The Truth About Loss Mitigation, Short Sales and Foreclosure

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There are millions of homeowners behind on their existing mortgage payments that will result in as many as seven million foreclosures in the next three years. The outcome will be devastating to the individuals, the local community, the lenders, investors and the economy. A great number of those in danger of losing their home were victims of predatory lending or careless investor guidelines. Others suffered hardships such as unemployment, injury, death of a family member and poor budgeting. To complicate matters many have unwittingly been coached into simply walking away with the promise of a short sale, a lease-option and chance to re-enter the market in a few years. But do homeowners and real estate professionals alike really understand the long term ramifications that will impact the homeowner and the local community?

In the past homeowners were urged to refinance or try to sell the home (if there was any equity). But stricter lending guidelines and declining market values eliminate most of these opportunities. Thus homeowners facing rising obligations and foreclosure are forced to consider other options.

Today owners are being solicited for a short sale prior to auction. Unfortunately many providers are not reputable and may only seek to steal any existing equity and displace the owner from the home. But are short sale transactions by legitimate real estate agents the best option available?

There is a proposal to add a "lien" notation to the credit report of all borrowers who elect a short sale that would limit or virtually prevent them from obtaining future financing. This is in direct contradiction to the temporary deficiency forgiveness promulgated by the stimulus legislation most real estate professionals rely upon.

Other homeowners simply fail to act at all or wait until it's too late to obtain a favorable solution as a result of the conflicting information. This will severely impact the homeowner as one of the GSE's (Fannie Mae) has increased its foreclosure seasoning requirement to obtain new financing after a default to five years for a purchase and up to seven years for a cash-out refinance.

Let's face it foreclosures and short sales have a negative impact on both the homeowner and the local community. To better serve these homeowners and maintain local property values we should have a better understanding of all the options available and the resulting consequences:



Owner Maintains Home


80% do not qualify and new payments are higher than original payments


Usually a temporary solution that may cause a larger long-term challenge



Preserves credit and possibility of accessing existing equity


Lack of equity/timing limit opportunities and owner is displaced from home


Dependent on existing equity and marketability of the home.



Extends the foreclosure proceeding for a period of time


Costly stall tactic that tarnishes credit/leads to foreclosure 60% of the time


Misconception is mortgage is protected by bankruptcy - only arrearage.



Preserves credit (through 12/31/08 with current Stimulus Package provisions)


Lack of timing/access to lender limits opportunity/owner is displaced from home


Dependent on existing equity, marketability and lender accepting short payoff



Lender may waive deficiency judgment rights


Owner is displaced from home/credit is damaged/possible tax ramifications


A voluntary foreclosure with no real benefit - a step above foreclosure





Owner is displaced from home and credit is severely damaged


Worst of all possible outcomes for homeowner



Multiple solutions to keep owner in home


Difficult for homeowner to negotiate with Lender


The best solution if owner wants to retain the home


Possibility of lower fixed rate payment and reduction in principle.


Repayment plan that enable arrearage to be made up over time.


Temporary suspension/reduction of payments prior to a repayment plan or modification.


No cost/rate/payment 2nd mortgage - paid after 1st mortgage is completed

Preventing a foreclosure or a pre-auction short-sale has a positive effect on the homeowner, the local community, the lender and the economy as a whole. (Short sales are obviously the best solution when a modification can not be reached or the owner does not wish to retain the home).
While Realtors and Loan Officers may miss out on traditional transactions (sale/mortgage) they can participate in a revenue opportunity with a Foreclosure Prevention Loss Mitigation Company.

Be part of the solution and not part of the problem...

Help stem the tide of foreclosures, preserve local property values and supplement your income with loss mitigation. Many professionals have already explored this opportunity by referring prospects they can not service. It can be a win-win-win situation for all parties and has certainly caused a number of broker/owners to rethink their current business plans.

About the Author: Brian Brass

For more information on how to become a referral partner, a certified consultant or to incorporate loss mitigation into your current real estate/mortgage business plan call (800) 704-8285 free info 24/7.

Consultant Website:

Homeowners to avoid foreclosure call (800) 861-9457 or visit

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