Time is not on your friend when foreclosure is involved. Talk with a housing counselor for foreclosure help.

When an outside party attempts to negotiate between a homeowner and lender, it is known as loss mitigation. The third party is generally in a department within the bank or they can be an outside company.

Negotiation attempts with the mortgage terms are made through loss mitigation to prevent foreclosure. New terms that are reached are also going to require modifications being made to the existing loans. Types of modifications include: short refinance or short sale negotiation, cash for keys, deed in lieu of or a partial claim loan. Other loan types maybe available as well. All of these options are meant to lessen the risk of loss to the lender.

Loss mitigation includes:

Obtaining lower interest rates and principal balance, adjustable rates turning into fixed rates, forbearance, loan terms being lengthened or any of these done in combination results in a loan modification.

With a short sale, the homeowner pays than the principal owed on the mortgage to the bank. This option is normally for those who owe more than the home is worth. It allows them to sell the home for the market value.

A short refinance offers the homeowner a chance to refinance their home with a different lender by lowering the principal balance on the loan to meet the guidelines of the new lender.

A Deed in lieu of foreclosure is an option where the homeowner voluntarily deeds collateral property in return for being released from all obligations under the loan.

To try to avoid the costs of foreclosure, a bank may offer money to a homeowner if the homeowner agrees to leave the home intact. It is called cash for keys.

Forbearance may be granted that will allow for no payments or reduced payments for a specified amount of time. When the period ends, a repayment plan to pay the missed payments may be setup. Sometimes the loan will just be modified.

Partial claims are normally done through HUD. The homeowner will be loaned a certain amount to get the mortgage current. A promissory note will have to be signed as well. Partial claims are paid back when the mortgage is paid in full or when the owner does not own the property anymore. This loan does not incur interest.

Avoiding foreclosure is the biggest advantage of loss mitigation. The programs aim to make it possible for homeowners to stay in their home or be completely released from the responsibilities of the loan. Foreclosures affect homeowners and lenders.

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