The goal of loss mitigation is to work out a mortgage loan modification solution that benefits both lender and borrower. Neither party wins when a homeowner struggles to pay their loan, so lenders have great incentive to work toward a solution. While you can represent yourself during the process, it is probably best to use a third party. The experience and understanding of the process a professional company has will prove invaluable in reaching the right solution. Neutrality in the situation puts loss mitigation specialists in a better negotiating position with the lender.

Nobody wins when a homeowner can’t pay his or her loan. The federal government and lending institutions know this and established loss mitigation as a means of working out a desirable solution for all parties involved.

Here are some  places to read more about loss mitigation options:

• Loan Modification – Permanent change to your loan details resulting in a new contract
• Short Sale – Negotiated sale of your home at a price below what you owe
• Foreclosure – Overview of foreclosure and you can do about it

The main goal is to establish a way for you to keep your home through loan modification. If keeping the home doesn’t prove viable in your situation, additional options provide an opportunity for you to get the most out of the situation with a better result than what foreclosure can offer.

Loss mitigation is a time-sensitive option and it’s important you take action today. The more time you have on your side, the better chance you have of securing a positive outcome. Of course, even if you don’t have much time, you should explore these options to the fullest.

Loan Modification

A loan modification is a permanent change in one or more of the terms of your loan creating a brand new contract between you and your lender. You or your loss mitigation company works with the lender to create a new contract that will reinstate your loan and give you a fresh start by restoring your credit status. The new terms will be shaped by your ability to pay and can include adding the delinquent balance to the loan, reduce the interest rate, extending the years due, and sometimes reducing the balance owed.

Short Sale

A short sale is a negotiated sale of your home at a price below what you owe on the mortgage. If you face an uncontrollable hardship that makes it impossible to afford your home and because of a market fluctuation you owe more then your home is worth, then working with your lender to negotiate for a short sale could be your best option. By approving a short sale, the lender can avoid a lengthy and costly foreclosure, and you can pay off the loan for less than you owe. This option is beneficial for you as it significantly lessens the impact to your credit versus foreclosure and can often be removed completely.

Forbearance

In a forbearance agreement with your lender, you generally get some sort of temporary relief on your mortgage. It is essentially an acknowledgment that you have a situation that has temporarily weakened your ability to pay what you owe every month, but will turn around as soon as the hardship you are experiencing is over. This could be something like a period of unemployment or a medical issue that gets resolved.

Deed-in-Lieu of Foreclosure

This program could be considered just short of foreclosure, but still a better resolution. The result are similar in that the bank takes over your home, but by avoiding the foreclosure process, none of the proceedings become public and you are free of any personal indebtedness meaning the lender won’t be able to sue you.

Cash For Keys

In some cases, lenders are willing to pay a certain amount of money for you to walk away from your foreclosed home without doing any damage to it. Many homeowners become disgruntled and do extensive damage costing thousands of dollars to repair. This is why lenders are willing to pay you for a peaceful exit. It may be a hollow gesture, but it’s still something for you to take away during the painful foreclosure process.

When you get behind on mortgage payments – even just one payment – it’s time to take action. You should at the very least make a phone call and speak with a loss mitigation specialist about what you need to do going forward. Any good legal firm that represents homeowners will consult with you about your situation for free. The conversation should get into some depth about your situation and give you some clarity about your options going forward.

Of course, you always have the option of doing it yourself. If you insist on trying to remedy a troubled home loan on your own, be persistent and don’t back down. Lenders may try to intimidate and take advantage of the fact you don’t have representation.

Whether you choose to do this on your own or with help, the point is to get started with something.

When it comes to your home, you can’t be too cautious. Staying on top of the situation can be the difference between long, sleepless nights and a safe, secure future. If you’re sitting at home right now and thinking, “I may be in trouble, but not yet,” then you need to take action. Don’t let that first missed mortgage payment snowball into something you can’t control.

During the short sale process, the borrower and lender must come to an agreement to sell the property at a price that is lower than the outstanding loan amount that is owed by the borrower. A real estate agent works for the seller to both negotiate with the bank on an agreeable sale price and find a buyer that is willing to weather a process that can be long and difficult to complete. Buyers typically like short sales due to the fact they can get a better price on the home than what it typically might cost.

