A forbearance agreement is an agreement that gives the borrower a specified period of time before the lender commences or exercises any of its remedies against the borrower.
Forbearance agreements can be beneficial to borrowers in that it gives borrowers more time to find a buyer for the property, refinance the loan, facilitate a negotiated foreclosure, negotiate a permanent loan modification. In addition, in exchange for payment of additional consideration, a borrower can seek to obtain an option to extend the forbearance period.
As part of a loan forbearance agreement lenders also obtain reaffirmation of the guarantor’s obligations under the payment guaranty and its consent to the execution and delivery of the forbearance agreement.
Furthermore, lenders usually include in general release under Civil Code Section 1542 to prevent any possible claims the borrower or the guarantor may have against the lender.
It is imperative that lenders proceed with caution, when it comes to negotiating, discussing the terms, and drafting forbearance agreements. In a recent decision the Supreme Court relaxed the parole evidence rule holding that in cases alleging fraudulent inducement or promissory fraud, the court can admit parole evidence of lender’s misrepresentation of the terms of a forbearance agreement even if it’s contrary to the terms of the forbearance agreement.
Pursuant to Business and Professions Code Section 10131(d) a person must have a real estate broker license to solicit borrowers or lenders for or negotiate loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity.
Since a note or deed of trust is a contract in writing, due to the statute of frauds any loan modification cannot be an executory oral agreement. Civil Code Section 1968(a).
A loan forbearance agreement negotiated by a borrower or a borrower’s real estate broker can be documented by an attorney.
Simantob Law Group is a law firm of business attorneys and real estate lawyers. We have represented the business and real estate legal needs of individuals and companies, from start-ups to regional and national US corporations for over 20 years. Please contact us at 310.281.0041 or complete our online contact form to discuss your California Loan Forbearance documentation/guidance needs.