Loss Mitigation Option
Payoff & Refinance
Replace the existing loan with new financing that clears the default
What this option is
A refinance replaces your existing mortgage with a new loan that pays the current lender in full, including all arrears and foreclosure costs. It requires sufficient equity and, for most conventional lenders, credit and income that still qualify — which is why timing matters more here than in any other option.
How it works
- 1
You request a written payoff statement, which is a larger figure than the reinstatement amount because it retires the entire debt.
- 2
A lender underwrites the new loan against the property value, your equity position, and your documented income.
- 3
Conventional lenders often decline loans in active foreclosure. Portfolio, non-QM, and hard-money lenders may proceed at higher cost.
- 4
Escrow coordinates the payoff directly with the trustee, and the sale is cancelled once funds are confirmed received.
Eligibility considerations
These are the factors servicers weigh. They are considerations rather than a guarantee, and investor rules vary by loan type.
- Meaningful equity, since most non-conventional lenders in this situation want a loan-to-value ratio at or below roughly 65 to 75 percent.
- Documentable income sufficient for the new payment, or a lender that underwrites primarily to the asset.
- Clear and insurable title, with junior liens identified and addressed.
- Enough calendar time to close, which is generally at least 15 to 30 days before the sale date.
Required documents
Submit every page of every document. Incompleteness, not ineligibility, is the leading cause of denial.
- 01Written payoff statement with a good-through date
- 02Two years of tax returns and two most recent pay stubs, or asset documentation
- 03Bank and asset statements for reserves and closing funds
- 04Homeowners insurance declaration page
- 05Preliminary title report and any junior-lien statements
- 06Loan application and disclosures from the new lender
- 07Copy of the Notice of Trustee Sale, which most lenders require to underwrite the timeline
Cautions and common traps
- Rescue refinances often carry high rates, points, and prepayment terms. Model the total cost before committing.
- Confirm the payoff good-through date aligns with your closing date, and order an updated payoff if it slips.
- Do not rely on a verbal promise that the trustee will hold the sale. Get written confirmation.
- Be alert to equity-stripping offers disguised as refinances, especially anything requiring you to transfer title.