What is a Repayment Agreement: Everything You Need to Know
If you're wondering "what is a repayment agreement," it's an agreement between a lender and borrower outlining the legal rights and responsibilities of a loan.3 min read
If you're wondering "what is a repayment agreement," it's an agreement made between lender and borrower outlining the legal rights and responsibilities of a loan.
You can find templates of repayment agreements online, as well as with your bank or credit union. These templates will usually fit the needs of loans made between two individuals. Debt calculators can also be a valuable tool in determining the correct repayment amounts.
Repayment agreements should include the following information:
- Personal contact information for all parties.
- The amount of money borrowed.
- Any interest being charged.
- Date repayment will start.
- How much each payment will be.
- How long the payment will last.
Having a detailed document is important. Your agreement should include as much information as possible, including what happens if payments must be stopped, renegotiated, or decreased due to unexpected situations. All parties involved need to have a copy of the final agreement, a timeline of when payments have been made, and what the remaining balance is, in the event of a dispute.
Project-Based Contract Administration
The eighth chapter of the U.S. Department of Housing and Urban Development (HUD) Handbook explains a renter's responsibilities for repayment if a determination has been made by the landlord that there was an error in housing assistance dollars received. If a repayment agreement is determined to be necessary, the following HUD guidelines must be met:
- The renter is not responsible for undercharges as a result of the landlord's mistake in meeting HUD procedures for determining rental and assistance payments.
- A renter needs to repay the landlord any overpayment of HUD dollars made within the five-year limit as outlined in forms HUD-9887 and HUD-9887A.
- It is the landlord's responsibility to have form HUD-50059(s) available and show it was in effect for the overpayment of assistance period, as well as any additional information needed to determine the amount due to the landlord by the renter.
Repayment Obligation of Landlords
If an overpayment was found to be due to a renter providing incorrect information, landlords do not need to repay HUD immediately. Instead, a repayment agreement will be created, allowing payments to be made to HUD as the landlord receives payments from the renter.
Landlords are also responsible for repaying any overpayments found to be a result of landlord error or failure to follow HUD guidelines. Repayments may be made at one time or over time via decreased assistance received for housing assistance if a lump sum payment would put the financial health of the property in jeopardy.
Renters required to repay overpayments may do so at one time or choose to enter into a repayment agreement where both parties agree to repayment terms and conditions. If a renter requires assistance in creating a repayment agreement that both they and the landlord can agree to, they can reach out to their local HUD's Housing Counseling Agency.
The repayment agreement needs to include the following:
- The ability for the agreement to be renegotiated if there is a change in the income of the family of $200 or more.
- A statement explaining that repayment of overages is in addition to the normal rent payment.
- Dated signatures for both the renter and landlord.
Renters who fail to repay overpayment are considered to be noncompliant in their lease, which may result in termination of residency. A repayment agreement needs to state the specific lease language that shows how a renter will be noncompliant and in jeopardy of losing their lease.
Repayment amounts are determined by what the renter can afford based on their income. The repayment amount plus the original rental amount cannot be more than 40 percent of the adjusted monthly income for the family.
Voluntary Repayment vs. Income Deduction
An employee may wish to repay a loan via installments as opposed to income deduction. In this case, a repayment agreement meeting the following guidelines should be presented to the creditor:
- A written document.
- Include signatures of debtor and creditor.
- Outline all terms of repayment plan.
- Include a clause for income deduction in case of default, stating that such a deduction cannot be more than 15 percent of disposable income unless employee has agreed to more in writing.
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