With forbearance, creditors have an invaluable way of providing debtors with some much-needed financial reprieve, allowing them to sigh in relief. Instead of pushing a property into foreclosure, forbearance allows your lender or creditor to temporarily postpone or reduce mortgage payments. Forbearance does not cancel the amount owed on your mortgage. You must pay missed payments back at some point.
Forbearance won’t appear on your credit report as a harmful activity, either. Your lender or servicer will continue to indicate that you are up-to-date on payments, even if they have been paused.
Updates on CARES Act Mortgage Forbearance
The CARES Act offered economic relief due to financial hardship. The provision of the CARES Act allowing for mortgage payment forbearance is in effect from March 27, 2020, to the end of the COVID-19 emergency.
Borrowers with federally-backed loans experiencing financial hardship due to the COVID-19 emergency can request forbearance, regardless of their delinquency status. The CARES Act required the federally backed loans to offer a forbearance to the borrower and forbid the lender from charging penalties and late fees against the borrower during the forbearance period.
What types of loans are covered under the CARES Act?
Types of forbearance available vary by loan type and apply to FHA, VA, USDA, Fannie Mae, and Freddie Mac loans. In addition, the Act includes the Paycheck Protection Program, expanded unemployment assistance, emergency loan funding, and a waiver of student loan interest payments.
The CARES Act provides mortgage payment forbearance of up to twelve months for borrowers suffering from the financial repercussions of COVID-19. In addition, loan servicers may offer forbearance or deferment options for non-government-backed or private loans; however, these options may differ.
Why You Should Mind Regulation X
Regulation X, implemented as part of the Securities Exchange Act of 1934, protects credit secured domestically and abroad.
Suppose you are a borrower governed by Regulation X. In that case, you are responsible for ensuring that the credit obtained abides by Federal Reserve Regulations T (regarding brokers and dealers) and U (for banks and lenders).
Under the earlier version of the legislation, servicers were expected to allocate or provide capital for escrow items promptly during any forbearance period; however, they did not include this stipulation in the finalized CARES Act text.
However, Regulation X–which administers the Real Estate Settlement Procedures Act (RESPA)–still delineates how servicers should manage associated escrow accounts.
What Is Escrow?
For certain mortgage loans, the borrower must pay a predetermined monthly sum for property taxes and homeowners’ insurance. If you have to pay this amount, it is cited as “escrow items.”
When completing an escrow transaction, you must cover the title and deed costs and any applicable homeowners’ association dues or private mortgage insurance premiums. Your regular mortgage payment incorporates the four primary components: principal, interest, taxes, and insurance (PITI).
Do you know how your mortgage payments are structured? PITI (Principal, Interest, Taxes, and Insurance) is the amount that encompasses all of these factors. This funds an escrow account for taxes and insurance. After your payment, your servicer puts the applicable taxes and insurance into an impound or escrow account.
To ensure taxes and insurance payments are taken care of, your mortgage company will arrange for the sums to be put into a separate account known as an “escrow account” or “impound account.” Establishing an escrow account safeguards that your taxes, insurance premiums, and other payments are paid promptly in full.
By depositing money into an escrow account, you effectively give the servicer a no-interest loan, as most of the time (except in some states), funds in this type of account do not accrue interest.
How Much Is Escrow?
The borrower typically pays approximately one-twelfth of their estimated annual taxes and monthly insurance costs. To prepare for any unforeseen increases in expenses, most services collect an extra cushion, usually equating to two months’ worth of escrow payments.
During a CARES Act Forbearance, Who is Responsible for the Portion of Mortgage Payments set Aside in Escrow?
Although unclear in the CARES Act, an earlier version of the law instructed mortgage servicers to pay or advance funds for escrow items promptly during any forbearance period.
Here is where we need help interpreting Regulation X and why it can affect our mortgage. A lawyer can stand on our side on the borrower’s behalf to help you and your family understand the best way to access forbearance programs on time and without losing economic security.
Suppose your mortgage payments are overdue, and you have established an escrow account from which the servicer pays for insurance bills. In that case, they must keep the existing policy in place–even if funds need to be advanced into your escrow account.
Moreover, property tax liens precede other forms – even mortgage liens. Therefore, the servicer typically makes a monetary contribution to ward off any potential tax sale and satisfy the taxes due.
It is now accepted that numerous servicers believe the CARES Act requires them to honor forbearance on the escrow portion of borrowers’ monthly payments, in addition to principal and interest.
When a forbearance is granted, it might go unnoticed by third parties, such as escrow and title companies. Therefore, you could be charged an unexpectedly high payoff amount, which could prevent the closing of your property if they are not informed of this agreement.
