DC: foreclosure mediation

Washington, D.C. recently passed legislation requiring mediation prior to a home foreclosure, according to Benny Kass at the Washington Post.

According to the article, 23 states have enacted some form of mediation for foreclosure cases. The legislation requires lenders to send notice of default to the homeowner and a notice to participate in mediation. The mediation notice must contain the lender's contact information and contact information for a local housing counseling service. The legislation also requires the lender to provide a description of its loss-mitigation programs along with a loss-mitigation application.

More on foreclosure mediations

What happens when you invite people to a party, but no one shows up?

This is happening with foreclosure mediations in the Dayton area. According to an article in the Dayton Daily News (here), of the 62 cases referred to mediation in Montgomery County, 40 homeowners failed to respond. Seven were settled, 13 are pending, and 2 were canceled.

What does this mean when almost 65% of the folks don't show up? And I think most people would conclude that mediation of foreclosure actions is designed to help the homeowners.

Similarly, in Franklin County, the administrator for its Foreclosure Mediation project is that "30 percent" of the completed mediations are keeping their homes.

In Nevada, after expecting 1,250 and 1,500 homeowners a month flocking to a foreclosure mediation program, only 10 homeowners requested mediation--during a six week period. Click here for the article.

My initial thought is that mediators need to educate homeowners about the benefits of mediation. But it may also be that the mediators aren't able to get in contact with the borrower to talk with them in the first place. Also, it may be the the borrower identifies the situation as hopeless and would rather turn resources toward starting over instead of trying to maintain what is perceived to be an impossible situation.

Regardless, mediation can be a very effective tool in helping lenders and borrowers come together and see if a workable solution exists.

Foreclosure rules

Another article about courts implementing rules for residential foreclosures. Click here for the article.

Ohio Foreclosure Mediation

A judge comments on the benefits of mediation of foreclosure-related cases. A copy of the article can be found here. Judge Joseph Schmenk noted that both borrower and lender can come out ahead by mediating these types of cases, instead of trying them.

Foreclosure Mediation

The American Bar Association published an excellent web page devoted to mediation of residential foreclosures. You can view the site here. Currently, ten states have developed legislation relating to mediating these types of disputes.

Changes in Texas Foreclosure Law

The Dallas Business Journal is reporting that the Texas Attorney General is proposing sweeping changes to the state's foreclosure law. Greg Abbott asked state legislators to enact the Texas Foreclosure Deferment Act. The act requires mortgage loan servicers (those are the companies that act on behalf of lenders to collect payments, issue demands, and institute litigation, if necessary) to provide homeowners with 45 days to cure loan defaults before a foreclosure sale can be noticed. This extends the current cure period (20 days) by an additional 45 days.

Lenders must also attempt to contact the borrower by telephone or in person before filing for foreclosure. Homeowners, once foreclosed, will have 30 days to vacate the property.

You can view a link to the Attorney General's press announcement here.

Foreclosure mediation

The New York Times featured a Connecticut program that requires lenders and borrowers to sit down and mediate prior to foreclosure. Interestingly, representatives for both borrowers and lenders emphasized that the specialized mediation process is beneficial because lenders have a hard time talking to borrowers and borrowers say that lenders are impossible to contact.

Look for more states to require this type of program. Even if modification of the loan terms isn't possible, resolution may still be possible--lenders and borrowers can reach an agreement on "short sales" that will save the lender future foreclosure costs and save the borrower the hassle and expense of fighting the lender.

Foreclosures...

An editorial in the Canton (Ohio) Repository enthusiastically supports a mediation program that helps homeowners and mortgage companies.  The new program requires a mortgage company representative to attend the mediation.  Of the 84 mediations conducted from April 1 through June 30, 43 resulted in the homeowner being able to keep their home.

There's a lot to be learned from this program:

• Mediation is most effective when parties are in the same room;
• Creative solutions can be worked out to the benefit of lenders and borrowers;
• Mediation can help reduce not only courthouse resources, but also reduce the burdens on others in the foreclosure and eviction process, such as the local constable or sheriff.

More on home foreclosures

Linda Stamato wrote an excellent article in NJ Voices about the foreclosure market.  Ms. Stamato points out that while the state legislature is debating various "solutions" to the foreclosure mess, cities and nonprofit groups are filling in the void.  The city of Elizabeth developed a program to help people facing foreclosure by helping them sell their homes.  It's a matching program where first-time homebuyers locate affordable homes, other people are prevented from going into foreclosure, and pre-qualified mortgages are arranged through nonprofit groups.  Ms. Stamato also highlights what other states are doing to battle the historically high levels of foreclosures.  New York, Iowa, Georgia, and Connecticut all have programs requiring parties to a foreclosure to mediate first.  

I've written before that foreclosures are a failure for everyone:  the homeowner and the mortgage company.  A trained neutral could be very beneficial to helping the homeowner and the mortgage company reach creative solutions--and solutions that are better than having to force thousands out of their homes and having mortgage companies hold millions of dollars of properties until the next buyer comes around.