subject: Loss Mitigation Options - How Could These Help Prevent Foreclosure? [print this page] When a homeowner is delinquent on their mortgage, many lenders use loss mitigation to prevent foreclosure on the property. While loss mitigation indirectly helps homeowners who are in danger of losing their homes, the purpose of the service is also to lessen the expenses the lender will face if they have to foreclose. Common mortgage mitigation solutions include short sales, loan modification and deed in lieu of foreclosure. Short sales and deed in lieu of foreclosure result in the homeowner moving out of the property without a record of foreclosure on their credit report. A loan modification adjusts the terms of the loan, resulting in more manageable payments for the borrower and a higher likelihood that regular payments will be made on the mortgage.
The foreclosure process costs the lender a lot of money. In most cases, a year or more can pass between the first missed payment and the sale of the property at an auction. The lender loses all of the principal and interest that would have been paid during that time. In states that require a court action to foreclose, court costs are incurred by the lender. Additional costs occur when the property is sold for less than the mortgage balance. Therefore, it is in the lender's best interest to mitigate their losses by offering options to struggling homeowners.
While lenders want to work with homeowners, they do not always have the resources to work with each defaulted mortgagee individually. The lender may mail paperwork for the homeowner to complete. If the forms are not properly completed, the process may be delayed, causing the homeowner to go deeper into default. Many homeowners who are interested in modifying their loan can benefit from the services of a loss mitigation attorney. A loss mitigation attorney can work directly with the lender to find the best mortgage mitigation solution.
When loan modification is not feasible, a short sale is sometimes an option. Short sales are complicated and generally require the assistance of a loss mitigation attorney and a real estate agent. This option is generally used when a homeowner owes more on their mortgage than the property is worth. In these cases, allowing a short sale is the only way the owner can sell the property. To qualify for the short sale option, homeowners must prove that they are not able to pay the mortgage, even if it is modified. In most cases, the home must have been listed for sale with no offer high enough to pay off the mortgage.
In cases where the principal due on the mortgage is approximate to what the property is worth, a deed in lieu of foreclosure is a good option to prevent foreclosure. This loss mitigation option is generally only offered to homeowners who cannot make their mortgage payments. By giving the property to the lender, the homeowner gets the opportunity to purchase another property without the stigma of a previous foreclosure.