Your deferred PITI mortgage payments will have to be paid back eventually. If an escrow burdens you with taxes and insurance, your servicer will continue to pay them during the forbearance period. But since monthly payments are temporarily suspended, it may lead to a deficiency in your escrow account when evaluated annually.
So, who is accountable for the bill? Unfortunately, the CARES Act does not guide handling mortgage payments, including escrow items. However, it initially specified that servicers must promptly disburse or advance money during the forbearance period.
Despite the U.S. government’s support for a loan servicer to enable them to make up their missed payments on principal and interest conveniently following a forbearance, they have yet to offer any timeline or advice concerning lenders recouping escrowed taxes incurred during this time frame.
To ensure that all debts are accurately accounted for, it is critical to include any missed payments, fees, and interests accrued during a forbearance in the calculation. Furthermore, an advanced warning must be given beforehand to guarantee a smooth closing process between agents, escrow personnel, and lenders when taking out a forbearance on the property.
You are responsible for paying off your loan debt. You may choose to pay in one large sum. However, none of these loans require a lump-sum payment.
Property Taxes Liens
State governments passed executive orders or legislation that barred evictions and foreclosures and modified tax sale dates from supporting homeowners further and bolstering the CARES Act relief.
Even if the servicer needs to provide funds to the borrower’s escrow account, they can still pay for insurance directly from it. Moreover, property tax liens take precedence over all other liens, including mortgage ones.
Servicers often allocate money to pay property taxes to avert a tax sale. In addition, many servicers interpret the CARES Act as necessitating forbearance of the principal and interest portions of borrowers’ monthly payments and any escrowed funds.
To avoid a tax sale, servicers often advance money to pay property taxes. In addition, the CARES Act mandates that lenders provide forbearance for both principal and interest payments and any amounts held in escrow by borrowers each month.
Protecting Your Tax Lien Can Require A Forbearance Lawyer
Many municipalities have taken measures to provide much-needed economic relief to local communities. Some of those measures include temporarily ending property tax collection endeavors, imposing eviction and foreclosure breaks, and altering redemption periods and deadlines for taxes paid late or not at all.
Some state governments have even transitioned to online sales of delinquent properties instead of the traditional methods – with payment due dates being pushed back.
Therefore, the CARES Act and state-level relief efforts have wholly changed the previously reliable procedures for tax sales, bringing uncertainty to an ordinarily predictable process.
The problem is multiple states or even locations within a single state have different tax sales and process laws.
A forbearance lawyer is well-versed in all the regulations that protect your rights. In addition, he can guide you through how relief programs targeted at aiding people with financial instability have impacted tax sales and to what extent these changes affect you as a homeowner.
Reach out if you’d like to know more.
COVID-19 Mortgage Forbearance Repayment
After your forbearance period has elapsed, taking steps to repay those missed payments is essential. Your mortgage servicer will assist you in finding the best repayment plan that fits your financial needs and helps you get back on track.
What Other COVID-19 Mortgage Relief Options Do Borrowers Have?
Here are some other programs you might want to know about for mortgage payment relief.
- A loan modification process enables you to make your loan payments more affordable. By altering the terms of your current loan, such as changing its rate, term, or principal balance, and including past-due installments in this new arrangement – you can get back on track with few financial challenges ahead.
- Your overdue balance will be included in your regular payments for around three to six months until the loan is updated.
- Consider deferring or partially claiming your past-due balance to pay it off later. This deferred amount is due when you settle your mortgage, sell the house, or obtain refinancing; no extra interest will be charged on this sum.
- You can pay the due amount in one lump sum if it’s within your means.
Mortgage Repayment Tip
You must explore all your loan possibilities to make the best financial decision. If you need assistance along the way, don’t hesitate to reach out and contact your servicer—you can find their info on the monthly statement that arrives in your mailbox.
Forbearance and CARES Act FAQ
What are the requirements necessary to obtain CARES mortgage forbearance?
The COVID-19 pandemic has had a tremendous effect, which is why qualification for forbearance related to the virus is exceptionally straightforward. All you have to do after submitting your request is verify that you are suffering from financial distress caused by the virus.
How do you make your mortgage payment go to escrow only?
If you want to ensure that your mortgage payment goes towards escrow only, mailing a check along with its accompanying statement stub is the safest way. Ensure that you write ‘ESCROW ONLY’ on it to avoid confusion. As an extra precaution, take a photo or scan of everything before sending it out via post office – this can serve as evidence in case anything happens.