How to Stop Foreclosure: Forbearance Agreement, Repayment Plan, and Loan Modification

Forbearance agreements, repayment plans, and loan modifications are different ways mortgage borrowers can avoid a foreclosure.

By , Attorney University of Denver Sturm College of Law
Updated 2/01/2024

Forbearance agreements, repayment plans, and loan modifications are options that mortgage borrowers can use to avoid foreclosure.

  • In a forbearance agreement, the loan owner ("lender") agrees to reduce or suspend your payments for a set time.
  • With a repayment plan, the lender temporarily increases your monthly payment by adding part of the overdue amount to your current payments so that you can get caught up on the loan.
  • In a loan modification, the lender adjusts the loan terms to reduce your monthly payment and typically brings the loan up to date by adding any past-due amounts to the debt balance.

And if none of these alternatives will work for your situation, you might consider another way to avoid a foreclosure, like by completing a short sale or deed in lieu of foreclosure or filing for bankruptcy.

How Mortgage Forbearance Agreements Work

A "forbearance agreement" provides short-term relief for mortgage borrowers. With a forbearance, the lender agrees to reduce or suspend mortgage payments for a while. Unlike a repayment plan, the lender usually agrees in advance for you to skip payments or pay lower amounts.

During the forbearance period, the servicer (on behalf of the lender) won't initiate a foreclosure. In exchange, the borrower has to resume making payments at the end of the forbearance and get current on the missed amounts, including principal, interest, taxes, and insurance.

Getting Current on a Home Loan After a Mortgage Forbearance

To bring the loan current, you can usually:

  • pay the arrears in a lump sum when the forbearance ends
  • add an extra amount to your regular payments each month until the entire skipped amount is repaid through a repayment plan
  • get a deferral (see below), in which the lender defers repayment of the skipped amounts until the home loan ends or
  • complete a loan modification in which the lender adds the unpaid amounts to the loan balance. (If you need a lower monthly payment at the end of the forbearance, a modification might accomplish this goal, too.)

Payment Deferral After Mortgage Forbearance

If you can't make additional payments to get caught up after a forbearance plan, you might be able to pay the missed mortgage payments at the end of your loan term without changing your current monthly payment. So, your payment of principal and interest stays the same. And the deferred amounts won't accrue interest. You must pay the deferred amounts when the loan ends, sell the home, or transfer, refinance, or otherwise pay off the loan.

The amount you can defer to the end of the loan might be limited. Some lenders limit the deferral option to around two payments.

How Long Will a Mortgage Forbearance Last?

The terms of a forbearance agreement, including how long one will last, vary from lender to lender. In some cases, the lender might be able to extend the forbearance if your hardship isn't resolved by the end of the forbearance period.

Repayment Plans: Get Caught Up on Mortgage Payments

A "repayment plan" is an agreement to repay delinquent mortgage amounts over time.

How a Repayment Plan Works

Here's how a repayment plan works:

  • The lender spreads your overdue amount over a specific number of months.
  • During the repayment period, a portion of the delinquent amount is added to each of your regular mortgage payments.
  • At the end of the repayment period, you'll be current on your mortgage payments and resume paying your home loan at the regular monthly amount.

Example. Say you're three months behind on your payments of $1,500 a month. So, you're $4,500 behind. For this example, let's assume the servicer doesn't add any late fees or costs to the account. The lender might allow you to pay $750 extra each month to get current on the loan over the next six months. So, you'll pay $2,250 each month for six months. At the end of the repayment period, you resume making regular monthly payments of $1,500.

How Long Will a Repayment Plan Last?

The length of a repayment plan varies depending on the past-due amount and how much you can afford to pay each month, among other things. A three- to six-month repayment period is typical, although it could be longer.

Loan Modifications: Permanently Change the Terms of Your Mortgage

A "loan modification" is a permanent restructuring of the home loan. One or more terms are changed to provide the borrower with a (hopefully) more affordable payment.

How the Lender Adjusts Your Mortgage Payment

With a modification, the lender might agree to do one or more of the following to lower your monthly mortgage payment:

  • reduce the interest rate
  • convert a variable interest rate to a fixed interest rate
  • extend the term of the loan (say from 30 years to 40), or
  • forbear some of the principal balance. ("Forbearing" the principal means setting aside a portion of the total debt before calculating your monthly payment. The borrower typically has to pay the set-aside amount in a balloon payment when refinancing or selling the home or when the home loan matures.)

Delinquent payments and other overdue amounts, such as late fees, are usually added to the outstanding principal balance as part of a modification.

How to Qualify for a Home Loan Modification

Generally, to get a loan modification, you must:

  • provide all required application documents, including a financial statement, proof of income, your most recent tax returns, bank statements, and a hardship statement, to the servicer for evaluation
  • show that you can't make your current mortgage payment due to a financial hardship, and
  • once approved, complete a trial period to demonstrate you can afford the new monthly amount.

You'll also have to meet all lender guidelines, which can be extensive and complicated.

Types of Mortgage Modifications

Many different loan modification programs are available, including proprietary (in-house) loan modifications and Fannie Mae and Freddie Mac Flex Modifications. Other special modification programs are available for certain kinds of loans, like FHA-insured home loans.

Other Ways to Prevent a Foreclosure

If a repayment plan, forbearance, or loan modification won't work in your situation, you might consider using a short sale, deed in lieu of foreclosure, or another way, like bankruptcy, to avoid a foreclosure.

