporary cessation of making regular payments or reduction of payments without adverse consequences, such as foreclosing on a home, repossessing property, or demanding full payment of the loan. This would allow the borrower the time needed to secure financial means to repay the loan.
In exchange for the temporary relief, the borrower agrees to resume repayment of the loan, plus any additional interest accrued on the loan and, depending on the forbearance agreement, any outstanding payments, taxes and insurance. If the borrower is still unable to pay, you may either agree to extend the forbearance period or come to another agreement that minimizes your losses, e.g. short sale on a home.
Contact a New Jersey Collections Lawyer
Our New Jersey collections lawyer can help you with understand your forbearance agreement, including requirements that your borrowers must meet to qualify for forbearance. This may not only include proof of unemployment or financial hardship, but also registration with an employment agency or other proof that the borrower is actively seeking employment. For more information, contact our New Jersey collections lawyer with Snellings Law LLC at 973.265.6100.