Loss Mitigator: Working with Mortgage Lenders to Avoid Foreclosure

A loss mitigator is a person who specializes in helping homeowners facing foreclosure. Most mortgage lenders have an in-house loss mitigation department to assist homeowners struggling to make their mortgage payments. Loss mitigators review loan documents to determine what options are available to avoid foreclosure.

Most often, the loss mitigator is an employee of the bank. However, independent loss mitigators can act as agents on behalf of the bank or borrower. When mortgage lenders assign a loss mitigator, there is no fee involved. If borrowers retain the services of an independent mitigator, they will be responsible for compensation.

Loss mitigators mediate between borrowers, lenders and buyers. When homeowners become delinquent on their mortgage loan, the first course of action is usually a loan modification. Lenders modify loans based on the borrower's ability to become current on delinquent amounts and maintain future mortgage payments.

Most lenders require borrowers to cure mortgage arrearages before modifying the loan. Some will accept a partial payment toward the delinquent amount. On occasion, banks will temporarily reduce or suspend mortgage payments to help borrowers get back on track.

When borrowers are unable to obtain a loan modification, the next option is that of short sales. Borrowers must meet criteria established by their lender in order to obtain short sale approval. The primary requirements include not having equity in the real estate and owing more on the note than the appraised value of the property.

Borrowers are required to undergo financial scrutiny. Since banks are accepting a loss on the property, they want evidence the borrower is financially insolvent. Borrowers must submit a vast array of documentation including pay stubs, credit card statements, list of income and expense, homeowners', automobile and healthcare insurance premiums, bank records and tax returns.

Most mortgage lenders require borrowers to submit a short sale hardship letter detailing events which caused them to fall behind with their payments. Some borrowers request the hardship letter prior to requesting financial documents, while others include it as part of the short sale packet.

When banks do not offer short sale arrangements or reject the request, the last option available is foreclosure. When all else fails, it is important to request a Deed in Lieu of Foreclosure. A deed in lieu means the bank will repossess the property, sell it through auction and accept the sale price as payment in full.

Without a deed in lieu, mortgage lenders can issue a deficiency judgment for the difference between the sale price and loan balance. Deficiency judgments remain on credit reports until paid in full. Oftentimes, homes sold through public foreclosure auctions are sold well below market value and can result in a judgment of several thousand dollars.

If you are facing foreclosure, contact your lender to discuss the option of short selling your property. Although the process can be complicated and time-consuming, it can relieve an enormous financial burden if the lender engages in Payment in Full short sales.