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An order suspending foreclosure on homes with federally backed mortgages during the COVID-19 pandemic was recently extended to August 31, 2020. What does that mean for homeowners in financial distress as a result of the ongoing outbreak?
The answer to that question depends to a great degree on where the homeowners live.
Federal Foreclosure Suspensions Aid Homeowners
The federal Coronavirus Aid, Relief and Economic Security (CARES) Act enacted in late March contains a number of measures that aim to relieve financial strain on Americans affected by the crisis.
One component of the CARES Act was a 60-day moratorium, or suspension (subsequently extended), of foreclosure proceedings against homeowners with federally backed mortgages who are behind on payments. The moratorium order covers borrowers with FHA loans, USDA loans, VA loans and conventional loans backed by Fannie Mae or Freddie Mac.
The moratorium prohibits lenders and servicers of federally backed mortgages from conducting foreclosure-related evictions and from taking legal action that leads to foreclosure. (It does not prevent lenders or servicers of loans not backed by the government from pursuing foreclosures.)
If you were facing foreclosure before the CARES Act was passed, it's possible that state or local laws will continue to protect you from foreclosure for the foreseeable future. If you enrolled in a mortgage forbearance program established under the CARES Act, you're also likely protected for a time.
State and Local Foreclosure Measures Still Apply
In addition to the homeowner protections rolled out by the federal government, many state and local authorities have enacted their own policies. The details of these state and local foreclosure bans vary, and many are set to stay in place until respective governors lift statewide emergency declarations—a target that will vary as states set their own goals and timelines for reopening. Other states forbid foreclosures until set dates in late spring or summer.
The scope of state and local foreclosure suspensions vary as well. Some measures freeze the entire foreclosure process similar to the federal moratorium—preventing homeowner evictions and court actions required for their authorization. Other measures bar lenders from removing the occupants of a house (eviction), but allow foreclosure-related legal proceedings to continue.
The National Consumer Law Center maintains a state-by-state list of COVID-19 foreclosure relief measures, but cautions that it may be incomplete since states and municipalities are continually adapting to the changing health and economic conditions.
To check for additional COVID-19 foreclosure measures that may apply to you, visit the official websites for your state or local governments. If you're unable to find help there, try a web search for "foreclosure assistance" paired with the name of your city, county or state.
Forbearance Stops Foreclosure Countdown
If you have a federally backed mortgage, the CARES Act entitles you to six months of mortgage forbearance—a reduction or suspension of your payments—with an option to extend for another six months. Lenders of conventional mortgages without federal backing are not bound by this requirement, but some are offering voluntary forbearance programs in response to the coronavirus pandemic.
If you arrange mortgage forbearance through your lender under provisions of the CARES Act, mortgage delinquency status is "frozen" as it was before forbearance began: If your loan was paid up and in good standing, it will stay that way even if you make reduced payments or no payments at all during the forbearance period. If your payment status was 30 days past due at the start of forbearance, it will remain so and not incur additional delinquency even if payments are suspended during the forbearance.
Lenders typically notify borrowers of their intent to foreclose only after mortgage payments are 90 days past due. So by freezing mortgage delinquency status, forbearance effectively puts foreclosure on hold, even after the federal moratorium ends.
Note that you must contact your lender to arrange for mortgage forbearance under the CARES Act. Forbearance is not automatic: If you stop making your payments or make partial payments without notifying the lender, even for reasons related to COVID-19, your lender can report your payments as delinquent.
Be Prepared to Make Payments When the Moratorium Ends
Even the most generous foreclosure moratorium—one that prevents the lender from removing you from your home and stops all legal processes aimed at ousting you—is at best a stopgap.
If you're 90 days or more past due on your mortgage payments, a foreclosure moratorium may keep you in your home for the time being. But be prepared to deal with foreclosure proceedings when applicable moratoriums or forbearance ends. To avoid having to vacate the property, you'll have to come to some arrangement with your lender—one that will likely mean repaying the payments you missed, with interest and possible penalties on any missed payments before the moratorium was put in place by the CARES Act.
Similarly, if you qualify for mortgage forbearance under the CARES Act or another program offered by your lender, you eventually will have to pay back any amount you were excused from paying during the forbearance period. The CARES Act forbids lenders from charging extra interest on those payments, but you still must make up for the payments themselves. The details of the repayment process under the CARES Act have yet to be defined, but lenders cannot require borrowers to repay excused payments in a single lump sum at the end of the forbearance period.
Use Foreclosure Relief Wisely
If a moratorium has bought you extra time, it's in your best interest to use that time constructively, to arrange for staying in your home or, if necessary, to find other living arrangements.
