What Is Loss Mitigation?

"Loss mitigation" is a term used in the mortgage servicing industry to describe the process through which a borrower and their loan servicer collaborate to avoid foreclosure. The primary purpose of loss mitigation is to reduce or "mitigate" the financial loss to the mortgage investor (the lender or mortgage company that owns the loan) resulting from the borrower's default.

While loss mitigation is designed to protect the investor from the costs associated with foreclosure, it can also provide foreclosure relief to the borrower. Some loss mitigation options, such as a loan modification, forbearance agreement, or repayment plan, allow the borrower to remain in the home. With other alternatives, including a short sale or deed in lieu of foreclosure, the borrower relinquishes the property and avoids the formal foreclosure process.

This article provides a comprehensive overview of the loss mitigation process and options for homeowners seeking a way to avoid foreclosure.

What Is Loss Mitigation and How Does It Help Homeowners?

Again, "loss mitigation" is the process in which borrowers and their loan servicer work together to avoid a foreclosure. Some loss mitigation options, including loan modifications, forbearance agreements, and repayment plans, allow borrowers to stay in their homes. Other foreclosure alternatives, like a short sale or a deed in lieu of foreclosure, give homeowners a way to exit the property without going through a foreclosure.

Understanding the Loss Mitigation Process

To apply for loss mitigation, contact your servicer's loss mitigation department, sometimes called the "home retention department" or something similar. Ask them to send you a loss mitigation package (application).

You'll have to fill out the application and provide some supporting documentation to your loan servicer, such as pay stubs, bank statements, and tax returns (see below). The servicer will review and evaluate your application materials and let you know if you qualify for any loss mitigation options.

If the servicer denies your application for loss mitigation, it must inform you in writing why your application was denied, such as you don't qualify for a modification because your income isn't high enough to support a modified payment amount or you've already used all available loan modification options.

Mortgage Loss Mitigation Timeline

The loss mitigation process usually starts after a missed mortgage payment. Under federal law, the servicer must contact you no later than 36 days after the delinquency. (12 C.F.R. § 1024.39 (2025).) Many lenders will contact you after around 30 days of delinquency, but it's smart to reach out to your loan servicer as soon as you know you're having trouble making your mortgage payment. Early communication can open up options like a loan modification, forbearance, or even a repayment plan to help you avoid foreclosure.

With some loss mitigation options, like a short-term repayment plan, your servicer might be able to evaluate you over the phone and provide an immediate approval. For a more long-term solution, like a loan modification, you usually must fill out and submit a loss mitigation application to the servicer.

After all application documents are received, there's usually a review period of up to 30 days. Unless state laws provide more protection, be sure to submit your application more than 37 days before a foreclosure sale to qualify for foreclosure protection under federal law (see below). During this time, your servicer evaluates your eligibility for mortgage loss mitigation options. Foreclosure proceedings are usually paused, depending on applicable federal and state regulations.

Also, the loss mitigation process is often ongoing even after you've submitted an application and the servicer has provided you with a loss mitigation option. For example, if you get a forbearance, you might need further help with your mortgage payments, perhaps in the form of a loan modification after the forbearance ends. Also, the loan modification process might take a while to finalize. During this time, it's essential to keep in regular contact with your loan servicer and follow up as needed.

Key Loss Mitigation Options for Homeowners

By applying for a loss mitigation option, you might get a solution to avoid a foreclosure and maybe even keep your home. If you want to stay in your house, you might qualify for a forbearance, repayment plan, loan modification, partial claim, or deferral. Or, if you can come up with the funds, you can reinstate the loan. If you'd like to give up the home without going through a foreclosure, you might be able to complete a short sale or deed in lieu of foreclosure.

Here's a chart summarizing the various loss mitigation options for homeowners, with more details below.

Repayment Plans for Mortgage Default

In a repayment plan, you pay extra each month (more than your regular monthly payment amount) to get caught up on overdue amounts. For example, if you're three months behind on your mortgage payments consisting of $1,500 a month, you're $4,500 delinquent. In a repayment plan, you could potentially pay $750 extra each month for the next six months to bring the loan current. This means you must pay $2,250 each month for six months, but at the end of the repayment plan, you resume making regular monthly payments of $1,500.

Reinstating Your Mortgage After Missed Payments

To reinstate your mortgage, you must pay the past-due amounts, including missed payments, interest, late fees, and foreclosure costs, in one lump sum. After you reinstate the loan, you resume making your regular payments.

