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“Mediation Is A Gamble”: A Sobering Review And Critique Of Mortgage Mediation Programs

Gretchen Morgenson is not a mediator; she is a business reporter for the New York Times who recently wrote an article titled: “When Mortgage Mediation Is a Gamble.” (New York Times, September 19, 2010, Business Section, p1; ) While noting the good intentions of the Nevada Legislature to develop one of the most forward thinking statutes making mediation services available to home owners, banks, and lenders to soften and mitigate the impact a “horrifying” home foreclosure rate—one of the worst in the country—Mortgenson concludes the results and impact appear to be tepid and marginal at best.

In the past month, the nationwide foreclosure situation has only grown worse and there is no end to the crisis. Most would agree that it is properly viewed as a crisis given that the real estate market and allied industries are a significant factor in the United States’ gross national product. The use of mediation to manage some parts of this crisis is a first and an important innovation. Thus, her observations about the mediation process on the front page of the New York Times Business Section, as an outside commentator, are all the more trenchant, sobering, disconcerting, and ominous for not only this particular program, but for how mediation is viewed in the future. Specifically, will mediation be considered a realistic and viable form of conflict management or merely another hyped pseudo solution?

What Mortgenson was unable to observe in her short article, however, may be more important than what was reported and makes a more complete review of Nevada’s Home Mortgage Mediation Program in particular, and a critique of other such programs in general, all the more important. For that reason, I interviewed the main players in the design and implementation of the Nevada Program from the perspective of professional mediation practice. Many people, including other professionals, and journalists, still do not entirely understand the mediation process and confusion persists between mediation, arbitration, adjudication, and counseling. Too often, mediators themselves, add to the confusion, but that is a subject for another time.

In her article Mortgenson detailed a number of specific problems that appeared to make the mediation process seem ineffectual and of limited use as a viable means of resolving complex financial issues between lenders/banks and borrowers, or residential homeowners who because of the economy are struggling to pay their mortgage and avoid foreclosure. Those issues are not unique to the Nevada program or, for that matter, to mortgage mediation. Large scale mediation programs have many difficulties in common that professional practitioners would do well to study.

As a beginning point, it is important to note as a matter of historical perspective, the use of mediation processes to remediate losses caused by acute circumstances and crisis is of very recent vintage. There are few precedents for the formal use of mediation on a large institutionalized scale prior to the early 1980’s. A highlighted list of other mediation programs designed to respond to crisis circumstances includes the Farm Mediation Projects adopted by many states to aid in relieving the financial stresses on family farms in the early 1980’s; the United States Post Office’s REDRESS Project (1994) intended to minimize workplace difficulties and enhance communication; the loss of property caused by major oil spills including the 1989 Exxon Valdez Tanker crash in Alaska and the current BP oil rig explosion in the Gulf of Mexico; as well as various other man-made and natural disaster loss management programs such as the New York World Trade Towers attack in 2001, Hurricane Katrina and the flooding of New Orleans in 2005, and Hurricane Andrew in 1992. The current residential home mortgage foreclosure crisis sweeping the country incident to a worldwide economic recession is one of the worst since the Great Depression and in the same league as the others.

Most crises share in common a compelling urgency for which mediation may be well suited to more efficiently and expeditiously address compensation and remediation. It has the potential for being more flexible, direct and personalized in fashioning workable solutions. However, mediation will always suffer from the same ‘defect’ as any system of redress: it will never be able to provide the kind of justice and fairness most injured people expect. There is seldom, if ever, a satisfactory resolution to the ravages of a financial crisis or any other kind of disaster. And even though not all crises necessarily involve loss of life, to those concerned it still feels like it is a death of sorts; the loss of a home or business is almost always a dislocating and emotionally wrenching loss. No program is likely to be able to fix things the way they were or be “good enough.” As a mode of conflict management, because mediation is not about justice and can only deliver solutions that are ‘fair enough,’ the process is likely to be viewed harshly. The best formula for compensation, as objective and analytically validated and derived as it may be, will never be sufficient if applied without awareness of the emotional circumstances, and even then, not without difficulty. Kenneth Feinberg, the appointed mediator and administrative director of the World Trade Center 9/11 Fund, found this out the hard way and discusses his shift in approach at length in his book, What is Life Worth (2005). Add to those existential limits of mediation as a means of providing justice the fact that most people dislike negotiating or feeling that they should have to do so to get what they believe they deserve and the resistance to the process is more understandable.

