What are the advantages of loss mitigation?

If you are facing trouble with mortgage payments, you need to understand the difference between loss mitigation vs. bankruptcy. Mortgage loss mitigation involves a third party helping a troubled homeowner work out a way to prevent foreclosure.  This party can be an attorney acting on the homeowner’s behalf, can be a division within the mortgage lender’s institution that helps work with defaulting homeowners, or an outside agency that negotiates between lenders and homeowners. 

Loss mitigation involves a number of alternatives to foreclosure.  Here are just a few of those alternatives

• Loan modification – this can include lowering the interest rate on the loan, forgiving some of the principal on the loan, skipping a few payments, and/or changing the length of the loan term
• Sale or short sale of a home
• Deed in Lieu of Foreclosure – in this case, the homeowner simply hands over the deed to the house, and the title permanently belongs to the bank. This of course means that the homeowner must leave the premises, but they have essentially avoided the stain of foreclosure in this case

The advantages of loan modification are that the homeowner gets to prevent against foreclosure, and the bank does not have the hassle and financial losses associated with foreclosures.  Preventing foreclosure helps to protect the homeowner from the damaging effects of foreclosure on credit scores, and can in some instances keep a homeowner in their home. 

If you wish to work with the loss mitigation department for your lender, you should strongly consider speaking with a lawyer to assist you in getting the best deal possible.