Mortgage Loan Workout Plans
A loan workout plan is an agreement between you and your lender that sets out the steps to be taken to cure the delinquency and prevent loss of your home. It may be written or oral and will have specific deadlines which you must meet in order to avoid foreclosure. Therefore, it must be based on very realistic estimates of your ability to meet the plan schedule.
The nature of the workout plan will depend upon the seriousness of the default, whether your financial problems are short-term or your payment ability has been impaired for the foreseeable future, your prospects for obtaining funds to cure the default and the current value of your property.
If the default is caused by a very temporary condition and is likely to be cured within 30 to 60 days, the lender may consider granting you temporary indulgence. Some examples of cases where this approach would be considered are where the house ha s been sold but the sale has not settled or where an insurance settlement is pending. It is usually possible to determine a date certain for curing the default. The lender will want documented evidence, such as the sale contract, before granting indulgence.
If you have suffered a temporary loss of income but can demonstrate that it has returned to previous levels, you may structure a repayment plan to bring the loan current. This type of workout arrangement requires your normal mortgage payments be made as scheduled, plus an additional amount that will cure the delinquency in no more than 12 to 24 months. In some cases the additional amount may be a lump sum due at a specific date in the future. Repayment plans are probably the most frequently used type of workout agreement.
In some circumstances, it may be impossible for you to make any payments at all for some period of time. If you have had a good record with the lender, a "forbearance plan" will allow you to suspend payments or make reduced payments for a specified length of time. The forbearance plan will be in writing, have a definite term and spell out the method of ending the delinquency. In most cases the length of the plan will not exceed 18 months and will stipulate commencement of foreclosure action if you default on the agreement.
