Four Options for Distressed Borrowers
Darren Malek has served as an attorney and managing principal with the Veritas Law Group since February of 2008. In his position with the firm, Darren Malek represents a variety of clients in legal matters ranging from general business litigation to distressed borrower representation.
Debtors who find themselves unable to repay in full or within the time frame established by the loan agreement become known to lenders as distressed borrowers. There are multiple ways lenders can deal with a distressed borrower. In the event of forbearance, the borrower is granted reduced payments or a period of no payments until a new agreement can be structured to get the borrower back on track. If a borrower has recently come into money or for some other reason can pay back the delinquent amount in a single payment, a lender often opts for a reinstatement.
A loan modification is similar to forbearance; however both parties move forward with the knowledge that the original loan agreement terms will not be resumed at any point and the borrower will continue with the reduced payments over a longer period of time until the debt is paid. Finally, in dire situations, a distressed borrower can sell his or her home to cover the unpaid balance, even if the total sale does not match the full unpaid balance. This process is known as a short sale.