With that backdrop, along with the newness of such programs which typically and understandably have many structural kinks to be worked out, that mortgage mediation programs are functional at all, let alone showing themselves to be a viable and useful aid in minimizing the ravages of the foreclosure crisis in this country is no small feat. Twenty Four states currently have some kind of mediation program in place of which 16 are statewide in application and the rest apply haphazardly within some counties and municipal jurisdictions. Nevada, perhaps as a result of unenviable distinction of leading the nation is the collapse of property value, is also the state that has legislated one of the most complete mortgage mediation programs in an effort to stop the financial hemorrhaging. Property values there are estimated to have fallen close to 50% during the course of the recession, compared to a national average of roughly 20%; 80% of residential properties are near to or ‘under-water,’ with the value of the asset exceeded by what is owed. With legislation sponsored and shepherded by State Assembly Speaker Barbara Buckley, who is Director of the Southern Nevada Legal Aid Services, Nevada created the Mortgage Mediation Program in July of 2009 to bring together borrowers and lenders to work out possible settlements where possible. (Nevada Revised Statute, Sect. 107.086) The design of the program, notes the first and current program director, Verise Campbell, is “mediation with a kick.” While a voluntary process that seeks to encourage facilitated approach to problem solving, it is nonetheless, perhaps out of necessity, one where lenders are obligate to attend and participate in mediation in “good faith” as a pre-condition of being ‘certified’ to proceed with a foreclosure action.

Most experienced mediators will immediately recognize the ‘usual suspects’ to the ongoing problematic design issue of large scale mediation programs such as this one. First, how can practicing mediators be given the range of motion they require to engage and gain the trust of parties essential for settlement while at the same time conforming to necessary the strictures of a program that must operate in a consistent and uniform manner. This is in some way similar to fitting a round peg into a square hole; effective mediation requires a good measure of subtlety and nuance, yet most institutional programs need a formulaic structure to operate efficiently.

Second, an issue that crops up in most large scale mediation programs is the management of the power and influence differentials between the parties which are often reflective of the culture at large. Banks, financial institutions, the government, and major corporations will almost always have more leverage, resources, legal entitlements and access to influence than individual homeowners, family farmers, small business operators, or even affected communities that invariably casts a shadow over most negotiations. It is not an insurmountable obstacle but does require attention. At the same time presuming that mediation requires ‘a level playing field,’ is a quaint idealized notion that seldom if ever exists in real world negotiations. If the power differential is too great and left entirely un-moderated, then the value and integrity of the mediation process will be called into question. Both the skill and competency of the mediator and the design and structure of the mediation program will be important factors in gauging the impact of power balance on the negotiation.

Third, the selection, orienting and training of the mediators to be involved is critical to the success or failure of the program. How their role is defined, their training, competency, experience, and a system in place for some measure of oversight and quality control are essential. Institutional programs such as mortgage mediation, highlights the built in friction always present in mediation practice between the personal touch and engagement of an effective third party which makes the process unique and successful in managing conflict, and the necessity to move cases through a system quickly and efficiently. To do their best work professional mediators need to have sufficient independence in style and approach if they are to gain the trust of the parties and maintain the integrity of the mediation process. At the same time, a staff mediators’ adherence to reasonable programmatic guidelines will be important for any large scale program to remain coherent and functional. If the mediator is seen as merely a de facto, agent of the court, the state, lenders or borrowers, then the process will quite possibly be viewed as a sham. If a mediator to be perceived to be merely a disinterested and disengaged ‘neutral,’ he or she may be unable to sufficiently gain the trust essential for the process to work. Especially in circumstances where parties enter mediation with a high degree of apprehension about the power differential and the willingness of the other side to actively engage in ferreting out a creative and workable agreement, the mediator’s energy and active involvement will be critical. (Benjamin, R.D., “Guerrilla Mediation: The Use of Warfare Strategies in the Management of Conflict,” Mediate.Com, 1999; “The Mediator in Technocracy,” Mediate.Com, 2010)

