No one wants parties in a mediation to sit at the table with their arms crossed, refusing to talk. But who, if anyone, should tell mediators how to evaluate a party’s good faith participation in mediation?
Washington state House Bill 1362, the Foreclosure Fairness Act, passed the House on Wednesday evening. Washington is a non-judicial foreclosure state (mostly — a small number are judicial foreclosures), meaning that a foreclosure does not need to be approved by the court. Rather, a servicer may foreclose after giving notice of default and announcing when the foreclosure sale will be.
The new Foreclosure Fairness Act requires the servicer to contact the borrower before sending a letter warning of the impending foreclosure sale and to provide a toll-free number where the borrower may contact the servicer directly. The borrower is encouraged to contact a housing counselor or attorney, who can then refer a borrower into the Department of Commerce-led, state-sponsored mediation program.
HB1362 requires mediators to ensure certain topics are discussed in mediation. Then, the mediator must produce a mediation report, admissible as evidence against the lender, which includes a report on good faith participation. This statute goes beyond what any yet has and provides an extensive list of what constitutes bad faith participation.
The issue of mediators reporting on the content of the mediation, including good faith participation of both parties, was addressed recently in another state. On February 7, 2011, Nevada’s Supreme Court heard oral arguments in Leyva v. National Default Servicing Corp, a foreclosure case in which the borrower’s attorney claims the servicer’s attorney did not consider enough options in mediation. The trial court refused to find that the servicer had participated in bad faith (which could have resulted in sanctions against the servicer), even though the mediator’s report stated that the servicer had not brought “relevant documents” to the mediation.
The Supreme Court will consider whether to define what constitutes bad faith participation in mediation — a difficult and oft-avoided task. In oral arguments, the borrower’s attorney recommended that bad faith be found if the servicer fails to consider reducing the principal on the mortgage debt.
For mediation, a process that relies on parties’ openness to many options, greater consideration seems to make sense. However, mediation also values self-determination; if an option does not seem workable for either or both parties, why mandate that it’s on the table?
Even more, should the mediator be the one making determinations about whether parties discussed options in good faith? This seems to conflict with mediation’s core value of confidentiality and neutrality. Mediation reports that require disclosure of confidential communications to show good or bad faith participation, and the making of a good or bad faith judgment in the first place, violate the Uniform Mediation Act and many state’s mediation rules. So how should the Nevada Supreme Court or the Washington state legislature address the seeming tension between mediation’s confidentiality and the desire for parties to negotiate in good faith?