They may suggest or offer you one of the options below to help you avoid foreclosure proceedings. some of which will allow you to stay in your home. Others may require you to move.
To determine the best plan for your situation, read and understand the options below.
Loss Mitigation
Loss mitigation refers to the steps mortgage servicers take to work with a mortgage borrower to avoid foreclosure. Loss mitigation refers to a servicer's responsibility to reduce or “mitigate" the loss to the investor that can come from a foreclosure. Certain loss mitigation options may help you stay in your home. Other options may help you leave your home without going through foreclosure. Loss mitigation options may include forbearance, repayment plan, loan modification, short sale or a deed-in-lieu of foreclosure.
Forbearance
Forbearance is when your servicer allows you to temporarily pay your mortgage at a lower rate or temporarily stop paying your mortgage. Your servicer may grant you forbearance if, for example, you recently lost your job, suffered from a disaster or from an illness or injury that increased your health care costs. Forbearance is a type of loss mitigation.
Repayment Plan
A repayment plan is a structured way to make up your missed mortgage loan payments over a certain period of time. This is a type of loss mitigation. If you have trouble making your mortgage payments, your lender or servicer may allow you to enter into a repayment plan. Before entering into a repayment plan, make sure you understand the requirements of the plan and whether you will be able to make the new payments.
Loan Modification
A mortgage loan modification is a change in your loan terms. The modification is a type of loss mitigation. A modification can reduce your monthly payment to an amount you can afford. Modifications may involve extending the number of years you have to repay the loan, reducing your interest rate, and/or forbearing or reducing your principal balance. If you are offered a loan modification, be sure you know how it will change your monthly payments and the total amount that you will owe in the short-term and the long-term.
Short Sale
A short sale is a sale of your home for less than what you owe on your mortgage. A short sale is an alternative to foreclosure, but because it is a sale, you will have to leave your home. If your lender or servicer agrees to a short sale, you may be able to sell your home to pay off your mortgage, even if the sale price or proceeds turn out to be less than the balance remaining on your mortgage. A short sale is a type of loss mitigation. If you live in a state in which you are responsible for any deficiency, which is the difference between the value of your property and the amount you still owe on your mortgage loan, ask your lender to waive the deficiency. If the lender waives the deficiency, get the waiver in writing, and keep it for your records.
Deed-in-Lieu of Foreclosure
A deed-in-lieu of foreclosure is an arrangement where you voluntarily turn over ownership of your home to the lender to avoid the foreclosure process. A deed-in-lieu of foreclosure may help you avoid being personally liable for any amount remaining on the mortgage. If you live in a state in which you are responsible for any deficiency, which is a difference between the value of your property and the amount you still owe on your mortgage loan, ask your lender to waive the deficiency. If the lender waives the deficiency, get the waiver in writing, and keep it for your records. A deed-in-lieu of foreclosure is one type of loss mitigation.
Homeowner Assistance Fund
Administered by Kentucky Housing Corporation, this funding is from the American Rescue Plan Act of 2021. Thes Homeowner Assistance Fund will assist qualifying homeowners who have experienced financial distress due to the COVID-19 pandemic with direct assistance for mortgage payments, property taxes and insurance, homeowner's association fees and utility assistance.
The Homeowner Assistance Fund Program offers eligible applicants a one-time solution to deal with past due balances with the possibility of up to six months of future mortgage payments.
Homeowners may only apply one time for the program. Once you have received full reinstatement or the maximum assistance amount, whichever comes first, you are not eligible for additional funds from this program.
If you opt to receive assistance through the Homeowner Assistance Fund Program before completing COVID Loss Mitigation Options, you may lose access to those once your mortgage has been brought current. Instead, you would have to work on the standard loss mitigation review process, which will require much more paperwork and time. If you need additional assistance later, the Homeowner Assistance Fund Program may still be an option for you, if you qualify.
Depending on the type of mortgage you have, your servicer may not be required to offer loss mitigation. If that is the case, you may not have any other options except the Homeowner Assistance Fund Program.
Special Notes
Many investors created special loss mitigation options during the COVID-19 pandemic. The COVID Loss Mitigation options are similar to the standard options defined above but simplified with reduced or no paperwork and extended terms. Homeowners need to speak with their servicers to find out which loss mitigation options they are eligible to receive or if they are already enrolled in one of the COVID plans.
For other mortgage key terms, visit the Consumer Financial Protection Bureau's page.