Foreclosure Mitigation Explained

Foreclosure is a voluntary or involuntary repossession of a property from a homeowner. During foreclosure, the property is taken away from a homeowner and placed back into the ownership of the bank that originated the loan for the home. The most common reason for foreclosure is missed or late mortgage payments. However, due to the expense and loss that a bank suffers when foreclosing on a property, many institutions are offering foreclosure alternatives known as loss mitigation. These programs can stem from Government programs, or directly from the banks themselves.

Loss mitigation is creating a program for consumers to assist them during times of financial hardship to bring their mortgage payment current over time and prevent foreclosure proceedings. Most lenders realize that each situation for consumers is different, so there is a wide variety of options available for consumers trying to avoid foreclosure. Speaking with a professional can help you determine which option is best for you and quickly.

If You Want to Keep Your Home

Most loss mitigation is as a result of consumers that have suffered a short term financial hardship. Typically this is as a result of a job loss, divorce or medical problems. In these scenarios, lenders will offer programs to consumers that will allow them either to move the missed payments into their equity (adding it on to the end of the loan) or adding a small amount to a normal monthly mortgage payment. Both of these options allows for the homeowner to remain in their home and avoid foreclosure proceedings.

Unfortunately, not all losses suffered by consumers are short term. Some individuals are forced into a situation where it is simply not possible to keep up with their mortgage payments at its current level now or in the future. For these scenarios, lenders still have two options of loss mitigation to help the consumer get out of the loan, without having the sting of a foreclosure to follow them for years to come. These options are as follows: selling the home short of the amount due on the loan (settling with the bank for less) or a deed in lieu of foreclosure (signing the home back over to the bank).

Lenders offering loss mitigation services have professional loss mitigation representatives working for them. Homeowners that want to prevent foreclosure have to qualify for the loss mitigation services by providing the lender proof of their hardship. Qualifying for services to either keep or stay in a home can take as long as 60 days. Consumers worried about missing or being late on a mortgage payment are best served by contacting the lender before the first missed payment, and begin working with the loss mitigation department early on, before they are moved into the foreclosure department.

Having a foreclosure on a credit report has long-term effects. Since a foreclosure can remain on a credit report for seven years, and reduce a credit score by more than 200 points, it is important to work out loss mitigation services early on and not wait. Loss mitigation has a much more favorable outcome in terms of your credit score.