• Foreclosure Mediation Programs Examined by the National Consumer Law Center
  • December 21, 2009 | Author: Lucy R. Dollens
  • Law Firm: Frost Brown Todd LLC - Louisville Office
  • This fall, the National Consumer Law Center released a report reviewing and analyzing 25 state and local foreclosure mediation programs in 14 states, ultimately concluding that significant changes need to occur before such programs can be truly effective. Additionally, the report posits that foreclosure mediation programs should not be viewed as an alternative to legislation that directs servicers and mortgage holders to make affordable loan modifications. The Report, titled "State and Local Foreclosure Mediation Programs: Can They Save Homes?" and issued in September of 2009, can be accessed at http://www.consumerlaw.org/issues/foreclosure&under;mediation/content/ReportS-Sept09.pdf

    The National Consumer Law Center recommends that to be beneficial for homeowners, court-supervised mediation programs should impose meaningful obligations on servicers, including: (1) requiring the servicer to give the homeowner a document showing its affordable loan modification calculation and the net present value calculation; (2) requiring the servicer to produce specified documents, such as a pooling and servicing agreement, loan origination documents, an appraisal, and loan payment history; (3) requiring the servicer to comply with all mediation obligations in good faith, subjecting it to sanctions for failure to do so; (4) requiring the servicer to establish proof of the mortgage holder’s standing and status as the real party in interest; and (5) requiring the servicer to document it has considered specific alternatives to foreclosure.

    However, the report acknowledges the lack of any data to confirm or refute whether foreclosure mediation programs have led to a substantial number of affordable and sustainable loan modifications. The report also fails to include data about whether various servicers are already voluntarily complying, even in part, with such requirements.

    The National Consumer Law Center would also like to increase homeowner participation in mediation programs by establishing procedures to make participation by homeowners automatic; allowing requests for mediation to be made up to the time of a foreclosure sale; staying the foreclosure proceedings until mediation occurs or a court determines the sevicer has complied in good faith with all mediation obligations; providing funding for outreach, housing counselors, and qualified counsel for homeowners; prohibiting servicers from shifting to the homeowner its attorneys’ fees and costs; and, finally, requiring junior lienholders to be notified and allowed to participate in mediations.

    The foreclosure mediation program in Indiana, which took effect on July 1, 2009 under Senate Enrolled Act 492, provides that a homeowner may ask to participate in a conference with the servicer or mortgage holder of the homeowner’s loan after the homeowner is served with a complaint and summons in a judicial foreclosure action. The homeowner must notify the court of its intention to request a conference not later than thirty (30) days after it is served with the complaint and summons. See Senate Enrolled Act 492, codified at Ind. Code § 32-30-10.5 et al. The Act also requires the servicer to include a notice with the complaint that informs the homeowner about its right to participate in a settlement conference if the homeowner’s circumstances meet certain conditions (for example, the home being foreclosed on is the homeowner’s primary residence). See Ind. Code § 32-30-10.5-8(c). A conference must be conducted within 60 days, at which the servicer must engage in good faith negotiations by providing certain documents to the homeowner, including a copy of the original note and mortgage, a payment record substantiating the default, an itemization of all amounts claimed due, and any other documents the court determines are needed.

    The National Consumer Law Center nonetheless criticizes Indiana’s newly enacted settlement mediation program on the grounds it lacks direct court supervision, lacks formal tracking of outcomes, and requires affirmative action or an “opt-in” procedure on the part of the homeowner.

    The report also briefly examines several programs implemented by policymakers at the federal level to control the rising tide of home foreclosures.

    The National Consumer Law Center, a nonprofit organization, declares that that it helps consumers, their advocates, and public policy makers use powerful and complex consumer laws on behalf of low-income and vulnerable Americans seeking economic justice.