Mortgage loss mitigation is the process by which a third party helps a homeowner, a division within a bank mitigates the loss of the bank, or a firm handles the process of negotiation between a homeowner and the homeowner’s lender. The main key of mortgage loss mitigation is to keep the homeowner from the foreclosure of his/her home. There are several kinds of loss mitigation, all of which serve the purpose of stabilizing the risk of loss that the lender or investor would experience. The loss mitigation helps the homeowner to make timely payments and keep the lender/investor from experiencing costly losses via the foreclosure process and auction sale of the property.
Types of Mortgage Loss Mitigation
Loan modification
A homeowner’s mortgage is modified, and both the homeowner and lender are bound by these new terms. This can include lowering the interest rate, fixing adjustable interest rates, increasing the loan term, and/or forgiving payment defaults and fees.
Short sale
A lender accepts a payoff that is less than the principal balance of the homeowner’s mortgage so that the homeowner can sell the home for the actual market value of the home. This applies when the homeowner owes more on the mortgage than the property is worth.
Short Refinance
A lender reduces the principal balance of a homeowner’s mortgage so that the homeowner can refinance with a new lender. The reduction in principal meets the loan-to-value guidelines of the new lender.
Deed in Lieu
A disposition option where the mortgager voluntarily deeds collateral property in an exchange for a release of all obligations under the mortgage. This cannot apply to mortgagers who can financially make their mortgage payments.
Cash-for-Keys Negotiation
A variation of deed in lieu of foreclosure, the lender will actually pay the homeowner to vacate the property in a timely fashion without destroying it. This saves the lender from the cost of evicting the homeowner.
Special forbearance
You make no monthly or a reduced monthly payment. Sometimes the lender will ask you to go on a repayment plan to pay back what you missed, while other times, the lender will just modify the loan.
Partial Claim
The mortgagee will advance funds on behalf of a mortgagor in the amount that is necessary to reestablish a delinquent loan. The mortgagor will execute a promissory note and subordinate mortgage to the United States Department of Housing and Urban Development (HUD). These notes currently do not assess interest and are not due until the mortgagor pays off the first mortgage or the mortgagor no longer owns the property.
Benefits of Mortgage Loss Mitigation
The biggest benefit for homeowners is that they can keep their home from being foreclosed because the mortgage obligation is either resolved or is modified to where the homeowner can maintain the mortgage. The biggest benefit for lenders is that they do not have to incur the costs of foreclosing on the homeowner, which are much greater than the smaller loss of the mortgage modification.
Get Legal Advice First
Obtaining mortgage loss mitigation is not easy to attain by yourself. An established and experienced loss mitigation attorney can help you evaluate your situation and present the strongest possible case for you to obtain mortgage loss mitigation and to avoid foreclosure on your home.
