(See the posting from Jen Shack, Good Faith, Revisited, on this subject, too.)
An article in Sunday’s New York Times purported to examine Nevada’s foreclosure mediation program, especially its shortcomings. The article, combined with a reading of the court rules for the program, points out continuing misunderstandings about mediation, such as what mediators do, the purpose of mediation, and how mediation functions. It also points up a glaring deficiency in many court mediation programs: not tracking the actual results of mediations. In this case, if people are really staying in their homes or moving, if temporary mortgage modifications are becoming permanent, if the foreclosure process is moving more quickly, etc.
In terms of what mediators do, the local rules indicate confusion about the actual role of the mediator. For example, they state (1) “The mediator may, in his or her discretion, accept a broker’s price opinion letter (BPO) in addition to or in lieu of…” (Rule III. 8. 4) and (2) “A ruling by the presiding mediator granting a continuance must state the nature of….” (Rule III. 12. 2). Unlike judges who are impartial and take no sides, but make decisions, mediators should be neutral, and not make decisions in place of party decision-making. Mediators should not accept or reject documentation, nor should they rule on continuances. In constructing this program, the distinct role of a mediator was confused with other roles. Mediators do not make substantive decisions because doing so runs afoul of self-determination, the core underpinning of mediation, not just because there is some mediation “rule” against it.
In terms of the purpose of mediation, the article demonstrates a lack of understanding among the public and even sometimes among mediators. The article reports, “But some mediators who have participated in the Nevada program and some lawyers who represent borrowers in it say it has flaws that may give the banks an advantage over borrowers.” In reality, mediation does not magically make participating parties equal. One party is likely to have an advantage over the other. In a situation where a homeowner is significantly in arrears on mortgage payments, the lender could naturally be expected to have an advantage. The purpose of mediation is not to make the disputing parties equal, but to give them a forum in which they can exercise self-determination and work out a resolution that best meets everyone’s needs.
In terms of how mediation actually works, there seems to be some misunderstanding, too. One of the mediators states in the article, “I really felt the lenders didn’t have too much interest in having the program work. … A lawyer would show up for the lender with none of the documents required by the program. When they got into the mediation, they would call somebody in a bullpen someplace who had a computer handy and the borrower might or might not qualify for modification. No discussion, no negotiation.” Again, the reality of mediation is that one party might not be interested in making a mediation program work. They do not have to be interested in program success, much as we mediators, program designers and public policy analysts might want them to be. Additionally, one party’s idea of program success may be different from another’s, e.g. staying in a home vs. getting the foreclosure process to move more quickly. In my experience as a foreclosure mediator, those folks in the “bullpens” are the ones who know what the lender is willing to do. There might be flexibility, there might not. Because mediation is all about self-determination, the lenders are free to do what they want in mediation. Just as homeowners may not be able to accept certain terms, the lenders may not be able to offer certain terms. Sometimes the lenders’ abilities may be set by the investors in loan packages. Expecting a mediation program to overcome those investor requirements is assuming mediation can accomplish goals it cannot. A mediation program can’t be set up to obtain specific settlement terms.
While the NYT article got a lot of things at least a little bit wrong, one point it made was correct and very important. Nevada does not know how many temporary loan modifications are becoming permanent. Unfortunately, this is a perfect example of a problem with many court mediation programs. We really don’t know what the long-term outcomes are. We may know how many cases settled, but we (court mediation folks in general) do not track whether those settlements worked out in the long run. It is particularly difficult to try to track what happens after a court ruling, in this case whether a loan modification becomes permanent, and so it is typically not done.
Foreclosure mediation can be a useful application of an ADR process to a current social and economic crisis. Nonetheless, we need to keep in mind the limitations of the process and we need to stretch the ability of court mediation programs to collect meaningful data so that mediation can be most useful in this setting.