If COVID-19 or other circumstances mean you will be unable to resume your mortgage payments (and eventually make up for any payments you've missed) when forbearance or applicable moratoriums end, options to consider include:
Mortgage modification restructures the original terms of your home loan so as to make monthly payments more affordable. Lenders have several options for doing so, but the ones you're likeliest to encounter will involve extending the life of your loan, so you end up paying more in interest over its repayment term in return for lower payments. Still, a modification could keep you in your home while you work through a difficult financial period.
Lenders providing mortgage forbearance under the CARES Act have been instructed to work with borrowers at the end of their forbearance periods to help prevent foreclosure, and mortgage modification is an option they must consider.
Selling the Home
Your best recourse, if you know you won't be able to resume monthly payments after the end of a foreclosure moratorium or mortgage forbearance period, may be to sell the home. If the property is in good shape and if your local real estate market is healthy, a six- to 12-month mortgage forbearance period could give you time to complete a sale.
If you find yourself "upside-down" on your loan—owing more on your mortgage than the market value of the property—you may want to consider a short sale. In a short sale, the lender agrees to settle your mortgage debt by accepting proceeds from the sale of the house, even though it's less than you owe. A short sale has negative consequences for your credit, but they're less severe than those of foreclosure.
Deed in Lieu of Foreclosure
In a deed in lieu of foreclosure arrangement, you forfeit the home to the lender, but on terms that are less damaging to your personal credit than a foreclosure. The arrangement can even leave you with some cash on hand to help you transition to a new living space. Lenders are not obligated to accept these arrangements, however, and you may face significant tax repercussions, so consult a Housing and Urban Development (HUD) counselor (see below), lawyer, and/or financial adviser before pursuing this option.
Where to Look for Help
If you're facing the possibility of foreclosure today or at the end of a moratorium or forbearance period, or if you're a tenant facing eviction, consider tapping the resources below for information and assistance.
- The first step in pursuit of foreclosure relief should be to reach out to your lender or loan servicer (the company that collects your monthly payments). If you need help identifying your mortgage servicer, you can find it by searching the Mortgage Electronic Registration Systems (MERS) online database.
- Contact a HUD housing counselor. HUD can refer you to a local counselor for free advice on how to avoid foreclosure.
- Consult an attorney with housing expertise. If you can't afford to hire one, look for help at the website of the Legal Services Corporation, a nonprofit that funds local and regional legal aid organizations, or at LawHelp.org, a referral site for private law firms that provide pro bono assistance in their communities.
- Check your state's housing finance agency for guidance on foreclosure-prevention measures that may apply to you. You can find yours using this directory, maintained by the National Council of State Housing Agencies.
- MakingHomeAffordable.gov, the website set up to help homeowners after the 2008 housing crash, offers good advice and resources for avoiding foreclosure.
- Nonprofit housing advocacy organizations such as the Homeownership Preservation Foundation and NeighborWorks America offer advice and support for homeowners trying to avoid foreclosure.
Beware Foreclosure Scams
If you are facing foreclosure, and particularly if you live in a jurisdiction that publishes the names of foreclosure subjects in local newspapers or online, you may be targeted by individuals or companies promising to make foreclosure go away for a fee.
As the Federal Trade Commission warns consumers, any service that seeks payment upfront, guarantees it can stop foreclosure, or claims it can use errors in your mortgage contract to force renegotiation of lending terms is unethical. Providers of these "services" prey on those who fear losing their homes. Paying them wastes money at a time when cash is sorely needed, but, perhaps even worse, they can use up valuable time that'd be better spent working with a lender or servicer directly.
Protect Your Credit
Among the many reasons for avoiding foreclosure is that it has a major negative impact on your credit history, second in severity only to bankruptcy. Foreclosure remains on your credit report for seven years from the date of the first delinquent payment that led to foreclosure.
Delinquent payments have a serious negative impact on credit and credit scores, and because foreclosure typically occurs only after a borrower has missed at least three payments (gone 90 days past due), it typically does further damage to scores that have already taken a beating.
Under the CARES Act, your credit report is shielded from reports of mortgage delinquency as long as you are participating in a pandemic-related mortgage relief program. If payments you make (or are excused from making) appear as delinquent on your credit reports, you can dispute them and potentially have them removed.
Free credit monitoring from Experian can help you keep track of your credit status during the COVID-19 pandemic. Additionally, during the outbreak you can get free credit reports weekly from all three national credit bureaus (Experian, TransUnion and Equifax) at AnnualCreditReport.com.
The COVID-19 pandemic has disrupted life in America like few other events in living memory, and it has placed families under tremendous stress. While foreclosure-prevention measures provide relief from another major source of anxiety, it's wise to use the time they provide to resolve your housing payment issues.