• DYE CULIK PC | Consumer Protection Division

Loan Modifications, Forbearances, Are a Solution for Homeowners in NC Affected by Coronavirus

“How can I afford my mortgage payment?” That’s what many North Carolina homeowners are asking themselves in the wake of the economic hardship caused by the novel coronavirus (COVID-19) pandemic. Millions of people have already applied for unemployment, and many millions more are still expected to apply. Fortunately, there is at least some relief available to homeowners. The main form of relief is via loan modifications and forbearances.

What is a loan modification? It is a change to at least one of the terms of your mortgage. Your bank or mortgage servicer typically postpones payment of past-due amounts and then reduces your monthly payment by adjusting your interest rate or the time for repayment.

What is a forbearance? It is similar to a loan modification, but permits you to make little or no payments for a set period of time. After that, the unpaid amounts must be repaid pursuant to a payment plan. Sometimes you apply for a loan modification after the forbearance period is over.

For about half of mortgages, banks and mortgage servicers are being required to allow forbearances for up to 12 months. Your mortgage company will evaluate your financial situation and decide what period of time to allow you not to pay your mortgage. This will this will probably be determined by looking at your income and assets.

Mortgage companies will also waive assessments of penalties and late fees during the time they are in loan modifications. It would make no sense to allow people to forbear their payments while at the same time charging more fees.

What about credit reporting? Mortgage companies are also ordered to suspend all reporting of delinquent mortgage payments if you are in a forbearance. This allows you to agree to mortgage relief program without jeopardizing your credit rating.

For the other roughly half of homeowners whose loans do not fall under the new rules, the answer is not quite as definite. However, industry experts have said that they expect mortgage companies to create similar rules for these privately held mortgages. There will probably be loan modifications forbearances, and credit relief, but the guidelines may be slightly different.

What should you do? Don’t just stop paying your mortgage. Banks and mortgage servicers are not obligated to do anything for you unless you comply with the application procedures that have been established. There will be forms to fill out and documentation to provide. For example, if you wait a couple months before asking that your credit rating not be affected, you will probably have a couple months of negative credit reporting. The programs are not retroactive.

You should also be prepared to defend your rights when necessary. As we saw during the mortgage crisis of 2008-2009, banks and mortgage servicers routinely violated the modification rules, foreclosed illegally, and misrepresented homeowners’ rights. You must be diligent, organized, and should be prepared to go on the offense if needed.

Under the new rules for people affected by the coronavirus, foreclosures and evections are prohibited, but only through the end of April. The rules do not say what happens when May 1 arrives. Unless you are in a loan modification or forbearance, or unless new rules are issued, you should expect your mortgage company to move forward.

Banks and mortgage servicers violate the new rules about long modifications and forbearances may run afoul of the law. For example, our office has filed numerous lawsuits for homeowners under consumer protection laws when thir mortgage companies broke the rules. The main laws that are applicable are the FTC Act, which prohibits unfair and deceptive acts and practices, and the North Carolina Unfair & Deceptive Trade Practices Act, which prohibits the same.

Culik Law has been helping homeowners with mortgages, loan modifications, and foreclosures for over a decade. If you are struggling with your mortgage due to COVID-19 or for any other reason, contact us at 980-999-3511 to see if we can help.