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Loss Mitigation

Definition - What does Loss Mitigation mean?

Loss mitigation is a process that banks and lenders use with borrowers who have fallen behind in payments and who show a change in circumstance that affects the ability to repay at the agreed terms. Loss mitigation will include the lender helping the borrower to either make smaller payments for a time or sell the asset altogether to recoup at least part of the loss. Lenders are legally required to enter into loss mitigations with borrowers who meet these terms such as when the primary income earner loses their job.

Justipedia explains Loss Mitigation

Lenders must follow loss mitigation steps before taking any court action against a defaulted borrower or the court will order that the time and process is given before making and other ruling. An example of loss mitigation can be seen in the repossession of a vehicle. After a vehicle is repossessed by the lender, the vehicle is sold at an auction. The debtor is then responsible for the difference between the loan amount and the selling price from the auction.

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