Loss Mitigation - Home Mortgage Options to Stop Foreclosure

Loss mitigation refers to a division of lending institutions which oversees delinquent accounts. Individuals employed in this field are referred to as loss mitigators. Their job encompasses working with mortgagors to cure past due payments, developing strategies to stop foreclosure, or engaging in strategies to keep foreclosure costs to a minimum.

Bank loss mitigation is responsible for handling most mortgage problems. Loss mitigators review customer accounts to determine which action is best suited. Common strategies include loan modification, mortgage forbearance, mortgage refinance, deed in lieu of foreclosure, and real estate short sales.

The biggest mistake mortgagors can make is to procrastinate about contacting their mortgage provider when unable to make loan payments on time. As a real estate investor, I have witnessed numerous homeowners lose their home simply because they couldn't pick up the phone and attempt to work out a plan to save their property. Instead of being proactive, they threw in the towel because they believed the bank wouldn't help them.

Years of experience have proven that most mortgage providers do not want to foreclose on real estate. Banks are in business to make money, not manage home sales. Banks would much rather help borrowers get back on track than deal with the time-consuming and costly process of foreclosure.

Once a mortgage loan enters into default a loss mitigator is assigned to handle the account. Borrowers will work with their assigned mitigator throughout the process. In order to alter mortgage notes borrowers must provide their lender with financial records including wage records, income and expenses, bank statements and tax returns. Loss mitigation reviews each borrower's financial and loan contracts to determine what options are available.

The first course of action offered by banks is usually a mortgage forbearance plan. This option provides temporary financial relief to help borrowers cure mortgage arrears. Each bank handles real estate forbearance differently.

Some mortgage providers suspend home loan payments for one to three months. Others temporarily reduce monthly installments. Outstanding balances are rolled to the end of the loan and payment terms extended. The only way to know which forbearance option is offered is to contact your bank's loss mitigation department.

The next option is loan modification which involves permanently altering terms of the note. In most cases, banks lower the interest rate to reduce payments but some lenders extend payment terms. Borrowers must meet lending eligibility criteria to obtain a home loan modification.

Mortgage refinance is sometimes offered to borrowers who are financially capable of curing mortgage arrears and paying refinance rates. When banks offer refinancing, borrowers are required to pay fees associated with taking out a new loan. These might include obtaining real estate appraisals and property inspections, prepayment penalties, legal fees, and other settlement costs.

When borrowers do not qualify for the above and do not possess the funds to stay in their home, banks can enter into a real estate short sale contract. Short selling is a complicated process that usually requires the services of a lawyer.

When mortgage lenders enter into short sales they agree to accept less than the full balance owed on the loan. Borrowers must determine if the bank accepts the property sale as payment in full or if they issue deficiency judgments. Some banks hold borrowers responsible for the difference between the loan balance and sale price. If borrowers are unable to pay the deficiency in full, banks obtain a court-ordered judgment which is reported to credit bureaus.

Deed in lieu of foreclosure is often the last option offered through loss mitigation. When banks enter into deed in lieu contracts borrowers must return their home to the bank and forego all monies invested into the property. The process usually takes one or two months to complete. Once contracts are signed, banks take possession of the property. Just as with short sales, banks can issue deficiency judgments against deed in lieu agreements.

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