  • Using a short sale to avoid a foreclosure. In a "short sale," the borrower sells the property for less than what's owed on the home loan. The lender agrees to accept the sale proceeds in exchange for releasing the mortgage lien from the property.
  • Using a deed in lieu of foreclosure to avoid a foreclosure. In a "deed in lieu of foreclosure," the homeowner voluntarily transfers the property's ownership to the lender. The lender then releases the lien that secures the home loan.
  • Filing for bankruptcy to prevent a foreclosure. As soon as you file bankruptcy, an "automatic stay" goes into effect.
  • Getting a partial claim to stop a foreclosure. If you have a specific type of loan, like an FHA-insured mortgage, you might qualify for a partial claim. Generally, a "partial claim" is an interest-free loan to get current on delinquent mortgage payments. You don't have to pay the loan back until your first mortgage matures or when you pay off the first mortgage, like when you sell the property or after a refinance. You don't have to make any payments on the partial claim loan until then.
  • Refinancing to avoid a foreclosure. "Refinancing" is the process of paying off an old mortgage with a new one. If you've missed a lot of mortgage payments or have other negative items in your credit history, it might be hard to find a lender willing to give you a new mortgage loan.

What Is the Best Alternative to Foreclosure?

If you want to keep your home, you might try for a forbearance, repayment plan, or loan modification. Or filing for Chapter 13 bankruptcy might provide a way for you to retain the property. However, if you're ready to give up the property and want to avoid a foreclosure, you might decide to complete a short sale or deed in lieu of foreclosure.

When a Forbearance Might Be Appropriate to Avoid a Foreclosure

If a temporary hardship causes you to fall behind in your mortgage payments, a forbearance agreement might stop a foreclosure until your situation improves.

When a Repayment Plan Might Be Appropriate to Prevent a Foreclosure

If you've missed some of your mortgage payments because of a temporary hardship­—but now your finances are back in order—a repayment plan might provide a good way for you to prevent a foreclosure.

When a Loan Modification Might Be Appropriate to Stop a Foreclosure

Suppose you're currently unable to afford your mortgage payment due to a change in circumstances. But you could make a modified (lower) payment going forward. In that case, getting a mortgage modification might help you avoid a foreclosure.

When a Short Sale Might Be Appropriate to Avoid a Foreclosure

One benefit to a short sale is that you won't have a foreclosure on your credit history. But a short sale damages your credit about as much as a foreclosure. For some people, though, not having the mark of a foreclosure on their record is worth it. Another upside is that some lenders offer relocation assistance to help homeowners find new housing after a short sale.

On the downside, while many states have enacted legislation prohibiting a deficiency judgment following a foreclosure, most states don't have a similar law preventing a deficiency judgment after a short sale. So, unless the lender waives its right to the deficiency, it might sue you for a deficiency judgment after a short sale.

If you won't face a deficiency judgment after a foreclosure, but you could after a short sale (or deed in lieu of foreclosure, see below), it might be better to let a foreclosure happen.

When a Deed in Lieu of Foreclosure Might Be Appropriate to Stop a Foreclosure

Like a short sale, if you do a deed in lieu of foreclosure, you won't have a foreclosure in your credit file. But, again, foreclosures, short sales, and deeds in lieu of foreclosure are all similarly bad for your credit. If the lender waives the deficiency after a short sale or deed in lieu, your credit scores might not take as bad of a hit.

Also, like with a short sale, you might qualify for relocation assistance after a deed in lieu of foreclosure. Another upside is that unlike with a short sale, you won't have to deal with the process of selling your home.

On the downside, the lender won't approve a deed in lieu of foreclosure if your home has multiple liens on it. (However, completing a short sale with multiple lienholders might be possible.) And your lender might sue you for a deficiency judgment if it doesn't waive its right to get the difference between what you owe on the mortgage loan and the property's fair market value.

Also, if you have a lot of equity in the property, a deed in lieu usually isn't a good way to go. You'd probably be better off by selling the home and paying off the debt.

When Filing for Bankruptcy Might Be Appropriate to Stop a Foreclosure

A Chapter 7 bankruptcy is quick, and filers can eliminate debts without repaying anything to creditors. With a Chapter 13 bankruptcy, filers pay their discretionary income to creditors in a three- to five-year repayment plan and get debt relief in exchange.

Filing for Chapter 13 bankruptcy. If your main goal is to keep your home by filing for bankruptcy, you might want to consider filing for Chapter 13 bankruptcy. Under a Chapter 13 bankruptcy plan, which lasts three to five years, you'll pay your discretionary income to their creditors.

In a Chapter 13 bankruptcy, you can get caught up on the overdue mortgage payments over time through the repayment plan. And any unsecured debt, like credit card debt, that remains at the end of your plan is discharged (eliminated), unless it is one of the types of debt that survives bankruptcy, like child support.

Your home in a Chapter 7 bankruptcy. To keep your home in a Chapter 7 bankruptcy, you must be current on payments and protect all your home equity with a bankruptcy exemption. If you're behind in payments, you can delay the foreclosure process with a Chapter 7 bankruptcy. But the lender will probably ask for, and receive, relief from the automatic stay.

So, it probably doesn't make sense to file a Chapter 7 bankruptcy just to delay a foreclosure. But if you have a lot of other debts that would be discharged (eliminated) in a bankruptcy, this option might be suitable.

Get Help Avoiding Foreclosure

What option to prevent a foreclosure is appropriate for you depends on your specific circumstances. Consider talking to a foreclosure attorney to get more information about different ways to avoid a foreclosure and which one might be best for your situation.

If you can't afford a lawyer, a HUD-approved housing counselor can help you understand the different alternatives to foreclosure.

Also, consider talking to a bankruptcy attorney if you want to learn more about whether filing for bankruptcy is appropriate in your situation.

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