When you’re faced with navigating the complex world of loss mitigation in New York, you must use a strategic and proactive approach. Mortgage servicers and investors must deal with loss mitigation in order to resolve delinquent loans, preserve the value of properties they hold interest in, and minimize losses. While the process can feel overwhelming, there are tools and strategies that these stakeholders can use to achieve the most favorable disposition possible in loss mitigation situations. With New York’s formalized Loss Mitigation Program, the process is spelled out to make it easier for all stakeholders to reach a reasonable resolution. Let’s explore the loss mitigation process in New York with a special focus on mortgage servicers and other investors.
What Is Loss Mitigation?
Loss mitigation involves several strategies with the end goal of resolving a borrower’s delinquent loan on a property while minimizing losses for lenders and other stakeholders. New York has structured this process so there is less confusion and all cases are treated equitably. Key objectives of loss mitigation in New York include:
- Reducing the lender’s expenses related to the borrower’s default and subsequent foreclosure
- Preventing foreclosure on properties in default
Loss mitigation can lead to several different types of final agreements, including:
- Loan Modification: Making the loan more affordable for the borrower by adjusting the loan terms
- Loan Refinance: Ending the current mortgage loan and refinancing the amount owed on the property in a new mortgage loan with more favorable terms
- Forbearance: A temporary reduction or suspension of mortgage payments to give the borrower some room to regain stability in their finances
- Short Sale: Selling the property for less than what the borrower owes on it, leaving the borrower responsible for the outstanding loan balance after the sale
- Surrender of Property: Giving the property to the primary lender in exchange for full satisfaction of the outstanding mortgage loan
No matter which loss mitigation resolution is reached, court approval is required to ensure that the agreement is fair for everyone involved and that it complies with federal and state regulations.
Who Can Request Loss Mitigation in New York?
In New York, both the borrower and the lender can initiate loss mitigation procedures by filing a formal request in court. The Court may also order loss mitigation without a request from the borrower or lender. Once the request to begin loss mitigation has been made, either party may object, requiring court intervention to resolve so that loss mitigation can proceed. Once this occurs, the loss mitigation process will follow a structured set of steps.
Steps in the Loss Mitigation Process
Issuance of a Loss Mitigation Order
The Court issues a Loss Mitigation Order, which sets:
- Deadlines for completing each step in the process
- How borrowers and lenders should communicate with each other during the process
- How to address related legal matters, such as foreclosure or bankruptcy
The Loss Mitigation Order also clarifies the duties of the parties involved. These duties include:
- Good Faith Participation, meaning all parties must show good faith in resolving the debt
- Clear Communication, meaning borrowers and lenders must exchange contact information and respond to requests in a timely manner
- Document Exchange, meaning both parties must share certain documents and information with the other party through proper communication channels set by the court
Initial Contact
Before a loss mitigation case is formally heard by a court, the lender must contact the borrower(s) to share contact information, establish a point of contact, and try to resolve the delinquency without court intervention. If an agreement cannot be reached during this initial contact, the loss mitigation process will proceed.
Loss Mitigation Sessions
Loss mitigation sessions may be held in person, via phone, or via video conference. These sessions involve direct negotiations between the lenders and borrower(s) and often require multiple sessions to reach a draft agreement, which must still be approved by the court.
Status Conferences
At various points, the court will require status conferences where the progress of negotiations is reported by all parties. The dates of these status conferences are typically established in the Loss Mitigation Order, although the court can also request additional status conferences at their discretion.
Settlement Conference
If an agreement is reached during the loss mitigation sessions, it must be presented to the court for approval during a settlement conference. During the settlement conference, the court will assess whether the agreement reached between the lenders and borrowers meets legal standards. If so, terms of implementation will be outlined.
Termination of the Process
If an agreement is approved in the settlement conference, or if no agreement is reached by the parties during the loss mitigation sessions, the loss mitigation process is complete. The court will issue a Termination of Loss Mitigation Order, which marks the formal end of the process.
Benefits of the Loss Mitigation Process
Loss mitigation offers benefits for both lenders and borrowers:
For lenders:
- Minimize financial losses
- Preserve property value
- Resolve delinquent accounts
For borrowers:
- Avoid foreclosure
- Keep their property
- Preserve their credit reputation
Navigating Challenges in Loss Mitigation
The detail that New York’s courts have included in the state’s Loss Mitigation Program helps demystify the process for everyone, but parties in loss mitigation can still face challenges during the process, including:
- Tight deadlines
- Document retrieval and transfer
- Poor attitudes and lack of cooperation
- Further disputes arising in negotiations
Having a credible and reputable attorney with experience in helping mortgage servicers and investors in New York navigate the loss mitigation process is the best way for these stakeholders to achieve a favorable outcome. Never risk tackling this challenge without proper legal representation, as this mistake could cost you thousands of dollars.
Loss Mitigation for Mortgage Servicers & Investors in New York
Loss mitigation is a process meant to benefit both lenders and borrowers in New York to combat the financial effects of foreclosure. By leveraging this tool, mortgage servicers and investors can reduce their losses when a borrower is unable to pay under their current mortgage loan terms. To achieve the best outcome possible, these stakeholders must understand the loss mitigation process and seek high-quality legal assistance to protect their interests and ensure a fair resolution for all.
Roach Lin, P.C., is a New York based creditors’ rights law firm. We help keep our client’s real estate investments profitable, even in the face of borrower default and foreclosure, by utilizing all strategies and tools available to minimize financial losses and preserve property value.