If you’ve recently fallen behind on mortgage payments—or think you soon will—due to the coronavirus (COVID-19) outbreak, federal and, in some cases, state laws can potentially help you when seeking mortgage assistance. You can ask for short-term payment relief, like a forbearance, or apply for a more permanent loss mitigation option, like a loan modification.
(If you’re already behind in multiple payments or currently in the foreclosure process, the federal government and many localities have imposed a foreclosure moratorium for different kinds of loans and in particular areas.)
As soon as you realize you’ll have trouble making your next mortgage payment because of a coronavirus-related hardship, call your servicer to learn what alternatives might be available to you. You could be eligible for a forbearance or another form of short-term relief, like a waiver of late fees or payment deferral.
Under the federal “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” (H.R. 748), which President Trump signed into law on March 27, 2020, homeowners with a federally backed mortgage loan, regardless of delinquency status, who're experiencing a financial hardship that's due directly or indirectly to COVID-19, can get a forbearance. The forbearance period will last up to 180 days and can be extended up to 180 additional days (360 days, or roughly 12 months, total).
As a borrower, the CARES Act gives you the right to stop the forbearance at any time.
A federally backed mortgage loan is one that is:
This law applies to mortgage loans secured by a first or subordinate lien on residential real property, including individual units of condominiums and cooperatives, designed principally for the occupancy of from one to four families.
To get the forbearance, you need to make a request to your loan servicer and affirm that you've suffered a financial hardship due to the COVID-19 emergency; the servicer can't require any additional documentation beyond your attestation.
It's important to note that a forbearance isn't the same as forgiveness.You'll still owe the amount you didn't have to pay during the forbearance period, plus interest. Usually, you can pay the amounts in a lump sum, with a payment plan, or through a modification in which the lender adds the unpaid amounts to the balance of the loan.
During the forbearance period, the servicer can't charge fees, penalties, or interest beyond the amounts scheduled or calculated as if you made all contractual payments on time and in full under the terms of the mortgage contract.
Even if your loan isn't federally backed, you might qualify for a forbearance or another form of relief. Contact your loan servicer to find out what options you have. If you're not sure whether your loan is federally backed, you can get that information from your servicer, too.
If you're able to work something out with the servicer, the law prohibiting adverse credit reporting (see below) applies.
Under the CARES Act, if you make an agreement with your servicer (or another creditor) to defer one or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or get any other assistance or relief—called an "accomodation" under the law—because you were affected by COVID-19, the servicer can't report the account as delinquent to the credit reporting agencies if you weren't already delinquent. But you have to come to an agreement with the servicer first to avoid adverse reporting, and you have to stick to the terms of the agreement. Don't unilaterally stop making your payments, delay your payments, or short them.
If you were already delinquent at the time of the agreement, the servicer can keep reporting the delinquent status unless you bring the account current. In the case of a charge off, the creditor may continue to report it as a charge off.
If you need a more permanent solution, say after a forbearance period ends, you may apply for a loan modification. Fannie Mae and Freddie Mac offer eligible homeowners modification opportunities, often after a forbearance. Homeowners with FHA-insured loans have access to FHA’s suite of loss mitigation options. VA-backed loans can be modified as well. If you have another type of loan, most banks and mortgage lenders offer in-house ("proprietary") modifications.
To qualify for a modification or other loss mitigation option, you'll most likely have to submit an application, along with supporting documentation, to your loan servicer. Federal laws and, in some cases, state laws provide protections during the application and foreclosure process.
In most cases, federal law prevents a foreclosure from starting until you’re more 120 days delinquent on the loan. (Whether the federally-mandated 120-day waiting period can run concurrently with a foreclosure moratorium is unclear at this point.)
Under federal law, if you send the servicer a complete application for a loss mitigation option before foreclosure starts, the servicer can’t officially initiate the process unless and until:
If you’re already in foreclosure and you send the servicer a complete application after foreclosure starts—but more than 37 days before a foreclosure sale—the servicer can’t ask a court for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the three conditions mentioned above has been satisfied.
In order to foreclose, the servicer has to complete specific steps set out by state law. State law might also provide you with preforeclosure and loss mitigation protections. You could also have specific contractual rights based on the terms of your loan contract.
To get specific information about what kind of relief is available in your circumstances, contact your loan servicer. A local foreclosure lawyer can advise you about your legal rights under federal mortgage servicing laws and tell you about any state laws that could protect you as well. A HUD-approved housing counselor can provide you with helpful information (at no cost) about different loss mitigation options.
To get information about handling your other debts during the epidemic, see Coronavirus: Dealing With Debt. To find out about different kinds of potential relief if you can’t make payments on a personal loan, small business loan, or credit card debt, read Dealing With Loans and Credit Card Debt You Can't Pay After COVID-19.