What is Loss Mitigation?
Loss mitigation is a process used by mortgage lenders to work with homeowners behind on the mortgage payments to hammer out foreclosure alternatives. Through this process, lenders may grant loan modification, short sale, refinance, deed-in-lieu, special forbearance or partial claim.
The federal government mandated servicer participation in the Federal Housing Authority’s Loss Mitigation Program. Effective July 1, 2014, servicers must inform borrowers of and evaluate them for each loss mitigation option in a timely manner.
Miami foreclosure defense lawyers at Jacobs Keeley are committed to assisting struggling homeowners through this process.
It’s worth noting many borrowers who historically sought help on their own through loss mitigation have had nightmarish experiences. In the wake of the mortgage meltdown, banks and servicers became notorious for extending false promises, “losing” paperwork and charging unauthorized fees.
Regulators have been cracking down more heavily in recent years.
Just one example is servicing giant Ocwen, which was ordered by the Consumer Financial Protection Bureau in 2013 to pay $125 million in relief and $2 billion in principal reductions after it was found to have systematically dragged its feet on the loss mitigation process. In violation of the federal Consumer Financial Protection Act, it provided borrowers with inaccurate information, misrepresenting their options on everything from loan modification to short sales. It also improperly denied loan modification and other loss mitigation relief to borrowers who were eligible.
Ocwen wasn’t the only servicer engaged in such practices, and as a result, consumers have become largely disillusioned with the whole process. In order to ensure you aren’t put on a fruitless “paper chase,” our experienced foreclosure defense lawyers advocate on your behalf throughout the loss mitigation process to ensure your rights and interests are protected.Loss Mitigation Servicer Requirements
In November 2013, the U.S. Department of Housing and Urban Development (HUD) issued an update to the FHA’s Loss Mitigation during the Foreclosure Process.
Purusant to 24 CFR 203.605, mortgage servicers must initiate monthly analysis of loss mitigation tools available to delinquent borrowers, and they must carefully document these evaluations. They must also timely respond to and complete loss mitigation requests. A loss mitigation request is not deemed complete until it contains all information necessary for evaluation of available loss mitigation retention and non-retention options.
The review has to include whether the borrower qualifies for any loss mitigation option, actual reasons for any denial of certain loss mitigation options and the servicer’s points of contact and process for appeals of those decisions.
In fact, a servicer can only initiate a foreclosure if there have been defaults of at least three consecutive monthly payments and the borrower meets at least one of the following criteria:
- Does not qualify for a loss mitigation option, the borrower has been properly notified of this and the servicer has rejected any available appeals;
- The borrower failed to perform under an agreement on a loss mitigation option;
- The servicer couldn’t make a determination of a borrower’s eligibility for loss mitigation because the borrower did not respond to servicer contact.
Servicers can bypass these requirements if the property has been vacant at least two months or if the borrower, having been clearly advised of these options (including deed-in-lieu of foreclosure and pre-foreclosure sale) has clearly stated in writing he or she has no intention of fulfilling his or her mortgage obligations.
The law also requires servicers to be clear in establishing which documents are necessary to complete the reviews and the deadlines for receipt of that paperwork.
Borrowers have the right to request loss mitigation help after a foreclosure filing. Upon receipt of this request, the servicer has to terminate the foreclosure proceedings if:
- A borrower’s financial situation qualifies him or her for a loss mitigation option;
- The borrower has been given at least 14 days to accept the offer (so long as it’s at least 37 days prior to the foreclosure sale date);
- The servicer receives an executed loss mitigation option agreement indicating the borrower understands the terms and agrees to abide.
There are numerous options for loss mitigation, both in cases where homeowners are fighting to keep their properties and when they are more inclined to walk away.
Those options include:
- Loan modification. This is when the mortgage is modified and both the lender and borrower agree to new terms. Most commonly, this includes a lower interest rate, although principal balance reduction is also sometimes an option.
- Short refinance. This is a process in which a lender agrees to reduce the principal balance of a mortgage in order to refinance with a different lender.
- Special forbearance. This is when borrowers are allowed a reprieve from monthly payments or a greatly reduced monthly payment for a set period of time. Usually, lenders ask borrower s to agree to a repayment plan in order to make up those payments missed. However, in some situations, loan modification is agreed.
- Deed-in-lieu (of foreclosure). Here, a homeowner agrees to deed collateral property in exchange for release from mortgage obligations.
- Short sale. Here, the lender agrees to accept a payoff amount that is less than the principal balance of the homeowner’s mortgage so the home can be sold for the actual market value. This option has become increasingly common with so many homeowners who owe more on their loan than the property is worth.
If you're battling foreclosure in Miami or the surrounding areas contact Jacobs Keeley Trial Lawyers for a confidential appointment to discuss your rights.
Call us at (305) 358-7991.