15 Aug What To Do When You are being Foreclosed – Loss Mitigation
You’re facing foreclosure and you want to save your home. Can you work with your mortgage lender to get caught up with your payments? Many mortgage lenders claim to have loss mitigation departments to deal with defaults in mortgage loans to avoid foreclosure. Be aware of the common traps.
Loss mitigation or workouts can take several forms. In some cases, the cleanest workout for a default is an outright refinance of the mortgage loan. This is an expensive alternative because it means conducting a full closing on a new loan with all of the attendant delays and costs (title work, recordings fees and the like). With the tightening of the sub-prime mortgage market, the criteria now require a higher credit score and clean title to the property. Don’t look for any cash out that closing, though. Also be wary of any other company offering loss mitigation or workouts. They can be scams.
Most attractive to borrowers is placing the payments at the end of the loan. In some states, that requires a mortgage modification, an official document recorded in the land records modifying the terms of the loan. In any event, the interest on that missed payment will also be added to the loan meaning that you are really adding more than just one payment to the balance. (Think of 30 years worth of interest on the missed payments.)
The cheapest alternative is a short repayment period of some six to twelve months with the arrearage being added in a monthly amount to the regular monthly payment. While the cheapest and the shortest, it also means focusing on nothing else but the debt repayment so as not to miss any more payments. This comes at great personal sacrifice, but there are some who believe sacrifice builds character.
While working on a payment plan, do not let the mortgage company or servicer stall the process in any way. Yes, they will require a great deal of information from you about your finances, but in the meantime the foreclosure is moving along and there is not a lot of time to make it work. You must also be careful about what is disclosed to the mortgage company, if your finances looks too good, then you should be able to the pay the full arrearage and if your finances are not good enough, the payment plan will be denied.
Workout plans are rarely approved and you should always retain competent legal counsel to help you in the process. The alternative is to lose your home. Now read on to Part Four – Court-Ordered Reinstatement.