CARES mortgage chapter 13CARES mortgage chapter 13, what you need to know if you are in chapter 13 and have mortgage payments,  This new law will potentially help you to keep your plan going, and get the discharge you need, despite COVID-19.

CARES Act – Mortgage Forbearance and Deferment and Chapter 13

If you’re in a chapter 13, you need to know about the CARES Act provisions that apply to mortgage forbearance.

The CARES Act provides that:

    • A borrower of a Federally backed mortgage loan on single residence and multifamily real estate;
      Who experiences a financial hardship due, directly or indirectly, to the COVID-19 emergency,
      May, regardless of delinquency status;
      Request a forbearance.

This applies to borrowers who have Federally backed single or multi-family real estate.

Request is required with supporting documentation, including an affirmation of COVID-19 causing the economic hardship, directly or indirectly. (most of us qualify)

This applies to:

Federally Backed Mortgage – insured by FHA, VA, guaranteed by Housing and Community development act, Dept. of Agriculture or purchased or securitized by FHLMC OR FNMA.

There are two types of help we can seek, Forbearance and Deferral.

The CARES Act only provides relief in the form of Forbearance.

Forbearance. Need only apply and affirm. No other supporting docs – but your trustee may require more.

Forbearance is for 180 days, and at the request of borrower, an additional 180 days SHALL be granted.
If the period of forbearance is extended, then another notice need be filed.

No additional fees or penalties charged by lender.

Forborne payments need to be made up – not a deferral.

Creditor will file a notice of payment change in the case, but the payment will not really change, it is just temporarily suspended. We will probably see disclaimer language. Also, the terms of the “cure” of the missed payments need be spelled out.

After forbearance period, lender/servicer must “work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification.”

What does this mean?

Who knows?

Some borrowers report being told they have only 90 days to make up all missed payments!

If the cure is to be paid through the plan, a separate claim will be needed for the trustee to pay it, and your plan payment will have to go up. (or the plan length extended, see below)

DANGER – if the missed payments not caught up, debtor will PROBABLY not get a discharge.

FORBEARANCE IS NOT A PLAN MOD – according to Deb Miller, chapter 13 trustee in Indiana. We have not yet filed any of these in Ohio, so we are not 100% sure what our Court and trustees will require.

When all this is over, we will need to carefully examine the case to be sure that the cure is complete and we get the appropriate Rule 3002.1 Order at the end of the case. Otherwise we may see situations where the case ends, discharge is granted, and the creditor immediately files a foreclosure action.

I predict that forbearance may be the number one reason we have to extend plans.
The money someone needs to survive may well come from suspension of mortgage payments, normally the biggest single payment anyone has.

I’m doubtful that many, or any, will be able to pay the additional cure within the time desired by the lender, so the “claim” created by the deferral may need to be paid out by extending the plan length.

DANGER – this is potential pitfall if not handled correctly!

Example: We enter into a forbearance agreement in July, and get a 180 day forbearance, and then request the mandatory extra 6 months.

Now we are at June of 2021.

We see we cannot pay it and want to extend plan to 7 years.
CAN’T DO IT!

CARES act expires 26 mar 21. We would need to shorten the forbearance to January or February 2021, and then timely filed a plan mod.

BETTER APPROACH –

If you are behind in mortgage payments on a non-conduit mortgage we should discuss forbearance.

We will have a very strong position to rebuff any potential creditor action against you, like a motion for relief from stay, to take your mortgage out of the plan, if we have applied for a forbearance which they are REQUIRED to grant, if you are adversely affected by COVID-19.

DEFERRAL MAY BE BETTER –

But the CARES act doesn’t provide for deferrals, only forbearance.

A deferral will moves missed payments to “end of loan.”

The payments which are deferred will either be due in lump sum, or paid by extending term.

Deferrals are granted by some lenders, not all, are not required, and are done on a case by case basis by lender.