A loss mitigator refers to an individual who specializes in helping homeowners who have become delinquent on their mortgage note. Loss mitigators either work as an employee of the bank; independent representative for the lender; or an agent who represents the homeowner.
The primary roll of a loss mitigator is to develop a plan allowing borrowers to remain in their home. The most common option offered is a loan modification. When mortgage loans are modified, terms are permanently altered. In some cases, borrowers end up paying a higher mortgage payment in order to cure arrearages
Loan modifications can be a good option for people who experienced a temporary financial setback, but are able to get back on track. Many borrowers make the mistake of agreeing to pay more than they can actually afford in order to prevent foreclosure.
When borrowers are unable to adhere to the repayment schedule, or do not qualify for a loan modification, the lender can either authorize a short sale or commence with foreclosure action. Short sales allow the borrower to sell their home for less than they owe on their home loan. While this may sound like an ideal arrangement, it is important to understand the pros and cons of this type of transaction.
Borrowers need to speak with their loss mitigator to determine the type of short sale offered through the lender. Two types of short sales exist and they are worlds apart. The first is known as Payment in Full without Pursuit of Deficiency Judgment. What this means is the lender agrees to accept the purchase price as payment in full. When the property sells, the borrower is released from any further financial obligation.
The second is known as a Deficiency Judgment. This means the lender holds the borrower responsible for the deficiency between the purchase price and loan balance. Lenders usually allow borrower's to sell the home for 7- to 10-percent below market value. As housing prices continue to drop, many homeowners owe considerably more than their home is worth.
Individuals holding a second mortgage can spend a lifetime trying to repay the balance. Consider where you stand at this moment. How much do you owe on your home loans and what is the current appraised value? Now subtract 10-percent from that amount. Are you in a position to repay several thousand dollars? If not, a deficiency judgment can be one of the worst financial decisions you will ever make.
When borrowers cannot obtain short sale approval, or their lender only engages in issuing deficiency judgments, the only option left is foreclosure. Just as with short sales, lenders can persue borrowers for sale deficiencies.
Foreclosure homes are sold through auctions. If no one buys the property, it is returned to the bank. The bank isn't going to give the house away, but if a reasonable offer is presented most lenders will accept them. It may take two or more years for the property to sell. The lender can persue the borrower for costs incurred while they were holding the real estate, along with the difference between the sale price and loan balance.
It is important to develop a strong working relationship with bank loss mitigators. Doing so can improve your chances of obtaining a successful outcome. Realize loss mitigators do not make final decisions, but they can help sway the lender's decision. When working with loss mitigation, be prepared, organized, respond in a timely fashion, and by all means be nice!
With the astronomical number of foreclosure properties, loss mitigators are overwhelmed with work. Financial experts state only 10-percent of short sale requests are granted.
I have spent the past two years working with lenders, loss mitigators, realtors and attorneys to determine factors for obtaining short sale approval. The end result is the "Short Sale Hardship Letter eBook Course"; a short, concise guide that can improve your chance of success ten-fold.
Additionally, our short sale article library is packed with information and resources about loss mitigation, foreclosure, short sales and various real estate topics.
Published on June 30, 2009 at 02:46 AM