If you are facing foreclosure, the first thing you need to do is contact the Loss Mitigation Department of your mortgage lender. A Loss Mitigator will be assigned to your account and will work with you to determine what, if any, options are available to help you avoid foreclosure. The main function of a Loss Mitigator is to devise a plan that will allow the borrower to remain in their home.

Prior to contacting Loss Mitigation, organize your financial records and create a list of income and expenses, along with a proposed repayment plan. If you have the means to get caught up on your mortgage loan, your lender may offer you a Loan Modification or Forbearance Agreement.

Typically, loan modifications consist of rolling over past due payments to the end of the loan, or temporarily reducing monthly payment amounts. Oftentimes, the unpaid monthly payments are placed at the back of the loan, meaning the homeowner will wipe their current past due balance clean. However, they will have to make payments on their mortgage note for an additional one to three years.

If you are unable to become current on your mortgage payments, the Loss Mitigation Department may accept what is known as a Short Sale. This process involves selling the home for less than is owed on the loan. For instance, if you owe $100,000, the lender may allow you to sell the home for $95,000.

Short sales can be somewhat tricky, so it's a good idea to work with someone familiar with the process. It's also important to note that the IRS may charge tax on the difference between what was owed on the house and what was received. Using the example above, this means you might be charged tax on the $5,000 difference.

Currently, banks are only accepting about one out of ten short sale requests. The reason for such a low acceptance rate is the fact that many people do not submit all of the required documentation. Since it is the job of the Loss Mitigation Department to keep losses to a minimum, most won't even consider short sell offers of less than ninety-five cents on the dollar. Many real estate experts suggest lenders will be forced into accepting sixty-five to seventy cents on the dollar in the near future. Reason being is the massive amount of foreclosure properties in America.

Finally, if you are unable to obtain a loan modification or short sale, the Loss Mitigation Department might allow you to give the house back to the bank using a strategy known as Deed in Lieu of Foreclosure.

In order to qualify for a Deed in Lieu of Foreclosure, you must exhaust all other options including attempting to sell your home. While this arrangement will not save your home from foreclosure, it is not nearly as damaging to your credit report.

If you are facing foreclosure, take time to become familiar with the options available. Doing so can help you better negotiate with the Loss Mitigation Department. Keep in mind that lenders want borrowers to stay in their homes and make their mortgage payments. If you make a concerted effort to bring your mortgage payments current and are willing to do whatever it takes to save your home, chances are good you can avoid the foreclosure process altogether.

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