2009 Developments in Mediation: Foreclosure Mediation Programs

From the Disputing Blog of Karl Bayer, Victoria VanBuren, and Holly Hayes.

In light of the subprime mortgage crisis, several states have adopted mediation programs to assist homeowners and lenders reach a solution to a mortgage foreclosure action. Keith Seat, at  Mediate.com posted recently an update on foreclosure mediation across the United States. Highlights include the introduction of federal legislation that would encourage state and local governments to create strong foreclosure mediation programs. The Preserving Homes and Communities Act of 2009, (S. 1731 and Status) calls for federal matching funds of $80 million for mandatory mediation programs.

Connecticut, which made foreclosure mediation mandatory in July, is mediating less than 40% of the eligible foreclosure cases. The low percentage of mediations is because the program only applies to homeowners who file an appearance in court. When mediation does occur, 75% of cases are settled. In 62% of the cases, homeowners stayed in their homes and 13% moved without foreclosure. In the last three months, about 2,000 cases in Connecticut have been mediated with a team of 24 full-time mediators.

Indiana passed legislation that requires creditors to inform homeowners of their right to a settlement conference prior to foreclosure. The Indiana Supreme Court and a number of other government and non-profit agencies completed a training program for over 1,000 judges, attorneys and mediators in how to handle foreclosure cases.

In Nevada, workshops are being held to teach homeowners to effectively represent themselves so they can get the most out of a foreclosure mediation.

On the other hand, the National Consumer Law Center (NCLC) just released a report claiming that existing foreclosure mediation programs do not place enough obligations on mortgage lenders to fully participate in the mediation process. The report looked at 25 foreclosure mediation programs around the country, including court-related mediation programs in Connecticut, Florida, Indiana, Kentucky, Maine, Nevada, New Jersey, Ohio, and Pennsylvania.

The study found that programs are often lacking mandatory rules and that programs with minimal rules fail to impose sanctions for non-compliance. For example, the programs do not require lenders to provide communication substantiating a right to foreclose, they do not mandate consideration of loan modification alternatives and many set procedural barriers that restrict a large numbers of homeowners from participating in mediation. Geoffry Walsh, staff attorney for the NCLC and author of the study states that “if the programs continue to demand little or no accountability from servicers, they will likely go the way of other efforts to control foreclosures that relied on voluntary compliance by the lending industry.”

The report suggests a variety of ways to engage lenders in the mediation process, including: requiring lenders to participate in good faith, documenting and enforcing compliance with all participation obligations and allowing requests for mediation to be made up to the time of a foreclosure sale.

                       

Holly Hayes

Holly Hayes Bovio received a Masters in Health Administration (MHA) from Duke University and her undergraduate degree from Southern Methodist University. She holds a certificate in mediation from Texas State.  Holly brings a strong hospital operations background to healthcare mediations including a focus on clinical quality.  Holly managed her own consulting… MORE >