JAMS ADR Insights
Mediation Programs Seek to Aid Homeowners Facing Foreclosures
Published July 21, 2011
In the wake of the housing crisis and the economic downturn, one of the biggest consequences has been homeowner foreclosures and loss of homes. The U.S. Senate Judiciary Committee voted in March in favor of a bill to give bankruptcy courts nationwide the authority to set up foreclosure mediation programs.
The goal of the law is to help homeowners find relief through either a loan modification if they qualify or assistance with finding an alternative to foreclosure. The law gives homeowners a new opportunity to meet with the lender and an independent party to ensure that alternatives to foreclosure have been considered and evaluated. Foreclosure mediation under this new law is designed to help foster a dialogue between homeowners and lenders to make sure a fair assessment is made and the homeowner is offered any and all options. Some organizations have opposed the mediation programs, saying it only delays the foreclosure process and prevents a true economic recovery.
To further understand how the programs work and what’s available in certain states, following is a list of programs offered across the country:
- Connecticut: Legislation would extend the state’s foreclosure mediation program through 2014 and require mediation to be completed before foreclosure litigation can proceed.
- Delaware: Legislation was introduced that would provide for automatic mediation for homeowners facing foreclosure, instead of the voluntary mediation currently in place.
- D.C.: The District adopted foreclosure mediation legislation in November 2010 and then barred residential foreclosures until promulgation of mediation-related rules, which were published in April. Lenders must give borrowers notice of default which includes a mediation election form. If borrowers decide to mediate they must pay a $50 fee and mediation must be completed within 90 days.
- Indiana: The state Supreme Court launched a secure online network for exchanging necessary financial documents and information in order to make foreclosure mediation more effective. A pilot project using the system has begun in two counties.
- Hawaii: Three alternative foreclosure reform bills are near enactment, although settling on one bill could be challenging. Two of the three bills include mediation. As of now, mortgage industry representatives have raised objections to the bills, and especially to the dispute resolution provision.
- Illinois: New home foreclosure mediation programs are beginning in the counties of Peoria and Madison. While homeowners in Madison County must submit a mediation request and meet certain financial pre-conditions, in Peoria County the mediation period is mandatory for residential foreclosures. The mediation program in Peoria begins June 1 and is financed with increased filing fees.
- Washington: The state enacted H.B. 1362 to provide more time and counseling for indebted homeowners, and mediation with lenders prior to foreclosure. A housing counselor or lawyer can refer a homeowner to mediation, in which a mediator is to make sure both parties are acting in good faith. Washington is the third non-judicial foreclosure state to enact a mediation process, following Nevada and Maryland. H.B. 1362 takes effect in July.
It is encouraging that there are so many programs available where people can utilize a tool as effective as mediation. Some reports have shown that the mediation programs have been effective at saving people money and their homes. However, considering many programs are still new and experiencing growing pains, not all states have shared in the same success.
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