Mediation Can Save Homeowners from Foreclosure

By Kevin Chiu

Millions of homeowners at risk of foreclosure can be saved from losing their homes through mediation, according to a new report issued by bank owned the non-profit National Consumer Law Center.

The report reviewed existing foreclosure programs in 19 states to come up with recommendations for states to adopt. Programs the organization feels are successful, including those in Connecticut, Nevada and New York are documented as examples of programs other states could learn from.

The report labeled Rebuilding America: How States Can Save Millions of Homes Through Foreclosure Mediation, documents how states with successful programs are preventing foreclosures and saving money for investors and taxpayers, who are paying for the brunt of foreclosures.

“Evidence shows that effective foreclosure mediation can keep paying borrowers in their homes for the long term while also saving billions of dollars for taxpayers and investors,” said Geoff Walsh, an attorney at National Consumer Law and author of the report. “Our report reviews programs in use in 19 states and makes recommendations for best practices drawn from that analysis.

“The evidence is in that mediation programs can be financially self-sustaining, do not prolong inevitable foreclosures, and are a proven tool that can help rebuild the fragile U.S. economy. If all states adopted strong foreclosure mediation programs, it would prevent further harm to millions of families while also saving local communities and investors billions of dollars.”

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Highlights and recommendations from the report include:

Foreclosure mediation programs and mediation conferences provide substantial community benefits at little or no cost. Fees average from none to less than $1,000, typically paid by the homeowner or lender. In comparison, investors lost an average $145,000 on each foreclosure in 2008.

Effective mediation programs do not prolong foreclosures. Most mediation programs work within time frames of existing state laws. In Philadelphia, the typical foreclosure case spent 53 days in a foreclosure conference, while the average time frame to complete an uncontested foreclosure was 10 months.

Foreclosure mediation programs connect borrowers with housing counselors. Borrowers who receive counseling are much more likely to avoid foreclosure, and obtain affordable loan modifications.

Not all foreclosure mediation programs are equal. States should adopt foreclosure mediation programs with enforceable standards and robust outreach as permanent features of state foreclosure laws as quickly as possible. Florida’s mediation program lacked enforceable standards, and did not compel servicers to negotiate in good faith, with ineffective outreach. The state has suspended the program due to lack of participation.

New York and Connecticut programs are reaping more success. In the last two years, New York courts conducted over 80,000 conferences in foreclosure cases. Before the courts implemented the foreclosure conference system homeowners did not participate in about 90% of foreclosure cases. Homeowners currently appear for conferences to discuss settlement options with lenders in 90% of the cases, which is a complete reversal.

When lenders do not abide by conference rules, New York courts impose sanctions, and often bar foreclosures. Connecticut has a similar program and more than 50% of homeowners who complete mediations end up with a permanent loan modification.