As COVID-19 continues to wreak havoc and as more tenants seek rent help, landlords are starting to turn to their lenders for assistance. When it comes to landlord mortgage assistance there are two key options: forbearance and deferrals. A mortgage forbearance plan is when all payments are due at the time after forbearance. For instance, if your mortgage is $2,000 and you skip three months, after the three months are over you will owe $8,000. A mortgage deferral, on the other hand, is when the missed payments are added on to the end of the contract. So, in this case, if you skip three months of $2,000 payments and your contract is completed in June, you will need to make a $2,000 payment for July, August, and September.
While a deferral plan might sound more appealing to avoid paying a hefty amount of cash at once, many lenders cannot offer them. Here’s why. Often, private lenders such as Visio do not actually own their loans. Their loans are tied in bonds with many different owners, and a deferral plan is considered a modification to those bonds. Modifications to bonds are complicated, expensive, and create uncertainty for bond owners. Forbearance plans, however, do not trigger any modifications within the bonds, and therefore may be the only options lenders offer.
If you are considering asking your lender for a forbearance or deferral program, we highly recommend ONLY doing so if you’ve lost sources of rent and have done everything you can to encourage tenants to pay. Not only could this condition your tenants to not pay rent in the future, but also it could hurt your chances to take out another rental loan.