Fourth, the administration of a mediation program is important for many of the same reasons. It is the first ‘face’ of mediation the public and participants will likely see in a culture where few people are educated or experienced in mediation. There is likely to be considerable confusion; many people are still confused about the difference between a mediator and a judge or arbitrator. There are no mediators featured on television and most people think negotiation is dubious under the best of circumstances. Negotiation remains a sleazy and distasteful activity in the minds of many; people fear being conned or played for fools. (R.D. Benjamin, “Negotiation and Evil,”, 1998) The effective presentation and efficient running of a mediation program is essential. There must be uniformity in the operation but if it becomes too bureaucratic, it is tainted and loses effectiveness even before the mediation begins.

Starting from scratch, without a single mediator, form or office in place, some 15 months later the Nevada Mortgage Mediation Program has posted some impressive statistics. ( The initial backlog of matters has been cut significantly to 1200 with an average wait time of approximately 3-4 weeks. In the first calendar year some 4200 cases were mediated, of which 69% resulted in an agreement of some kind, and 16% of the homeowners voluntary vacated. In 89% of the cases a foreclosure was averted. Perhaps most important of all, for the first time, a system has been created for two parties to discuss a difficult personal and financial predicament face to face. For that reason alone this program begins addresses a major source of largely unnecessary but common frustration that continues to be the experience of most homeowners nationwide. Just establishing contact, communicating, obtaining sufficient and accurate information, let alone negotiating some kind of work-out, is an impossible task. Dealing with the banks, typically the mortgage holders or servicers, rivals being lost in the most bureaucratic, Kafkaesque maze imaginable. If they stand as symbols of strength of the capitalist ideal and private enterprise, then there is much to be feared.

In the Nevada program there are currently 270 mediators who have completed a two-day training program that addresses to the intricacies of mortgages and the varying programs that might be available, including HAMP, the Home Affordable Mortgage Program, among others. Many came from the ranks of attorneys and judges; only about 40% of them have previously worked and practiced as mediators. Verise Campbell, the director had prior exposure to mediation in her prior human resources coursework, but notes candidly that she is not a mediator. She has, however, taken upon herself to obtain some training and to become more familiar with mediation practice issues and appears committed to assuring the recruitment of more practicing mediators in the future. She has observed first hand the difficulty of judges, lawyers and financial professionals, well versed in substantive expertise, to effectively transition into the role of a creative and facilitative mediator and letting go being the evaluative expert their previous work demanded. It is highly questionable whether or not a 2 day training program is at all sufficient to help prospective mediators make the necessary shift in thinking, but given the practical realities of program start up, the likely thinking appears to be on the order of some training is better than none.

The program structure presumes home mortgage mediations will be completed within four hours. While not written in stone and given some allowance for continuances when necessary, most tend to finish in 2.5 to 3 hours for which the mediator is paid a $400 fee for each case. Given the complexity of the matters and the emotional stresses in play, it is hard to not be skeptical of the amount of individual attention and creative energy that can be brought to each case. As with all such programs, the risks seem high that there are only a few options allowed to be given serious consideration and little room for problem solving outside the box and some systemic structural issues are simply not acknowledged. For example, a number of people interviewed commented that while the lenders are willing to adjust interest rates on the mortgage notes, few are willing to adjust the note principal. This lack of flexibility flies in the face of reality and stymies a number of potential settlements. Given the significant loss of residential property values—estimated to be more than 50% in Nevada—-leaving many homeowners effectively “under-water,” many are hard-pressed to continue paying on a property that no longer holds value.

