In a bid to ensure that lenders are well protected in situations where borrowers are having financial difficulties and require assistance for a limited time to manage their loan payments, lenders must assess a borrower’s circumstances before deciding whether to proceed with a loan forbearance and if so, ensure that the arrangement is correctly documented.

A key recommendation for lenders is to add a forbearance form for borrowers when requesting a payment deferral. The forbearance agreement with borrowers should be critical to protect both lenders and borrowers fully.

  • The agreement should include loan details, the borrower’s purpose for requesting the postponement and supporting evidence proving the need for the deferral.
  • When it comes to changing or relinquishing any rights under the loan documents, formality is crucial. Therefore, the lender should ensure that any form of request or representation of agreement is done formally.
  • A solid forbearance agreement should spell out what the lender is refraining from (for instance, recording a notice of default, charging late fees, or accruing default interest) as well as the length of the forbearance.
  • Lenders will also want to put in the agreement a release of any claims.

Other best practices to add in the forbearance agreement include automatic forbearance period extensions at the discretion of the lender and no late fees or default interest on postponed payments.

To read more on the forbearance agreements, best practices to consider, and key things to include in the agreement, click here to read more.

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