Loss Mitigation Process and Home Foreclosure

By: Kris Koonar

The process of trying to prevent a home foreclosure occurring, before the process starts, is called loss mitigation. The process is generally led by an employee or a representative of the lien holder. Alternatively, it can be led by a third party working in the best interest of the home owner.

A third party is often the best choice to handle a loss mitigation process, with relevant experience and an ability to deal impersonally and unemotionally with the lender. The process of loss mitigation was created and popularized in a collaborative effort of the federal government and the mortgage industry. The aim of the program was to help homeowners facing the loss of their homes because of delinquent and defaulted payments. The role of a professional loss mitigation counselor or company is to work with homeowners and the lender, acting as a go-between, to find a viable alternative to home foreclosure.

There are several options available to the homeowner with regard to loss mitigation, including:

. Deeds-in-lieu
. Reinstatement quotes
. Forbearance Programs
. Repayment Plans
. Pay-offs
. Mortgage or note modification agreement
. Redemption calculating
. Assumptions of the loan
. Waivers of Redemption
. Quitclaim Deeds
. Affidavits of Abandonment
. Pre-foreclosure short sales

In a typical scenario, the main focus should ideally be to keep the owner in the home. A loss mitigation counselor would initially seek to try and set up a loan modification plan or work out some sort of realistic repayment plan for the homeowner, which would be agreeable to the lender. A loan modification attempt may include trying to arrange for a partial payment of the arrears and then getting an extension on the loan term, to enable the homeowner to pay off the remainder of the default amount. In negotiating repayment plans, it is essential to come up with a realistic one considering the ability of the homeowner to successfully repay the delinquent amount.

A short sale is a good option if the homeowner does not have enough equity for a refinance or a loan modification. The homeowner would simply have to sell the property, even if the price is not enough to cover the outstanding dues on the mortgage. Some professionals may be able to convince the lender to waive the deficiency amount against the homeowner and take the short sale amount as a full payment. In a pre-foreclosure, the borrower has enough equity and can sell the property if the lender agrees to accept the rest of the balance owed, from the sale price. A deed in Lieu is another option to be considered for loss mitigation. The borrower in default, would voluntarily release the home and return it to the lender. This is often the last ditch option, if the homeowner wants to avoid foreclosure. If the homeowner employs the services of a professional loss mitigation company, they handle all the documentation necessary during the process, including such things as any additional tax or the title information and the filing of final documents.

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