Loss Mitigation is a term used to describe the process of reducing the loss to the owner. It is used quite frequently these days as our economy continues to head for a down turn.
I hear loss mitigation most often in reference to landlords and mortgages. Landlords because they have a duty, generally, to mitigate (reduce) their loss of revenue due to one breaking their lease by looking for a new tenant.
Mortgage companies at the time of this article do not have a duty to mitigate their loss due to a failing mortgage but if they expect to survive are now willing to discuss loss mitigation. What does this mean to you?Carmen Dellutri has written several articles about this subject under another name of loan modification. One discusses how homeowners are under water, another discusses a government modification program that cries wolf and mortgage modifications that do not work. When you hear loss mitigation or loan modification the purpose of either phrase is still the same, The end result is to prevent a foreclosure and having the mortgage company take a loss on their accounting ledger.
Some mortgage companies are doing loss mitigation are their own through in house policies. Some are gearing up for the HOPE Program and others are waiting to see what our Government will do next. One qualification factor that seems to be universal for any of these programs is that YOU the homeowner must be three months late on your mortgage.
This is the problem that I currently have with any of these programs because this attitude just invites disaster for the homeowner and the mortgage company as there is NO GUARANTEE that you will qualify for loss mitigation.
I have clients calling every week stating that they will just wait three months until they are behind on the mortgage and then file bankruptcy or look to loss mitigation. My advice to my clients is not take the chance unless they absolutely have to.
The government, allegedly, is working on new legislation that will require the mortgage companies to review all loans for loss mitigation purposes regardless if the homeowner is late. Will this happen? As I tell each and every client “I cannot even guarantee that the sun will come up tomorrow.” However, I do believe that the government is going to have to do something within the next sixty days to prevent a financial collapse.
What can you do as an individual? If you are in bankruptcy speak to your attorney about loss mitigation or loan modification. As an individual in or out of bankruptcy you have the right to speak directly to your mortgage company and request loss mitigation or a loan modification.
When you request the package make this your top priority because time is of the essence and you must do everything that they request in order to be considered for the program. Do what your attorney advises you to do while you are in bankruptcy. Your attorney can only help you if and only you assist them in doing what you are supposed to do.
Finally, get a handle on your budget and keep records of every payment, bill, email and conversation with the mortgage company. If you are behind on the mortgage you are NOT budgeting, period. There is no but, but, but I… You for whatever reason do not have the money to make ends meet so you will have to budget.
If you are not willing to budget then no amount of loan modifications will help you. If you have trimmed the excess spending out of your budget and you still cannot afford the mortgage and loss mitigation or loan modification is not working for you then your budgeting may require that you move to a less expensive residence.
The written communications and payment history may become the only evidence you have that you have the ability to afford the home and have been making the payments. It is critical that in addition to continually reviewing your budget that you keep all paperwork and logs related to your mortgage.
Unfortunately drastic times call for drastic measures and the government with the powers that be will not be able to save every loan. As with most aspects of your life it is up to YOU to protect YOU. You have got to take an active role in saving your financial life.
Watch the news or check out CNN.com everyday to be informed as to what is happening here and abroad. Don’t panic and stick your head in the sand. Trust me on that one, all this does it get sand in your nose and your mouth. Don’t settle for “I don’t know” answers from your mortgage company and always follow up a telephone conversation with a certified letter to them about what the conversation was about. You must evaluate whether or not you can afford to keep the house.
Although I am not a huge fan of all of Suze Orman’s rhetoric I do like her detailed spreadsheet of analyzing your budget. Use the spreadsheet to review what your current budget is and analyze whether or not you really can afford this mortgage. For additional help go to Bankrate.com, this site is dedicated to helping you gain financial control. Never forget that a qualified Bankruptcy Attorney in your area just may have the answer that you are looking for in these tough economic times.
Knowledge is power and no matter what choice you make it is always better to make an informed choice. Review your loan documents, ask questions, review our budget and speak to an attorney if you feel like you need another opinion.
Written by Rachel Lynn Foley, Kansas City Missouri Bankruptcy Attorney.
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Last modified: May 7, 2014