As mentioned, the short sale process can be lengthy. Negotiations must be done with the bank and they must agree that the property should be sold for less than what is owed on the loan.

A real estate agent or loss mitigation expert should prove valuable during the process. There will be more paperwork than usual and the bank will require the homeowner to document income and expenses to make sure a short sale is an appropriate solution. A hardship letter will also be required to document why the borrower is unable to meet the existing loan obligations.

If done correctly, it is a victory for all parties involved. The seller gets out from under an unaffordable loan, the buyer gets a better deal and the bank is able to maximize recovery of their losses. Furthermore, for the seller, they minimize damage to their credit and will be able to recover faster than if they chose to go through with the foreclosure process.

Many homeowners don’t understand the difference and therefore don’t know if they should let the foreclosure happen or if a short sale is better. This ultimately leaves the lender with all the leverage and puts the homeowner’s fate in someone else’s hands.

It’s important to know all the consequences of both options in order to make an informed decision about whether or not to go with a short sale or foreclosure. Of course, we could simply say to always pursue anything that avoids foreclosure as that is often the worst result, but that’s too easy. Let’s look a little deeper.

Advantages of Letting the Bank Foreclose

• You don’t have to do anything. This method does not require you to take any action. Some people actually prefer to walk away which brings us to…
• …Cash For Keys. Because of the hard feelings created by a foreclosure, some people choose to trash the home on their way out. Lenders often offer a cash for keys program that pays the leaving homeowner for keeping the home intact. If you’re going to foreclose, you might as well check into whether or not the lender will pay you cash.

Advantages of Short Sale

• Results in less damage to your credit both short term and long term
• Reduces the chances your lender will pursue you for a deficiency judgment
• Allows you to purchase another property sooner (after 2 years)

Make no mistake, the short sale is a better option and we could probably list more reasons to support that statement.

In addition to the positive aspects of a short sale, the list of disadvantages on a foreclosure is quite long. It remains as public record for the next 7 to 10 years, it affects the credit report, any future purchase, your ability to get other loans, current or future employment  and more.

Short sale or foreclosure? The answer is pretty simple. Walking away should only be a last resort.

While we’re sure you understand that foreclosure is not something you want, here are a few reasons that foreclosure prevention can be so critical on a personal level.

• Foreclosure becomes a public affair as the notice of sale is published and available for anyone to find.
• The auction of the property also is held publicly in order to find potential buyers. If you don’t want anyone to know about your struggles, foreclosure will be impossible to hide.
• The borrower cannot purchase any other property for next 7 to 10 years due to the record of foreclosure being on your credit history.
• It’s not just a home loan. Any type of loan is basically impossible to get for the next 7 to 10 years.
• Employment may be affected. Employers have the right to look at your credit history. Depending on the job, this may be a sticking point for the the employer or at the very least, a way to eliminate you from contention amongst qualified candidates.
• Current employment can be terminated. It’s probably not going to happen, but in certain jobs, it can be an important criteria for maintaining employment.
• Again, for select jobs, security clearances can be affected by a foreclosure.

There’s more to the reasons foreclosures are such a negative when you look at the macro level. The effect they have on our economy, on your neighbors and on our communities can be just as damaging as what they do to you as an individual.

Make no mistake, foreclosures are a problem for everyone, not just those going through it. Foreclosure prevention programs are important for all of us as we try to work out from under a difficult housing market that continues to effect people from coast to coast.

A short sale negotiation needs to involve both a real estate agent and negotiation specialist. A specialist is often someone from a legal firm or other third party loss mitigation company.

The reason for this negotiator is that banks are often difficult to deal with. Some people might choose to deal directly with the bank themselves, but in a process as complicated as a short sale, it’s best to enlist professional help.

If you do try to work directly with the bank on your own, be sure to always remain calm and confident. It’s very easy to get frustrated. Banks are very good at telling you no.

One of the most important parts of the short sale negotiation is the package you and your loss mitigation specialist put together for the bank.

Make sure the package includes all the materials the bank has requested. This often includes a hardship letter from the homeowner or owners, estimated value of the property, estimates for any needed repairs of the property, homeowner’s income tax return documents and a borrower’s offer price for selling the property.

