Loss Mitigation options to stay out of foreclosure

Here's an overview on what you should do when you cannot keep up with the usual payments, how to negotiate with the lender and what actually happens when you are considered for loss mitigation/loan workout plan.

Contact lender: Until you've missed a few payments, lenders wouldn't like to negotiate with you for a workout plan. So, once you're behind for 2 months, contact the lender's Loss Mitigation Department and request for a loan workout option to help you pay down the mortgage.

Hardship letter: Prepare a hardship letter including the specific date when the hardship started. Take a look at a Sample Hardship Letter. You should attach documents supporting your hardship claim. The hardship letter should be detailed and typed so that one can read and understand why cannot continue with the usual payment plan and what option you have thought of in order to repay your loan. Know more on how to write a hardship letter.

Lender's analysis of your loan: Usually when a borrower is delinquent for more than 90 days, and doesn't seem to contact the lender for the payments, the latter decides to evaluate the loan. For this purpose, he asks for the borrower's financial information by sending in a form similar to HUD-92068 F, Request for Financial Information. The lender may also check the credit report of the borrower along with the following documents:

• 2 months of bank statements
• Tax filings for past 2 years
• Receipts of 4 months of regular monthly payments
• Personal statement about your financial
• situation that made you delinquent
• Paystubs for past 2 months (to check for current ability to pay off loan)
• Name and Contact details of borrower's current employer
• For self-employed persons, last 2 years of tax information and year-to-date and profit and loss business statement for past 2 years.
• Recent utility bill

The lender reviews the above docs and analyzes the borrower's current and future ability to pay off the mortgage through monthly installments. He calculates the following items for the borrower:

• Monthly net income for past 2 years (adjusted to changes in income)
• Monthly living expenses (under normal conditions) with debt payments (adjustments are made to reflect rise or fall in expenses for each of the first 3 months of the loss mitigation option)
• Surplus income available each month by deducting expenses from income
• Surplus income percentage by diving surplus income by total monthly expense

Based on the above calculations, the lender suggests a loan workout option which reflects your (borrower's) ability to repay the loan. However, if things don't work well with your lender then you may avail the services of a professional loss mitigation specialist or company to negotiate a loan workout plan for you.

Here's a rundown of the workout options you may avail in order to avoid a foreclosure. Know when to select which option and how you'll benefit.

Options	How to benefit	Who qualifies	When to qualify	Property condition
Special Forbearance	Repayment plan for the borrower to cover the dues and get current on loan until he can make usual payments through a structured payment plan or loan modification	One who has suffered verified loss in income Living expenses have gone up but has enough to cover the dues and get current on the loan One should occupy the property as his primary residence	Delinquent for 3 months but not more than 12 months	Property should not need repairs which may affect payment under forbearance
Loan Modification	Permanent Change of terms of the loan - the dues are included into the loan balance and reamortized at a reduced rate of interest	Suffered verified loss in income or increase in living expenses but have stable surplus income to help pay at the modified rate and terms Borrower should remain as the owner occupant and property should be his primary residence One having loan at above market rates, lower loan-to-value ratio and mature terms (loan paid down for 10 years or more) One who isn't delinquent but may soon default on the loan	Behind on payments for is 3 months or more and 1 year have passed since the loan has been offered	Property should be in good physical condition; otherwise costs to complete repair work will drain out enough cash and borrower won't be able to make payments under the modification
Short Sale/ Pre-foreclosure Sale	Sell off property to pay off the debt, though property value has declined to less than the money owed. Know more...	One having verified loss in income. Having negative equity of not more than approx. 63% of the unpaid loan balance. Occupies property as the primary residence. Non-occupant may qualify but have to prove that the need to vacate is related to the cause of default.	One who is already behind on payments Borrower likely to be in default soon	No serious damage to property. Even if damaged, cost of repair should not exceed 10% of the Repaired Appraised Value Property should have marketable title and even if there are junior liens, they can be resolved
Deed-in-lieu of Foreclosure	Borrower offers property to lender who sells it off to retrieve the unpaid balance. Know more	One who's unable to continue payments at all. Occupies property as the primary residence Non-occupant owner can qualify, but he has to prove that the need to vacate is related to the cause of default	The loan is in default (that is, the borrower has been through 30 day or more late payments and the cause of the default cannot be eliminated)	Property should have good and marketable title Property shouldn't have been used as rental property for more than a year
Partial Claim	Placing your past dues into a subordinate 2nd mortgage (not exceeding 12 months of PITI) payable to HUD (2nd loan payment to begin only after first mortgage is paid off; there's no interest for the 2nd loan )	Those having FHA loans and mortgages offered by Freddie Mac approved lenders. Unable to qualify for forbearance. Use property as the primary residence. Can prove that financial hardship is over. May qualify even after bankruptcy filing but court approval required.	Delinquent for 4 months but not more than 12 months	Property should be in good physical condition