Forbearance Agreements: A Temporary Solution to Avoid Foreclosure

With a forbearance plan, you won't have to make any payments or you make smaller payments for a specified amount of time. A forbearance for three to six months is typical, but a longer period might be possible, depending on the lender's guidelines and your situation.

Loan Modifications: Making Your Mortgage More Affordable

A loan modification adjusts the loan's terms, such as your loan's interest rate or term (length). Usually, the goal of a modification is to make your monthly payments more affordable. Also, the lender typically brings the loan up to date by adding past-due amounts to the debt balance as part of a loan modification.

However, in some cases, and depending on the modification's terms, your monthly payment might actually increase.

Partial Claims and Deferrals: Getting Current on Your Mortgage

You might qualify for a partial claim if you have a specific type of loan, like an FHA-insured mortgage. Generally, a "partial claim" is an interest-free loan to get current on overdue mortgage payments. You don't have to pay the loan back until your first mortgage matures or when you pay off the first mortgage, like when you sell the property or after a refinance. You don't have to make any payments on the partial claim loan until then.

Similarly, in a deferral, the lender defers repayment of delinquent amounts until the home loan ends.

Short Sale: Selling Your Home for Less Than the Mortgage Balance

A "short sale" is when a lender agrees to let the homeowner sell the home to a new owner for less than what's owed on the mortgage. One downside to a short sale is the possibility of a deficiency judgment. To avoid a deficiency judgment after a short sale, the short sale agreement must include a provision that the transaction is in full satisfaction of the debt and that the bank waives its right to the deficiency. (The same is true with a deed in lieu of foreclosure.)

If your home is worth more than you owe, you don't need to do a short sale. You can sell the home, pay off the mortgage and any other liens on the property, and pocket the rest.

Deed in Lieu of Foreclosure: Voluntarily Giving the Home Back to the Lender

With a deed in lieu of foreclosure, the lender agrees to accept a deed to the property instead of foreclosing. As part of the transaction, you can negotiate for the deficiency to be forgiven or reduced, to receive relocation money, or get extra time to live in the home.

How to Apply for Mortgage Loss Mitigation

If your servicer says you must submit a loss mitigation application to start the process, it will send you a "loss mitigation package." (Sometimes, you can get a foreclosure alternative without completing a full application.)

The package will contain information about what documents you must return to the servicer and some forms to fill out. Typically, as part of the application, you'll need to provide:

• a completed application form (called a "borrower response package," "borrower assistance form," "loss mitigation package," or something similar) which includes your personal information, mortgage details, property information, and so forth
• copies of your latest pay stubs or a profit and loss statement if you're self-employed
• copies of your bank statements
• your recent tax returns
• an income and expense financial worksheet showing how much money you bring in and where you spend it
• a hardship statement or affidavit that explains why you're having financial difficulties, and
• other financial documents depending on your servicer and specific situation.

However, some loss mitigation programs are "streamlined," requiring little or no supporting documentation. The information you'll need to provide varies from servicer to servicer, so be sure you understand exactly what your servicer needs to assess your application.

Generally, federal law requires the servicer to evaluate your application for all loss mitigation options within 30 days, as long as you submit the complete application more than 37 days before a foreclosure sale. (12 C.F.R. § 1024.41 (2025).)

Providing accurate and complete documentation will help ensure that the loan servicer processes your application efficiently.

Loss Mitigation Laws: What You Need to Know

Under federal mortgage servicing laws, in most cases, by the time a mortgage payment is 45 days delinquent, the servicer must appoint personnel to help the borrower with loss mitigation. Servicers must also inform borrowers about available loss mitigation options in writing and over the phone, if possible and appropriate.

Specifically, the servicer must assign a single person or a team accessible to the borrower by phone, who can respond to inquiries and work with the borrower through the loss mitigation process. The appointed personnel must be able to advise the borrower about:

• available loss mitigation programs
• how to submit a complete loss mitigation application
• the status of a submitted loss mitigation application
• how to appeal if the application is denied, and
• the circumstances when the servicer may refer the account to foreclosure. (12 C.F.R. § 1024.39 (2025).) (To get an overview of how foreclosure works in your state and find links to articles covering state foreclosure procedures, see our Key Aspects of State Foreclosure Law: 50-State Chart.)

Foreclosure Prevention: Can Loss Mitigation Delay Foreclosure?

