What is Loss Mitigation?
Loss mitigation refers to programs that Servicers or lenders might offer to delinquent Borrowers to avoid foreclosures. These include programs that will allow Borrowers to come current on a Mortgage loan as well as programs that allow Borrowers to dispose of property without it being sold at public auction.
Foreclosure Intervention under Administrative Order 2011-05-02-01
From 2011 to 2023 South Carolina’s Supreme Court had in place an Administrative Order (number 2011-05-02-01) allowing certain Mortgage foreclosure Defendants to participate in something called Foreclosure Intervention prior to being required to Answer the Summons and Complaint. Participating in Foreclosure Intervention gave those Defendants the ability to apply for Loss Mitigation from their Servicer at the very outset of a foreclosure Lawsuit. The Supreme Court discontinued the Foreclosure Intervention process effective May 17, 2023.
So now what can I do?
Under regulations issued by the Consumer Financial Protection Bureau, most Servicers are required to review a completed Loss Mitigation application from a Borrower. Servicers are only required to do this once. The Borrower must submit the completed application at least thirty-eight (38) days before a foreclosure sale to be entitled to one review.
Even if you have applied and been denied for Loss Mitigation due to financial circumstances such as inadequate income, it is never a bad idea to apply again if your financial circumstances change. Even if servicers are only required to do it once, they usually will consider new applications, though they might not delay a foreclosure sale in the meantime.
How do I apply for Loss Mitigation?
Federal regulations require servicers to send out letters to delinquent borrowers encouraging them to contact the servicer to discuss loss mitigation options. Those letters should explain how to get the process started. Some servicers will include the paperwork that needs to be filled out with that letter, while others will require you to call them to request it. If a foreclosure case has already been filed, South Carolina's current administrative order allows you to work with the foreclosure attorney to request loss mitigation.
I’ve sent a Request for Foreclosure Intervention, now what?
There is no uniform process for what happens next. The purpose of Foreclosure Intervention is to give the parties to the foreclosure lawsuit an opportunity to engage in Loss Mitigation as a way to try to resolve the foreclosure before the case moves forward. The Servicer or the attorney may send you a Loss Mitigation application to fill out and submit along with supporting paperwork such as paystubs and bank statements. You should check with the mortgage company's attorney to find out if you will need to fill out and submit documents to be reviewed for Loss Mitigation. If the mortgage company's attorney asks you for documents or more information, you should make every effort to getthem what they ask for as soon as possible, or they may deny your request for Foreclosure Intervention.
If I apply for Loss Mitigation, is the mortgage company required to work something out with me?
Generally speaking, if you do not meet the Servicer’s financial or hardship criteria for qualifying for a Loss Mitigation program, then the Servicer is not required to offer one. If the Servicer has Loss Mitigation programs, then it is required to accurately review your application to see whether you qualify for a Loss Mitigation program. These programs can include Loan Modification, Repayment Plans, Forbearance Agreements, a Short Sale, or a Deed in Lieu of Foreclosure. If the Servicer or Lender does not have any Loss Mitigation program at all, it not required to create one for you.
How do I know if my Servicer or if the Owner/Investor/Mortgagee offers Loss Mitigation programs?
The Servicer should be able to tell you if it offers, or if the Owner allows, a Loss Mitigation option. For many loans, you will not be able to look up or review the eligibility criteria for your Servicer’s Loss Mitigation programs. However, some loans that are either insured by a federal government agency such as the FHA, or owned by Fannie Mae and Freddie Mac, have Loss Mitigation rules that are published on the internet. Anyone can look at those rules and look at their own situation to figure out whether they ought to qualify for one of the programs authorized by these entities.
What happens if the Servicer offers me a Loss Mitigation option and I want to accept?
You should comply with the terms of the program offered, including any trial payment plans. According to the Administrative Order, once you have participated in the program successfully for three months, the mortgage company’s attorney is supposed to dismiss the foreclosure lawsuit and then it is all over.
What happens if I do not want to accept a Loss Mitigation that the Servicer offers?
You should reject the offer in writing. But carefully consider your alternatives before rejecting the offer because you may not get a better one.
What happens if I do not qualify for anything that the mortgage servicer offers?
If you do not qualify for any Loss Mitigation program that your Servicer offers, then you will not be able to avoid foreclosure with a Loss Mitigation option. If the reason you are turned down for a Loss Mitigation program is due to a lack of income or another situation that you can change, you should reapply for Loss Mitigation if your income increases or your situation changes such that you have a better shot at qualifying. You also might consider whether a Chapter 13 Bankruptcy is an option to avoid foreclosure.