What is Loss Mitigation?

Loss mitigation is when a firm handles the process of negotiation between you and your mortgage lender. Loss mitigation works to negotiate mortgage terms for you that will prevent foreclosure. These new terms are typically obtained through loan modification, short sale negotiation, short refinance negotiations, Deed In Lieu Of Foreclosure, cash-for-keys negotiation, or a partial claim loan or other loan work-out.

Types of Loss Mitigation

      To stay in your home:

• Mortgage Modifications: This is a process whereby a homeowner's mortgage is modified and both lender and homeowner are bound by the new terms. The most common modifications are lowering the interest rate, reducing the principal balance, 'fixing' adjustable interest rates, increasing the loan term, forgiveness of payment defaults & Fees, or any combination of these.
   
• Short refinance: This is a process whereby a lender reduces the principal balance of a homeowner's mortgage in order to permit the homeowner to refinance with a new lender. The reduction in principal is designed to meet the Loan-to-value guidelines of the new lender (which makes refinancing possible).
   
• Special Forbearance - This is where you will make no monthly payment or a reduced monthly payment. Sometimes, the lender will ask you to be put on a repayment plan when the forbearance has been finished to pay back what you missed, while other times they just modify your loan.
   
• Partial Claim - Under the Partial Claim option, a mortgagee will advance funds on behalf of a mortgagor in an amount necessary to reinstate a delinquent loan (not to exceed the equivalent of 12 months PITI). The mortgagor will execute a promissory note and subordinate mortgage payable to United States Department of Housing and Urban Development (HUD). Currently, these promissory or "Partial Claim" notes assess no interest and are not due and payable until the mortgagor either pays off the first mortgage or no longer owns the property.

      To surrender your home:

• Short sale: This is a process whereby a lender accepts a payoff that is less than the principal balance of a homeowner's mortgage, in order to permit the homeowner to sell the home for the actual market value of the home. This specifically applies to homeowners that owe more on their mortgage than the property is worth. Without such a principal reduction the homeowner would not be able to sell the home.
   
• Deed in lieu: A Deed In Lieu Of Foreclosure (DIL) is a disposition option in which a mortgagor voluntarily deeds collateral property in exchange for a release from all obligations under the mortgage. A DIL of foreclosure may not be accepted from mortgagors who can financially make their mortgage payments.
   
• Cash-for-keys negotiation: This is a variation of the Deed In Lieu Of Foreclosure. The difference is that the lender will actually pay the homeowner to vacate the home in a timely fashion without destroying the property. The lender does this to avoid incurring the additional expenses involved in evicting such homeowners.
   

Who Benefits From Loss Mitigation?

Both you and your lender benefit from loss mitigation. The lender because it can stabilize the risk of loss in which they may assume with the Foreclosure Process and you because it can provide you with affordable payment terms, if keeping your home, or eliminate some of the liability associated with losing your home.

Do I need an Attorney for Loss Mitigation?

Negotiating with your lender can be quite the challenge. Using a reputable law firm will improve your lender’s willingness to work with you while at the same time help ensure your interest is being well cared for and your legal rights are being protected. Lack of understanding Loss Mitigation practices can act as a road block between you and your lender. Your lenders are busy people just like you and are more responsive to someone who can talk their talk. Contact us today for a free initial consultation and allow us to eliminate much of the headache that comes from dealing with your lender directly.