The Merriam-Webster dictionary defines “forbearance” as “refraining from the enforcement of something (as a debt, right, or obligation) that is due”. It’s a special agreement between the borrower and the lender to delay a pending foreclosure.
When a borrower has problems making payments, the lender may start the foreclosure process.
Even though lenders do indeed foreclose, they really don’t want to. Not all properties that are foreclosed on sell at an auction. So, the lender takes on more REO (Real Estate Owned) inventory. The more inventory the lender has, the less they can lend out in new loans.
According to a forbearance (sometimes spelled forebearance) agreement, the lender agrees to delay their right to foreclosure…if the borrower can catch-up to his/her payment schedule within a certain time frame. This period…and the repayment plan…depend on the details of the agreement accepted by both parties. Interest still accrues during this time frame.
Forbearance can be appropriate in cases involving a temporary financial problem…and may end up being a solution to avoid foreclosure.
But, if a borrower has more serious problems (e.g., borrower has an ARM loan…Adjustable Rate Mortgage…& the rate adjusts too high to make the payment unaffordable), then forbearance is generally not a solution for the borrower.
As always, check with your attorney, CPA, etc.