Some homeowners are compelled to give serious thought to just walking away from the debt. This practice of “strategic foreclosure,” while severely criticized by some lenders eager to enforce a ‘moral hazard,’ or penalty on anyone who disregards a voluntarily incurred financial obligation, raises many questions of fairness and social justice that come into sharp focus in mortgage mediation. The moral dilemma cuts both ways; while contracts and the obligation to pay ones’ debts need to be enforced, there is the specter of a double standard. Corporations and big businesses often make strategic business decisions to walk away from unsustainable financial obligations at the same time homeowners have been shamed and called irresponsible in this current catastrophic recession for doing essentially the same thing.

Not unlike many large scale or court connected mediation programs enabled or imposed by court rule or legislative mandate, the Nevada Mortgage Mediation Program has a ‘good faith’ participation requirement. (Nevada Revised Statute Section 107.086, 2009) Although not identified as a party-specific requirement, it is generally aimed at lenders; not only are they obligated to participate in mediation before they can proceed to legally foreclose, they must also participate in “good faith” before that ‘certificate’ can be issued. This is the stick, or “kicker,” used to ostensibly moderate the power differential between homeowners and lenders.

Setting and enforcing such a standard, however, has always been problematic in mediation. Not only does it challenge the theory of mediation as a voluntary process, but as a practical matter, assessing a party’s’ “good faith” is perilously close to judging their motives. To be sure, there are some objective, behaviorally specific indices of ‘good faith’ that have been applied in the Nevada program and similarly in other mediation programs, some of which include the parties merely showing up, bringing documents necessary and relevant to the matter, discussing the options, and representing some authority to settle the matter. However, drawing the conclusion that a party is not acting in good faith remains essentially a subjective one where value judgments, bias and politics can easily seep into the process. It should be no surprise that there is a sizable gap between what would be legally held to be sufficient “good faith” shown and the level of authentic participation necessary for an agreement to come about. The latter, of course, cannot be obligated. As might be expected, the determination and enforcement of the ‘good faith’ requirement is subject of controversy.

The assessment of “good faith” is primarily the responsibility of the on-scene mediator. This often results, at the very least, in additional stress on the third party’s ability to maintain balance with both parties and some measure of role confusion. The expectation that a mediator report a party for failing to act in “good faith” places him or her in a conflicting role of being at once an evaluator or arbiter and impartial facilitator. While the impediment of the dual role conflict might be managed, it is always present and never entirely overcome or neutralized. And, should it flare-up into being perceived as bias in a few cases, might easily infect the reputation not just of the individual mediator but the entire mediation program.

Such a flare-up was the subject of Gretchen Mortgenson’s, New York Times article. She does not appear to have a complete understanding of the subtlety of the issue and came to the, perhaps hasty, conclusion that the program was skewed to the Lenders advantage and of limited use to homeowners. She made mention of several mediators who believed they were obligated by the statute to directly take issue with lenders whom they believed had not participated in mediation in good faith, and had filed formal Petitions for Recommendation of Sanctions directly with the Nevada courts.

Keith Tierney, a Reno real estate attorney and mediator with some 20 years of experience was one of those mediators she discussed. In a few cases he found to be particularly egregious, where the lenders involved appeared to flaunt the law violate the “good faith” participation requirement by not showing up or failing to produce necessary documents, he filed a Petition for the Recommendation of Sanctions directly with the Court, pursuant to what he believed was statutory authority, bypassing the Mortgage Mediation Program’s administration. He, along with a few other Program mediators who took similar actions, believed that the lenders were not taking the mediation process seriously. Tierney, also an economist by training, is strongly dedicated to the Program’s success, and in his words, “cringed at how mediations are being done knowing how much more effective they could be.” He felt he had little choice as a mediator, professionally or ethically, except to pursue legal action.

