Forbearance bites you in at A$$ and holds you hostage! Help!

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Forbearance bites you in at A$$ and holds you hostage! Help!

Brice Hall
New York City, NY · Member since 2013 · 110 posts · 15 votes

In case you didn't know, you cannot refinance a property that is currently under forbearance. That's understandable, but what isn't IMO is that it also prohibits you from refinancing any other properties that you may own. Take the following scenario...

Bob owns his primary residence in his personal name, which is worth $2,000,000, and he owes $1,000,000.

Bob also owns a rental property outright, in his personal name, which is worth $100,000.

Let's say Bob decides to put his primary into forbearance due to any potential financial strain cause by covid. Fortunately, things don't get much worse, and Bob keeps his job, that pays $200k+/yr. Well, let's say Bob wants to refinance his rental property during the same period. To Bob's surprise, he gets to the 9th inning on refinancing and is expecting to close any day, and then all of a sudden the underwriter tells Bob he can't refi unless he exits forbearance -- which requires him to pay off the total amount that he's deferred, and exit forbearance, or exit forbearance and make 3 consecutive payments.... Jeez, if seems like freddie/fannie are holding Bob hostage, and he may be forced to sell the rental property if he needs cash, when all he wanted to do was refi?! Any ideas for Bob?



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Peter TverdovBusiness Member
Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
5y

You can't have your cake and eat it too...

You can't see why a bank wouldn't want to give you a loan when you basically told them, hey I can't pay my bills, please bail me out for 3 months?

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  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    5y

    You can't have your cake and eat it too...

    You can't see why a bank wouldn't want to give you a loan when you basically told them, hey I can't pay my bills, please bail me out for 3 months?

    [email protected]732-289-3823
    17Reply
  • Mason Hickman
    Real Estate Agent · Sandwich, MA · Member since 2014 · 974 posts · 636 votes
    5y

    @Brice Hall

    If “Bob” kept his job and didn’t have to pay his mortgage during forbearance, he should be flush with cash. He should exit forbearance and take his medicine of waiting 3 months if he wants to refinance.

    8Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    5y

    I agree with Peter. You've essentially said you can't afford the payments, so why would they want to underwrite another loan? Prove you're good for it and they'll refinance. 

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    7Reply
  • Brice Hall
    OP
    New York City, NY · Member since 2013 · 110 posts · 15 votes
    5y

    @Nathan Gesner, I certainly agree you should prove you're good for it, hence the income requirements, continuation of job, etc. My opinion is more of, if those are intact, and all other requirements are meant, i'm not so sure a payoff, or 3 month waiting period, is entirely reasonable. Communication was that forbearance during the pandemic would have NO impact on the borrower. However, inability to refi without paying all deferred amounts, or exiting forbearance and waiting 3 months (which i believe fannie/freddie may have put into place later in the game, and not upfront) could have/had fairly substantial impacts on a borrower given how fast rates have changed. Moreover, while someone who may have had a rental property financed could have benefited by forbearance, he who had no mortgage on a rental property unfortunately did not have such benefit. 


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  • Shawn L.
    Rental Property Investor · Natick, MA · Member since 2015 · 128 posts · 188 votes
    5y
    Originally posted by @Brice Hall:

    @Nathan Gesner, I certainly agree you should prove you're good for it, hence the income requirements, continuation of job, etc. My opinion is more of, if those are intact, and all other requirements are meant, i'm not so sure a payoff, or 3 month waiting period, is entirely reasonable. Communication was that forbearance during the pandemic would have NO impact on the borrower. However, inability to refi without paying all deferred amounts, or exiting forbearance and waiting 3 months (which i believe fannie/freddie may have put into place later in the game, and not upfront) could have/had fairly substantial impacts on a borrower given how fast rates have changed. Moreover, while someone who may have had a rental property financed could have benefited by forbearance, he who had no mortgage on a rental property unfortunately did not have such benefit. 


    I refi'd one of my buildings in April 2020 and had to sign an attestation that I had no loans in forbearance. Did another in July 2020 and same thing. Not exactly breaking news.

    Put yourself in the bank's (or fannie/freddie's) shoes for a moment. If you were loaning money to Bob, how would you feel about him taking forbearance? Wouldn't you much prefer that he's current on all of his loans before you give him hundreds of thousands of dollars?

    3Reply
  • Adam Martin
    Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes
    5y

    If you own a rental property free and clear my assumption is you are doing a cash out refi to get money out which is adding to your debt.  You have told the bank that due to COVID you cannot pay your current debts so I cannot see why they would compound the problem by giving you more loans you cannot pay.  Assuming you did it just in case you should have the funds just repay it.  If you have the funds and could pay all along it looks like from the banks view you took advantage of the situation and got relief you did not need.  I spoke to my bank about it when I was buying a property and had to sign that I was current as well.  While it doesn’t ding your credit it does show and from what they told me is a hard no so I am surprised you got so far into the process.  

    3Reply
  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    5y
    Originally posted by @Brice Hall:

    @Nathan Gesner, Communication was that forbearance during the pandemic would have NO impact on the borrower.

    I think you misunderstood whatever communication you read/heard. 

    Nowhere (that I saw) did it ever say that forbearance would have NO impact on the borrower. The CARES Act made it possible for those who were impacted by the coronavirus to defer payments and have it not negatively affect their credit.  However, it didn't say it would have zero effect on the borrower.  In fact, there were many posts on here early on where a number of us (including some lenders on here) advised that going into forbearance very likely, and almost certainly, would have future negative consequences with some lenders (i.e. inability to get new loans or qualify for refi's, or at least not at the best rates).

