Florida Real Estate Sales Associate Examination Content OutlineReal Estate FinanceMedium
A homeowner is having difficulty making mortgage payments due to a temporary financial setback. To avoid foreclosure, the lender agrees to temporarily reduce or suspend the payments for a specific period. What is this arrangement called?
- ALoan Modification
- BShort Sale
- CDeed in Lieu of Foreclosure
- DLoan Forbearance
Show answer & explanationAnswer & explanation
Correct answer: D. Loan Forbearance
Loan forbearance is an agreement between a lender and borrower to temporarily pause or reduce mortgage payments for a specified period, typically during a period of financial hardship. This directly matches the scenario described.
Why the other options are wrong
- A. A loan modification involves a permanent change to the loan terms, not a temporary pause in payments.
- B. A short sale is when a property is sold for less than the amount owed on the mortgage, with lender approval.
- C. A deed in lieu of foreclosure involves the borrower voluntarily giving the property back to the lender.
Loan Forbearance
A temporary postponement or reduction of mortgage payments agreed upon by the lender and borrower during financial hardship.
- Temporary relief
- Does not forgive debt, only postpones
- Requires agreement with lender
Memory trick: Forbearance: 'For bear' with me, I need a break from payments.