What to Include in a Forebearance Agreement

May 7, 2012 — 1,542 views  
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The original terms of a loan agreement are legally binding, but that doesn't mean lenders and debtors can't come to some additional agreements. It can sometimes be helpful to create a forebearance agreement to give loan recipients some relief or simply to restructure the terms of a debt.

A forebearance agreement can vary in its exact terms, but it essentially postpones, reduces or suspends payment requirements for a limited amount of time or until a particular date has passed. When the stated term is over, any unpaid interest accumulated during the period of forebearance is added to the loan principal. Debtors are obliged to abide by any actions taken by lenders if they fail to make the appropriate payments when forebearance has come to an end, and lenders agree not to foreclose on a property or accelerate payments until the specified date has passed.

Always make sure to include this date in exceedingly clear terms when creating a forebearance agreement. Otherwise, there will be too much information up for debate that will allow debtors to argue the terms of the contract. Additionally, be sure to outline the penalties for nonpayment of interest accrued during forebearance, and set the interest rate in stone so loan recipients understand how much they'll be responsible for when the contract is up.