Under federal law, if you send the servicer a complete loss mitigation package before a foreclosure starts or more than 37 days before a foreclosure sale, the servicer can't begin a foreclosure or move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until:

• it informs you that you're not eligible for any loss mitigation option (and any appeal has been exhausted)
• you reject all loss mitigation offers, or
• you fail to comply with the terms of a loss mitigation option, like a trial modification. (12 C.F.R. § 1024.41 (2025).)

Also, under some state laws, a foreclosure must stop if you apply for loss mitigation.

Be aware that, under federal law, the servicer generally doesn't have to review multiple applications from you. But if you bring the loan current after submitting an application, you may send another.

Other Foreclosure Alternatives to Save Your Home

Other foreclosure alternatives, such as equitable redemption or statutory redemption, can help you keep your home or reclaim it after foreclosure.

Equitable Right of Redemption

Before your home is sold at a foreclosure sale, you get an "equitable right of redemption." With the equitable right of redemption, you get the right to pay off the mortgage debt in full, plus any damages the lender suffered due to your nonpayment, like collection fees, court costs, and attorneys' fees in its foreclosure action, at any time after default but before a foreclosure sale. Redeeming stops a foreclosure.

If you redeem before the foreclosure sale, you'll own the property outright with no mortgage.

Statutory Right of Redemption

In some states, foreclosed homeowners also get the right to get the property back within a limited time after a foreclosure sale. This right is called the "statutory right of redemption."

With statutory redemption, you must reimburse the purchaser from the foreclosure sale the price paid, plus certain lawful expenses. Or in some states, the redemption price is the total amount of the mortgage debt. The laws in your state specify how much you have to pay and how long you have to redeem the property if you get that right.

Frequently Asked Questions (FAQs) About Loss Mitigation

The following FAQs answer common questions about loss mitigation.

How do I know if I qualify for loss mitigation?

Eligibility criteria for different loss mitigation options depend on factors like the type of loan, your lender, your financial hardship, and whether the loan is in default. Your servicer will review your situation to determine which options you qualify for.

Can I stay in my home if I use the loss mitigation process?

In many cases, yes. Options like loan modifications, forbearances, and repayment plans are designed to help homeowners stay in their homes by adjusting the loan terms or temporarily pausing payments. However, some options, like a short sale or deed in lieu of foreclosure, involve giving up the property. These options can help avoid some of the negative effects of foreclosure.

And, in some cases, no loss mitigation options are available. Then, the lender will go ahead with the foreclosure process.

How will loss mitigation affect my credit?

Your credit scores will probably go down after participating in loss mitigation, depending on what option you get. But your scores were already damaged if you were behind on mortgage payments.

Foreclosures, short sales, deeds in lieu of foreclosure, and bankruptcy are all bad for your credit. Bankruptcy is worse. A loan modification might not be so bad, depending on how the lender reports the modification to the credit bureaus.

However, your credit might remain relatively unscathed in a few situations, such as if you get mortgage relief after a natural disaster or you complete a short-term repayment plan. And once you get caught up on the mortgage loan and resume making on-time payments, your credit will improve.

What should I do if I can't make my mortgage payment?

If you're unable to make your mortgage payment, it's important to contact your loan servicer immediately. The sooner you reach out, the more likely you are to find a solution that works for both you and your lender. You can usually find the contact information for the loss mitigation department on your monthly mortgage statement or the servicer's website.

Can I apply for loss mitigation if I haven't missed a payment yet?

Yes, in many cases, homeowners can apply for loss mitigation options even before missing any payments, especially if they are facing a temporary financial hardship. Early intervention can increase your chances of avoiding a more serious default situation in the future. It's always better to communicate with your lender sooner rather than later.

Why might loss mitigation be denied?

If your mortgage servicer turns down your loss mitigation application, they're required to explain the denial in writing. Common reasons for denial include not demonstrating a qualifying financial hardship or having already used all available loan modification options.

Under federal law, if you submitted your application at least 90 days before a scheduled foreclosure sale, you have the right to appeal the decision. Be sure to file your appeal within 14 days of receiving the denial. Your appeal must be reviewed by a different person than whoever previously evaluated your application. (12 C.F.R. § 1024.41 (2025).)

Talk to an Attorney About Stopping Foreclosure

If you want to learn more about how foreclosure works, including loss mitigation options and your rights under federal and state laws, consider talking to a foreclosure attorney. An attorney can also help you navigate your servicer's loss mitigation process and let you know if you have any defenses to a foreclosure if you want to challenge it in court.

A HUD-approved housing counselor is another valuable source of (free) information about loss mitigation options.