How 'Loss Mitigation' Can Help You Avoid Foreclosure

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Falling behind on your mortgage payments is an incredibly stressful situation. When you miss multiple payments, the lender may start the foreclosure process to take possession of your home. However, foreclosure is generally a last resort for lenders, as it is an expensive and time-consuming process. That's why mortgage servicers have "loss mitigation" options to help homeowners avoid foreclosure when possible.

What is loss mitigation?

Loss mitigation refers to the various solutions and processes that mortgage companies use to work with homeowners and attempt to avoid foreclosure. The goal is to find an alternative that is acceptable to both the borrower and lender. Some common loss mitigation options include:

  • Loan modification: Permanently changing the loan terms, such as extending the payoff date or reducing the interest rate to make payments more affordable.

  • Forbearance: Allowing you to temporarily pay a lower or no payment for a set time period, with the missed payments being repaid later or added to the loan balance.

  • Repayment plan: The lender allows you to repay missed payments, along with an affordable portion of the overdue amounts, as a supplement to your regular monthly payments.

  • Short sale: Allowing you to sell the home for less than the amount owed on the mortgage if the lender agrees to the terms.

  • Deed-in-lieu of foreclosure: Transferring the deed to the home back to the lender if they agree to accept it as payment and release you from the mortgage.

How to pursue loss mitigation options

The key is to be proactive and contact your mortgage servicer as soon as you realize you are having difficulty making payments. Most have loss mitigation departments to explore options tailored to your situation. Be prepared to explain why you fell behind and provide documentation like pay stubs, bank statements, tax returns, etc.

You may have to go through a loan modification application process where you submit information to allow the lender to determine if you meet the requirements for an option like a loan modification. Be responsive to all requests for documents and persistent in your communications.

Foreclosure is a lengthy process, so there is typically time to work with the lender on a loss mitigation solution. However, don't wait until you have missed multiple payments to seek help. Lenders are far more willing to work with homeowners before a foreclosure has been initiated.

By taking advantage of loss mitigation programs, many homeowners can get financial relief and avoid the significant impact of foreclosure on their credit and finances. With an open dialogue and commitment to providing requested information, it may be possible to find an alternative path forward. For more, here are the first steps you should take whenever you're facing foreclosure.


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