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Are you a business owner facing foreclosure on your brick and mortar? Do you rent a commercial property but are unable to make rent due to the coronavirus?

Understanding forbearance agreements in the wake of the COVID-19 pandemic is as paramount as ever before. Commercial property owners across the United States are struggling to meet their financial obligations while providing amnesty to tenants who are unable to make rent due to the coronavirus.

With more commercial borrowers and tenants defaulting on their loans and rental payments where do forbearance agreements come into play? What is a forbearance agreement, anyway, and how do they apply to both landlords/property owners and tenants/lessees?

Hoegen & Associates, P.C. is a leading commercial law firm based out of Wilkes-Barre, PA, serving real estate investors, landlords, small businesses, and tenants across Northeastern Pennsylvania. In this article, we’ll explore everything you need to know about mortgage forbearance agreements in the context of COVID-19 and what you can do to avoid foreclosure or eviction.

What Is a Forbearance Agreement?

A forbearance agreement serves as a temporary postponement of mortgage or rent payments. Under this agreement, a lender or landlord agrees not to pursue legal measures (foreclosure or eviction). Instead, the lender or landlord temporarily reduces or suspends mortgage payments.

A forbearance agreement is a short-term solution. The borrower or tenant must adhere to a set of conditions and eventually catch up on their missed mortgage or rental payments. If they continue to default on their monthly payments, even with the forbearance agreement in effect, the borrower or tenant can then face foreclosure or eviction.

Even when a borrower or tenant cannot fulfill the forbearance agreement within the allotted period, some lenders or landlords may decide to extend the forbearance term or renew the agreement. Lenders and landlords will usually grant renewal or an extension to borrowers/tenants who have demonstrated a willingness to adhere to the conditions and have reached milestones within the contract.

What Can You Expect to See in a Forbearance Agreement?

Lenders and landlords may decide to temporarily suspend all future monthly payments until the borrower/tenants pay off the debt. Lenders/landlords may also decide to reduce the monthly mortgage or rent ‒ this will usually hinge on the borrower’s situation, their payment history, and other factors.

In exchange for these suspensions or reduced payments, borrowers agree to give up certain property rights, surrender cash or collateral, or waive their right to make claims, defenses, or set-offs against their debt.

While every agreement is unique, the borrower or tenant must always acknowledge their default in the contract, as well as a reaffirmation of the loan or lease and the subsequent debt they’re responsible for fulfilling.

If you are a commercial property owner considering alternatives to foreclosure, you can expect your forbearance agreement to potentially contain the following terms and conditions:

  • The forbearance term (the lifetime of the agreement)
  • The amount due
  • A payment schedule
  • Interest rates/late fees
  • Other late payments
  • Consequences of failing to pay on time

These terms and conditions can also apply if you are a delinquent tenant who is facing the possibility of eviction; however, some variations will likely occur in your contract.

For example, some forbearance agreements may not commence until tenants have completed their loan period for rent relief through the CARES Act (Coronavirus Aid, Relief, and Economic Security). Some tenants may agree to make partial payments of rent as part of their compliance with the contract’s conditions.

Foreclosures & Evictions in Pennsylvania

Talks of extending foreclosure and eviction moratoriums are underway at the federal level. The Centers for Disease Control and Prevention has recently extended the federal moratorium deadline of January 31, 2021, to March 31, 2021.

Despite these efforts, evictions and foreclosures are on the rise, and legislators in Pennsylvania are currently discussing measures to further help landlords and tenants beyond the new March 31 deadline. Some potential actions on the table include financial aid for investors who own less than 10 properties, curtailing late fees, and even extending Pennsylvania’s state moratorium deadline late into springtime.

What You Can Do Going Forward

Facing foreclosure or eviction during a global pandemic is unprecedented. Despite the new challenges property investors, landlords, small businesses, and tenants face, a traditional, tried and true agreement like a forbearance is still a viable solution for many.

More will be revealed in the months ahead as Pennsylvania continues to face the housing crisis and COVID-19 pandemic. If you are currently facing foreclosure or eviction or have started to default on your monthly mortgage or rent payments, the time to act is now ‒ and you have options!

Get support and guidance from an attorney who can help you navigate your unique situation. Contact Hoegen & Associates, P.C. today to speak to a commercial and real estate lawyer! You can also read up on other creative alternatives to commercial foreclosure if you are considering your options beyond a forbearance agreement.