Foreclosure Mediation Finds Successful Solutions

Developing successful foreclosure mediation programs involves a unique balance act between consumers and lenders, according to speakers at the recent SourceMedia Mortgage Servicing Conference in Dallas.

The creators of Philadelphia’s well-publicized program, which has been in place for two years, are not afraid to “go back, tweak it, and make changes as it evolves,” said Michel McKreever, managing partner, Goldbeck McCafferty & McKreever.

The collaborative effort between attorneys, consumer groups, housing counselors and the court helps to make this program a success. McKreever said the Philadelphia program has received a 70% response rate from homeowners who show up for their reconciliation hearings. The program strives to have a 60- to 90-day delay on an owner-occupied property. “Many times the homeowner is already well-prepared by the first hearing. They have completed their workout packages and met with the counselors. In most cases, they are waiting on the lender to respond to the workout request or waiting for the lender to advise them about other documentation.”

Judge Annette Rizzo, First Judicial District of Pennsylvania, made the term “graceful exit” part of the popular lexicon. Her work with the committee to start the program began when the sheriff decided to postpone foreclosure sales for 30 days.

Anticipating the future inventory, the goal of the program was to find a sustainable solution for borrowers and lenders and to do something a little different at the time when foreclosure moratoriums were not making a difference.

“We built it and they came,” Rizzo told the conference. “Everyone asks, 'How did you get the lenders to cooperate? How did you get them to the table?’ Quite simply, my answer is I asked. When I hear about all the other state programs populating throughout the country, in all candor I am concerned about the checkerboard responsibilities and mandates placed on all parties,” she said.

"The bottom line, in my opinion, is all things are local. There are some standards, which can be built in on a national basis and then can be contoured to the needs and infrastructure of your local communities and the resources available. It all starts with collaboration.”

When homeowners receive a notice of foreclosure, they are directed to start the process of saving their home by calling the Philadelphia hotline. In cooperation with Mayor Michael Nutter and city resources, there is in-depth community outreach that goes door-to-door to ask borrowers if they received their notice.

“They ask, 'Did you call the hotline? Call it. Here is my cell phone, call the hotline.’ Once you are in, it depends on where you live. You are paired up with a housing counselor with over 30 agencies we have. We encourage responsibility on part of the homeowner to come with their paperwork to work with the counselor and paint an exact picture of what their financial picture is.”

In many ways, Rizzo said, “it’s an old answer to a new problem—the essence of a face-to-face encounter. If you really think about it, the speakers are talking about a problem with connection. Homeowners say they are going into the abyss or you are saying you’ve sent 15 letters and made three calls. It’s the face-to-face that will create a sustainable and affordable solution. A graceful exit may actually be a very successful result.” William LeRoy, president and CEO, American Legal and Financial Network, encouraged servicers to participate in the quest to create a national foreclosure mediation model program. “This is...the most important, critical set of processes and procedures being discussed in this country. Several states have adapted foreclosure mediation processes. They are all over the board in how they are being managed and what if any training is going into the training of mediators. Costs are all over the board. Tracking success is all over the board,” he said.

“We need to find what works and where we can, we need to discuss it and hopefully create a model program. We would like to engage all services in construction of a model program we will be taking to various legislatures.”

In Maryland, Gov. Martin O’Malley recently signed a law giving homeowners the right to mediate foreclosure with a neutral third party and requiring lenders to conduct loss mitigation analyses before foreclosing home loans.

The law applies to one-to-four family residential properties occupied as the borrower’s primary residence and is effective July 1. It sets a $300 foreclosure filing fee for lenders and a $50 mediation request fee.