Banks are not in the real estate business. They lose time and money if they have to foreclose on your home. On the other hand, they minimize their losses by avoiding foreclosure and possibly finding a way for you to keep your home.
What is Loss Mitigation?
Loss mitigation is the process lenders take to minimize the amount of money they lose on delinquent loans. The loss mitigation department of your bank is responsible for negotiating loan modifications, short sales, and deeds in lieu of foreclosure with delinquent borrowers. This is the department you will need to deal with if you are delinquent on your mortgage payment and want to avoid foreclosure.
Once you realize that you are in financial trouble, you should contact your bank’s loss mitigation department and explain your financial hardship. Bank loss mitigation departments are currently understaffed and overwhelmed with requests from delinquent borrowers, so it may take them a while to get back to you. Keep calling until you reach someone who has the authority to help you.
Loss Mitigation Options
Ask your lender what options are available to you to save your home. Each bank has different foreclosure prevention programs that they offer to their delinquent borrowers. The most common options include the following:
- Mortgage modification—With a mortgage modification, your lender modifies the terms of your existing loan (for example, lowers the interest rate, increases the term of the loan, or reduces the loan principal) to make your monthly payments more affordable.
- Refinance—If you have some equity in your property, refinancing your mortgage may be an option. You basically would obtain a new loan from your lender with a lower interest rate and better terms, which you would then use to pay off your existing mortgage.
- Reinstatement—Your lender may agree to reinstate your current mortgage if you pay all past-due amounts and any additional fees or costs.
- Forbearance—With a forbearance, your lender gives you a short period of time to catch up on your past-due payments, after which you go back to paying your regular mortgage payments. Some lenders may suspend your payments for a few months if you are unemployed.
- Short Sale—If you can’t afford to keep your home and you’re upside down on your mortgage, a short sale is a way to sell your home for less than the balance of your mortgage and walk away owing nothing. You lose your home, but you avoid a foreclosure on your credit history. You must get your lender's approval for a short sale. Be sure to get confirmation in writing from your lender that the proceeds of the short sale will satisfy all of your mortgage debt; you don’t want your lender coming after you for the shortfall once the sale closes.
- Deed in Lieu of Foreclosure—With a deed in lieu of foreclosure, you agree to transfer ownership of your home to your lender and the bank agrees to cancel your debt. You get to walk away owing nothing more to your lender. Be sure to get confirmation in writing from your lender that the deed in lieu of foreclosure satisfies your entire debt.
Consult With an Attorney
If you’re in default on your mortgage, an attorney with experience in real estate foreclosures can help you learn more about all of your available legal options. An attorney can also help you negotiate with your bank’s loss mitigation department to find a solution to save your home from foreclosure.
