Losing your job, going through a health crisis, or facing any kind of emergency means you might not be able to make ends meet. If you’ve fallen behind on mortgage payments, you could face a lien on—or legal claim against—your home and eventually foreclosure. Before you have to move or become homeless, loss mitigation may be your saving grace.
Loss mitigation is the process mortgage servicers engage in to help borrowers avoid foreclosure, ranging from a repayment plan to a short sale. Lenders don’t want to kick you out of your home any more than you want to lose it. If you’re facing payment problems, you may want to consider filing an application for loss mitigation with your lender.
What Is a Loss Mitigation Application?
A loss mitigation application is a form that details your income, expenses, people in your household, and financial hardship. Federal law requires mortgage servicers to work with you during the application process or put you in contact with a loss mitigation specialist who represents the servicer.
A loss mitigation application includes:
- Personal information about you and your co-borrower, if applicable
- How you’d like to handle the property: keep, sell, or vacate
- Financial information, including tax bills, insurance, and any house liens
- Details of your financial hardship
- People in your household
- Checking, savings, and investment account details
- Disability, unemployment, and monthly income
- Cost of insurance, fees, and general household expenses
While it’s a good idea to contact your loan servicer as soon as possible, many local governments have programs to help owners avoid delinquency or default.
You can also reach out to a nonprofit lawyer or counselor to guide you through your options, including filing a loss mitigation application.
How Does a Loss Mitigation Application Work?
You can request a loss mitigation application through your loan servicer whether you’re delinquent, in default, or facing foreclosure or bankruptcy. Servicers have 30 days to review all loss mitigation options based on your eligibility. You’re not required to request a specific option, but you can if you want to. For instance, if you’d like to request a Flex Modification to resolve your delinquency and keep your home if your loan is owned by Fannie Mae or Freddie Mac or a forbearance plan, you may.
Be mindful about pending foreclosure sales. The timeline matters to your application. Keep these time frames in mind:
- If you submit your application at least 37 days before a scheduled foreclosure, your loan servicer is required to delay the foreclosure long enough to complete the loan mitigation review.
- As long as a foreclosure isn’t scheduled within 45 days, your loan servicer must acknowledge in writing within five days that it received your application as well as let you know if the company needs any other documents to process it.
- If your application was received 90 days before a scheduled foreclosure, you can appeal a denied loan modification.
There might be some costs associated with filing a loss mitigation application, including modification, handling, and late fees. Some charges might be waived to make the loss mitigation process easier, so try to request fee waivers during the loss mitigation process, if needed.
Who Is a Loss Mitigation Application Best For?
You may want to complete a loss mitigation application if:
- Your mortgage is past due, delinquent, or in default.
- You’re facing foreclosure on your home.
- You’ve lost your job or become disabled, preventing you from working.
- You’re facing costly medical bills for yourself or a family member that are preventing you from making mortgage payments.
- There’s been a death in your family and you face expensive costs associated with the loss.
- You’re going through a divorce or other circumstances beyond your control.
Not everyone is eligible or will be approved for loss mitigation. The sooner you contact your servicer, the sooner you’ll be able to work out a plan that best fits your situation.
Pros and Cons of Filing a Loss Mitigation Application
While loss mitigation might be a saving grace for some, it does come with some downsides.
Helps you avoid the loss of your home
Adjusted repayment plan
Could get denied
Losing your home's still possible
- Helps you avoid the loss of your home: By getting approved for loss mitigation, you get to keep your home. That means you don’t have to find a new place to live or risk becoming homeless.
- Adjusted repayment plan: If your current mortgage payment is impossible to make, you can—at least for the time being—get on a modified repayment plan. You can also request forbearance to temporarily pause payments, which get added to your loan at the end of the original term.
- Could get denied: Just because you complete a loss mitigation application doesn’t mean you’ll get approved. There’s a chance you don’t have a great enough financial hardship or haven’t let enough time pass to qualify for loss mitigation. With that said, you might still be eligible for other types of hardship assistance. Talk to your loan servicer about your options.
- Losing your home’s still possible: A short sale is an option in loss mitigation. This is when you sell your home for less than what you owe and the loan servicer keeps the proceeds.
- If you’re struggling to make payments on your mortgage, you might be eligible for loss mitigation.
- Loss mitigation has flexible mortgage repayment terms based on your financial hardship, giving you the chance to keep your home and avoid foreclosure.
- There’s a chance you still could have your home taken away through loss mitigation, but the goal is to stay put and work out a plan that’s a good fit for you and your loan servicer.