Several fellow active rain bloggers asked me what Loss Mitgation was and why it was part of the short sale process, so here we go...
Loss Mitigation is a process of negotiations between the mortgage lender and the home owner. The lender has no financial gain to foreclose and looks to work out the issues with the home owner. The two most popular solutions are Forebearance and Loan Modification. Forebearance actually bring a homeowner's mortgage current and adds the past due payments on to the end of the loan and usually sees a 1 time waiver of all late fees, but it does not reverse the negative impact on the home owners credit report. Loan modification is where the lender agrees to restructure the original mortgage into a product the owner can afford to pay and remain current for the future. Both of these remedies do not come with some side effects. The main issue with forebearance is the fact that most home owners do not restructure their budget and find themselves again in a past due situation, an average of 65% of the time the home owner does lapse into foreclosure. Loan modification does have a higher success rate but the main issue is the loan is re-worked and any equity the owner might have had is vanquished as a part of the modification process in fees and closing costs. Hey if you like your house and the market is a good market then the loan modification beats a poke in the eye with a stick and foreclosure.
If you are working with a client on a short sale, do not forget to include Loss Mitigation, if the bank says no on the short sale and you save the owner's house as a bonus, who do you think they are going to refer their friends to?
You will need to check with your principal broker and an attorney to get the stae specifics on these processes in your state. Every stae has different redemption periods, different rules on loan re-instatement and different rules on how an agent can act in dealing with this process.
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