Forbearance is a lender agreement to temporarily reduce or pause a borrower's loan payments, or to waive the exercise of remedies on a default, without curing or forgiving the underlying obligation. The lender agrees not to accelerate or foreclose during a defined standstill period, while deferred amounts continue to accrue and become repayable later under negotiated terms.
How Forbearance Works
Forbearance is documented in a written forbearance agreement that suspends the lender's remedies for a defined standstill period. The borrower acknowledges the existing default and the outstanding debt, agrees to specific conditions, and repays deferred amounts on a later schedule. On securitized loans, a special servicer negotiates and approves the terms on behalf of the trust's bondholders.
The agreement does not cure the default. Per a Lexis Practical Guidance forbearance form, a forbearance differs from a loan modification because the lender does not waive the underlying default, it only agrees to hold off, which is why the arrangement is often called a standstill. If the borrower breaks any condition, the standstill terminates and the lender's full remedies snap back, including acceleration and foreclosure.
Component | Typical treatment |
|---|---|
Standstill period | Fixed term, often 3 to 12 months, during which remedies are suspended |
Deferred amounts | Accrued interest or principal added to balance or deferral account |
Conditions | Reporting, reserve funding, cash management, milestone performance |
Default acknowledgment | Borrower confirms the debt and waives defenses to it |
Snap-back | Breach terminates the standstill and restores all lender remedies |
On CMBS and other securitized loans, the special servicer is the party with authority to grant forbearance. The master servicer handles routine payments, but once a loan defaults or default is imminent, servicing transfers to the special servicer, which negotiates forbearance, modification, or foreclosure to maximize recovery for bondholders.
Why Forbearance Matters
Forbearance matters because it buys time without erasing the debt, and misreading that distinction can cost a borrower the asset. A forbearance holds off foreclosure while property economics recover, but every deferred dollar returns later. For the lender, it preserves a performing relationship instead of forcing a distressed sale into a weak market.
Volume follows the cycle. Per KBRA, the delinquency rate among rated US private-label CMBS reached 6.5% in December 2024, and the distress rate, delinquent plus current-but-specially-serviced loans, rose to 9.33%, up from 4.21% and 6.65% at year-end 2023. Office delinquencies more than doubled year over year to 10.76%. Those specially serviced loans are the pipeline from which forbearance is negotiated.
The quotable point for an operator: forbearance pauses the clock on remedies, it does not pause the debt, so the deferred balance and its repayment terms decide whether the pause is a rescue or a delay of the inevitable.
Example
A borrower on a $10,000,000 loan at a 7% interest-only rate cannot cover full debt service after a major tenant vacates. Monthly interest is $58,333. The special servicer grants a 12-month forbearance that reduces the pay rate to 4%, deferring the 3% difference, which accrues and is repaid at the end of the term.
Item | Value |
|---|---|
Loan balance | $10,000,000 |
Note rate | 7% |
Full monthly interest | $58,333 |
Forbearance pay rate | 4% |
Monthly interest paid | $33,333 |
Monthly interest deferred | $25,000 |
Forbearance term | 12 months |
Total deferred interest | $300,000 |
Over the 12-month standstill the borrower pays $33,333 a month instead of $58,333, freeing $25,000 monthly to fund re-leasing. The deferred interest totals $300,000, added to the balance and due at the end of the term. The forbearance succeeds only if the property re-stabilizes enough to service the full rate and repay the $300,000 by the deadline.
Variations and Edge Cases
Forbearance behavior shifts with the loan documents, the lender type, and the trigger. The table covers variants an operator should confirm before signing a standstill.
Variant | Treatment |
|---|---|
Payment forbearance | Pay rate reduced, difference deferred and repaid later |
Maturity forbearance | Lender holds off on a maturity default while the borrower refinances or sells |
Covenant forbearance | Standstill on a DSCR or reporting breach without touching payment terms |
Partial payment | Borrower pays a set amount monthly, shortfall accrues |
Milestone-conditioned | Standstill continues only if leasing or capital targets are met on schedule |
The common mistake is treating forbearance as forgiveness. Deferred amounts remain fully owed, and most agreements require the borrower to acknowledge the debt, waive defenses, and sometimes fund reserves or accept cash management before the lender signs. A forbearance a borrower cannot repay at term end converts a temporary problem into a larger balloon.
Forbearance vs Loan Modification
Forbearance is often confused with a loan modification, and both are workout tools, but they differ on whether the loan's terms actually change. Forbearance is a temporary standstill: the lender agrees not to exercise remedies for a set period while the original default remains uncured and the contract terms stay intact. A loan modification permanently amends the loan itself, changing rate, term, amortization, or balance.
The practical difference is permanence. Forbearance leaves the default in place and expects the borrower to catch up or refinance, after which the standstill ends. A modification rewrites the loan, so there is nothing to snap back to. Forbearance is faster and reversible, a modification is durable and harder to obtain. Which a lender offers depends on whether the borrower's trouble is short-term or structural.
Frequently Asked Questions
What is forbearance in commercial real estate? Forbearance in commercial real estate is a lender agreement to temporarily pause or reduce loan payments, or to hold off on remedies for a default, without curing the underlying obligation. The lender agrees not to accelerate or foreclose during a defined standstill period, while deferred amounts accrue and become repayable later under negotiated terms.
Does forbearance forgive the debt? No. Forbearance defers, it does not forgive. Paused principal or interest continues to accrue and is added to the balance or a deferral account, then repaid later as a lump sum, an extended term, or higher payments. The borrower still owes every deferred dollar once the standstill ends.
Who grants forbearance on a CMBS loan? On a CMBS loan, the special servicer grants forbearance. Once a loan defaults or default is imminent, servicing transfers from the master servicer to the special servicer, which has authority to negotiate forbearance, modification, or foreclosure to maximize recovery for the trust's bondholders.
What is the difference between forbearance and a loan modification? Forbearance is a temporary standstill that leaves the loan's terms and the default in place, expecting the borrower to catch up or refinance. A loan modification permanently changes the loan itself, such as rate, term, or balance. Forbearance is reversible, a modification is durable.