After verifying all the documents, the most time consuming part is negotiating the price for the home to be sold. The bank will obviously look for more profit and may not always agree to the price offered by the borrower. This is a critical part for you to have representation. Banks deal with individual homeowners differently and try to get as much out of them as possible. A negotiator is going to have a better idea of what is really possible and should be able to get a fair agreement just about every time.

Short sales are a lengthy process and the negotiation can drive you positively crazy. Let someone else handle it and keep your stress to a minimum.

After about three to six months of missed payments, the lender sends a Notice of Default (NOD) to the borrower. This is essentially a notification to the homeowner that they are getting dangerously close to foreclosure. Before the home is auctioned off there is an opportunity for reinstatement and even when you have an NOD, all hope is not lost. With the housing market in so much turmoil, many states are allowing the NOD process to be delayed for a much longer period of time than what used to be the standard.

In order to stop the foreclosure process, the loan must be brought current. If the default is not corrected within a few months, then a foreclosure date is established. That’s when the owner receives a Notice of sale and that will be posted on the property. Additionally, the Notice of Sale is recorded at the County Recorder’s Office in the county where the property is located. Last but not the least, this Notice of Sale is also published in local newspapers for over a three week period. The time and location of the sale are mentioned in the Notice of Sale.

At the Trustee Sale, the property is auctioned publicly to find the highest bidder, who must pay the high bid price in cash, typically with an up front deposit and the remainder has to be paid within 24 hours. The opening bid on the property is set by the foreclosing lender which is usually equal to the outstanding loan balance plus interest, and any additional fees and attorney fees. If there are no bids higher than the opening bid, then the property is deemed as a REO or Real Estate Owned.

Here are two options for finding short sale help:

• Professional Loss Mitigation Specialists. You may contact a loss mitigation office and hire legal professionals to take care of the short sale procedure. Make sure that the loss mitigation company has a good reputation and is already established in this kind of business. Again, you want experience in these situations. A good loss mitigation firm can also recommend a short sale real estate agent that has familiarity with this type of transaction.
• Real Estate Agent. Realtors are a great resource and you’ll definitely need one to sell your home. But you don’t want just any realtor working your short sale. This has to be someone with verified experience selling homes that require bank approval of a sale price that is less than what is owed on the mortgage. A good agent will probably have a person or business that is adept at handling the lender negotiation aspect of the sale. Short sales are difficult to do and time consuming for just one agent.

Whatever you do, don’t attempt to do a short sale without help. Typical real estate transactions are already tough enough. Throw in the extra hassle of a short sale and it’s an extremely difficult process.

Even with help, you’ll need to prepare for a long drawn-out process involving back and forth negotiations with the lender. Just because you have a buyer at an agreed upon price does not mean the sale will go through. The bank must approve all short sale deals. Enlisting the help of an experienced firm, agent or both will help smooth out that process.

If you find yourself in this unfortunate situation, it’s important to know your foreclosure rights as a homeowner. You’ll want to make the best of what is obviously an undesirable situation.

It’s important to note that foreclosure rights vary by state. You’ll want to check local law where you live to make sure you fully understand your rights. What follows is more of a general outline of what you can do if foreclosure is becoming a real possibility.

• Right of redemption. in many locales, there is a process called redemption that allows you to buy back your home within a certain window of time near the sale date. In some cases, the right of redemption might end upon sale, but in other states, it can last up to a year after the sale.
• Lender negotiation. Even though your lender may have served notice that the home will be put into foreclosure, you can always negotiate. Professional loss mitigation companies can actually help you come to terms with the lender that allow you to avoid foreclosure altogether.
• Sell the home. Try and sell your home before foreclosure can take place. If the home can’t be sold for enough money to pay off the loan, try a short sale. These are extremely common nowadays and lenders often approve short sales to avoid the foreclosure process.

The foreclosure process is expensive and time consuming for lenders and there is no guarantee that they will get more than the opening bid – the actual outstanding amount plus other expenses – at the auction of the property. In other words, you may be looking at foreclosure, but it’s not the final word. You have rights and you may still be able to save your home.