From the program’s perspective, however, enforcement of “good faith” could not be allowed to be the province of an individual mediator and had to be done, not by court challenge, but through administrative rule enforcement. The program director, Verise Campbell, is equally determined to protect the viability of the program. This meant enforcing rules that constrained mediators’ to record any observations about the ‘good faith’ participation of a party, or the absence thereof, in their final case report rather than filing an action directly in court. The uniformity of the process, Campbell observed, is critical to the overall success of the program, and specifically that it not be publically perceived to be biased. To his credit, Keith Tierney, although he is presently inactive as a Program mediator, remains supportive and notes that of the 20 cases he mediated, he estimates that 8 came to a workable resolution.


The mere existence of home mortgage mediation programs offers a strategic device that alters the dynamics of the lender-borrower playing field. In giving homeowners the right to request mediation they obtain the critically important right to effectively meet face to face. In addition, even though the design of many mortgage mediation programs only involve the use of mediation toward the end, as a last ditch effort to hold off foreclosure, a homeowner’s request for mediation means the lender must show up. In many instances, it is a strategic technique to cut through the widely reported difficulty many have had in simply obtaining accurate information, and talk directly with a live and reliable lender person with some authority to settle. The mediation session is often first and only time there is a coherent discussion on a complex financial matter, and an opportunity to discuss options, albeit limited. And, even if such mediation programs are problematic, or misguided by purist mediation practice standards, setting “good faith” participation requirements attempts to manage the power differential between the big banks and the average homeowner.

There remain, nonetheless, serious concerns about the integrity of the mediation process as it is increasingly formatted in large scale institutional contexts where administrative and programmatic concerns about uniformity and efficiency can quickly overwhelm what is essentially a subtle and personal process. These are not just the esoteric concerns of purists, but critically important if mediation practice is to be accepted as a viable, realistic and practical mode of conflict management in real world controversies. Implicitly coercing people to mediate, well intended or not, can quickly reduce the process to being a “take it or leave” system that runs rough shod over peoples’ rights. Justice or fairness is not the same as treating everyone the same; the strength of mediation was supposed to be that individual circumstances could be considered more carefully than were they to be formally adjudicated in the legal system. Some years ago, in fact, Laura Nader, a early critic of mediation, observed the risk that the process would become a form of ‘second class justice’ where “little” people are herded through a quick and dirty program that disregarded their legal rights and entitlements just to settle the dispute at hand. In the home mortgage mediation program, participating mediators, anxious to do the work and be of help, can easily slip into becoming tainted as being little more than apologists for the status quo—handmaidens to a system dispute resolution that reinforces underlying injustice.

Secondly, the role conflict inherent in many mediation programs where the mediator is obligated to report on a mediation participant’s actions, attitude or motivations at the same time they are expected to win their trust, remains problematic both from a practice perspective and ethically. And, in the longer term, such requirements may undermine the willingness of people to mediate.

Finally, it should not go without mention, that the Nevada Mortgage Mediation Program, along with many similar large scale mediation programs, tend to pay little attention to the professional mediation associations, or even to draw upon professional mediators. The general presumption appears to be that judges and lawyers have sufficient understanding and skill to mediate, with little or no additional training. To her credit, Ms. Campbell observed that she had seen the a difference between the work of those practitioners who had cultivated a mediation mind set and a process focused thinking frame, and those who were still constrained by the thinking of their traditional disciplines. She had resolved to bring into the Program more of the professional mediators.

The legislative process that brought the Nevada Foreclosure Mediation Program into existence is clearly well intended and a creative, innovative and important response to a current difficult social and economic issue. But just as the mediation process the program espouses, it must be negotiated into existence. As with any negotiation, there are compromises that must be accepted in the face of sometimes harsh political and practical realities. Given the overall context, Mortgenson’s observation that “Mediation is a Gamble,” while accurate on some level, is perhaps premature, and in any event, too harsh. Choosing to mediate a controversy is always a gamble; the real question is whether or not it is too much of a gamble as compared to other alternatives suggested to address the problem.


Robert Benjamin

Robert Benjamin, M.S.W., J.D., has been a practicing mediator since 1979, working in most dispute contexts including: business/civil, family/divorce, employment, and health care. A lawyer and social worker by training, he practiced law for over 25 years and now teaches and presents professional negotiation, mediation, and conflict management seminars and… MORE >

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