Loan Modifications Can Trip Up a Real Estate Deal

If you’re a Realtor who is preparing to list a client’s home for sale, it’s vital that you discuss mortgage and other financial details with the seller. One very important aspect of the existing mortgage is whether or not it has a forbearance agreement or loan modification attached to it.

A forbearance agreement is a contract between the homeowner and their lender where the homeowner (borrower) is permitted to skip or make reduced mortgage payments. “The biggest misunderstanding regarding forbearance agreements is that the homeowner doesn’t always realize they still owe their lender the money they haven’t paid,” explained Adam Diamond, J.D. with Diamond Real Estate. “The lender is still entitled to that money at a later date. Lenders have been known to be creative with missed payments and fees; many times they’ll add a balloon payment that is due in full at the closing.”

The danger of missing the existence of a forbearance agreement is that the seller could have to unexpectedly bring money to the closing, or to end up doing a short sale, both of which can be upsetting.

“I’ve had clients come to me with conflicting notices and letters leaving them confused as to how much they actually owe their lender,” added Diamond. “The credit reporting and the application of payments, interest, and fees is complicated. The homeowner’s mortgage statement doesn’t always make clear any additional amount due.”

The best way to determine what the seller owes is to ask the lender for a payoff statement. “We use a payoff statement for closing,” said Diamond. “It will tell the seller exactly what they owe.”

Refer your client to a local real estate attorney who can explain this in detail and ensure the seller’s protection. The team at Diamond Real Estate Law is ready to help with your next real estate deal in McHenry or Lake County. For more information, visit or contact:

Adam Diamond, J.D.

Diamond Real Estate Law

(a division of Diamond Legal P.C.)