During the COVID pandemic when uncertainty was rampant, the government mandated that lenders extend more aid to anyone economically impacted by the restrictions imposed for public health. There were moratoriums on foreclosures and evictions, and lenders informed borrowers more proactively on the steps to get relief if payments became a burden.
My lender allowed me to miss 3 payments with a forbearance, which is when skipped payments are not held against the borrower and in my case the back payments were added to the principal. Given that real estate was not given “essential” status by the illustrious Governor Cuomo at that time, I was grateful for the relief. I was able to resume payments that June, and by then the real estate industry had been given the green light to operate with reasonable restrictions.
I do not know why Cuomo didn’t consider housing essential, as a former HUD secretary especially. But I digress.
If you face hardship and are in danger of not being able to make a mortgage payment, contacting your lender and applying for a forbearance should be the first step you take. Just about every mortgage company has some type of assistance program, and communicating with them is incredibly important. It’s awkward to not be able to pay a bill, but simply missing payments and making their collection department start contacting you is not the best approach.
If you contact your lender and inform them you aren’t able to pay, they will ask if you wish to remain in the house or if you want to sell. If you want to remain, and just need a few payments deferred until you can get back on your feet, most lenders will have a program you can apply to. These aren’t impossible solutions designed to pacify the government with no sincere intent to help many people as I opined years ago during the Great Recession. Lenders have learned their lesson from those years and will accept any reasonable case that qualifies.
Some people cannot solve their issue in a few months, and those borrowers will be encouraged by the lender to sell, or, in many cases, the option to deed the house back to the lender (deed in lieu of foreclosure) with the understanding that the credit consequences are more severe than a few missed payments. I did a quick google search and saw that it can drop your FICO score 50-125 or more points. I don’t view this is a terribly good option; selling is far better for many reasons, not the least of which is that it spares your credit more severe damage.
Regardless of whether or not you actually know if you want to remain or stay at the time a hardship occurs, it is always best to apply for a forbearance anyway, because it buys you time to decide, and it relieves you of the overwhelming stress of missed payments and subsequent collection efforts. If you are facing not being able to pay your mortgage, contact your lender and apply for a forbearance.
