Understanding 'Loss Mitigation': A Way to Prevent Foreclosure
Being late on your mortgage payments can be an extremely stressful experience. If you don't pay on time for some time, your lender may start the foreclosure process to repossess your home. But before they take that step, lenders usually consider other options to help you avoid losing your house. These alternatives come under the umbrella of 'loss mitigation'.
What is Loss Mitigation?
Loss mitigation involves different techniques and processes used by banks to work with borrowers to dodge foreclosure when possible. The aim is to find a compromise favourable to both parties. Common loss mitigation options include:
- Loan modification: This involves changing the loan terms, such as extending the repayment period or reducing the interest rate to make payments more manageable.
- Forbearance: Your lender might allow you to pay less or nothing at all for a while, after which you'll need to repay the skipped payments either later or as an addition to your regular installments.
- Repayment plan: Under this option, the lender lets you catch up on late payments and pay off a part of the accumulated debt as an extra contribution along with your standard payments.
- Short sale: If your lender agrees, you might be allowed to sell your property below the owed amount.
- Deed-in-lieu of Foreclosure: The lender may accept the property's deed back in exchange for releasing you from your mortgage.
How to Access Loss Mitigation Options
The secret is to be prompt in reaching out to your mortgage servicer whenever you're unable to make payments. Most of them have loss mitigation teams to explore solutions suited to your predicament. Presenting proof of your financial hardship, like pay stubs, bank statements, tax returns, etc., will be crucial.
You might have to go through a loan modification application process, which entails submitting all the necessary documents to let your lender assess if you qualify for alternatives like loan modification. Staying on top of their requests for paperwork and persisting in your communications are essential.
While foreclosure takes time, there's usually a window for negotiation between the lender and the homeowner. It's best not to procrastinate until after multiple missed payments. Lenders are often more receptive to solving the issue before a foreclosure repossession starts. Many homeowners who act promptly can get financial assistance and steer clear of the damaging effects of foreclosure on their credit and finances. Planned communication and providing the demanded information can pave the way to an alternative route. To learn about what you should do when you're about to face foreclosure, here are the initial steps you ought to take.
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Source: lifehacker.com
