A loan workout plan is an agreement between you and the lender that maps out steps to cure the delinquency and prevent loss of your home. It may be written or oral and will have specific deadlines you must meet to avoid foreclosure. Thus, it will be based on very realistic estimates on your ability to meet the schedule.
The workout plan will depend on the seriousness of the default and whether your financial problems are short-term or your payment ability has been impaired for the foreseeable future.
If the default is caused by a temporary condition which can be cured within 30 to 60 days, the lender may consider granting a temporary condition to be cured within 30 to 60 days. The lender may consider granting a temporary indulgence. This may be considered where the house has been sold but the sale has not settled or where an insurance settlement is pending. The lender will want to document evidence, such as a sale contract, before granting indulgence.
If you suffered a temporary loss of income but can demonstrate it can return to previous levels, you may need to structure a repayment plan to bring the loan current. This type of workout arrangement requires a normal mortgage payments to 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.
Sometimes, it may be impossible for you to make any payments at all for some period of time. If you have a good record with the lender, a “forbearance plan” will allow you to suspend the payment 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 plan length will not exceed 18 months.
Any workout plan is a last-ditch effort by you and the lender to avoid foreclosure to keep you in your home. It is not a substitute for good budgeting and financial planning on your part. It will probably not be available if your payment record is not consistently good up to the present time. Lenders will work closely with good borrowers who have a real period of emergency and hardship.