    A few people even reported fairly early on that, after entering forbearance, they were already experiencing the negative things that some on here had been warning about (getting turned down for loans).

    So this was foreseeable.

    Fortunately, there seems like a easy/reasonable way around it.  Bob just needs to exit forbearance and pay what he would have had to pay anyway.  (And what he originally agreed to pay according to the original terms/conditions of his loan with his lender.)  Simple.

    8Reply
  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    5y
    Originally posted by @Brice Hall:

    Communication was that forbearance during the pandemic would have NO impact on the borrower. 

    I'm not sure where you get your communications from, but I recall numerous news stories warning people about the consequences of accepting the forbearance. It was 100% clear that while your credit score would not take a hit, there would be a notation on your credit report that you were in forbearance and lenders could use this against you. 

    You should change the title of this thread to: Dishonestly Getting Forbearance bites you in at A$$ and holds you hostage! or perhaps Failing to Have Adequate Reserves and Needing Forbearance bites you in at A$$ and holds you hostage!

    4Reply
  • Jackie Knox
    Investor · Tulsa · Member since 2019 · 2 posts · 0 votes
    5y

    I ran into the same issue when purchasing a new primary residence.  I had 2 of 17 properties in forbearance just as a precaution (at that point we had no idea if tenants would pay their rent or not).  In order to close on my primary, I had to get my loans current and out of forbearance. Made sense to me, so I just did it. Thankfully, all of my tenants have been paying their rent and has not been an issue.  

    0Reply
  • Nino G.
    Member since 2021 · 33 posts · 20 votes
    5y

    @Brice Hall.

    Bob should understand that one’s creditworthiness is determined not only by the income, assets and job continuation, but also their reliability in paying money back in the past. Bob defaulted on his contract (to pay monthly mortgage payments), and just because he could but chose not to, doesn’t change that fact.

    I find banks request very reasonable.

    0Reply
  • Brice Hall
    OP
    New York City, NY · Member since 2013 · 110 posts · 15 votes
    5y

    @Greg M.since you recall numerous accounts of seeing such news, would you mind sharing just a couple? I would disagree, and hence my wish to warn others. 

    In Bob’s case it came directly from the lender to whom he was requesting forbearance.

    Given your credit score is the sign of your credit worthiness, one would have assumed that if the communication was “it will not impact your credit score”, it in essence wouldn’t affect your credit. 

    This conversation wasn’t meant to be about having adequate reserves. In Bobs case, it doesn’t matter if he has $10mm cash sitting in the bank. He is still prohibited from refinancing a $70k property. 

    There were many employers who imposed what ended up being very short term pay cuts defensively, and/or out of precaution. This left employees very uncertain, even if for a short period. 

    0Reply
  • Shawn L.
    Rental Property Investor · Natick, MA · Member since 2015 · 128 posts · 188 votes
    5y
    Originally posted by @Brice Hall:

    .....This conversation wasn’t meant to be about having adequate reserves. In Bobs case, it doesn’t matter if he has $10mm cash sitting in the bank. He is still prohibited from refinancing a $70k property.... 

    Bit of a mischaracterization I think... You stated yourself that if Bob gets current on his mortgage in forbearance, then they'll give him the loan. Just because Bob isn't getting his way doesn't make him automatically right. 

    0Reply
  • Shawn L.
    Rental Property Investor · Natick, MA · Member since 2015 · 128 posts · 188 votes
    5y
    Originally posted by @Brice Hall:

    @Greg M.since you recall numerous accounts of seeing such news, would you mind sharing just a couple? I would disagree, and hence my wish to warn others. 

    Not Greg M but literally the first google result, dated March 31, 2020. Tell your friend Bob to quit whining and get current if he wants to refi.

    https://www.nerdwallet.com/art... 

    2Reply
  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    You told the bank you don't have enough money to pay your bills. And then turn around and ask the bank to give you more bills to pay, and you're somehow surprised they said no? That's very logical. 

    1Reply
  • Brice Hall
    OP
    New York City, NY · Member since 2013 · 110 posts · 15 votes
    5y

    Fair enough! Thanks for feedback!

    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    5y

    Bob should change his name to Donald and go talk to Deutche Bank. Problem solved.

    2Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    @Brice Hall I bet bob could get his bank to do it if he signed a covenant saying all proceeds from the refi (including cash flow) would go to paying off his forbearance.

    Gotta go with @greg m here, Chris mason was alerting people to this on this forum a long time ago.

    No one is forbidding a refi, Fannie and Freddie are just saying they aren’t going to buy those loans. So banks could do it if they want to keep those loans. They just don’t want to and I don’t blame them.

    0Reply
  • Josh C.Pro Member
    Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
    5y

    Bob should have paid his bills. Forbearance was for people who were affected by COVID 19. Bob wasn’t. Bod is a bum who doesn’t deserve low rates.

    Plus if he can’t refinance his place for 100k he has to sell? Where’s all those $7,000 per month mortgage payments money since he hasn’t been making them and $16,000 per month paycheck money?

    Bob sounds like the type of guy that would borrow your weed wacker and never give it back.

    Bob isn’t a victim, he just sucks.

    0Reply
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