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Reporting on Reporting on Good Faith

Heather Scheiwe Kulp, March 9th, 2011

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?

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7 Responses to “Reporting on Reporting on Good Faith”

  1. Kent Lawrence says:

    Another example – in the great American (everyone, anywhere?) – of “modifying” the contents of a word or concept (corrupting?) that has developed a positive connotation over time (in this case mediation) and in the process doing violence to the fundamental concept. “Reform” is my personal favorite, since it is now applied to any asserted change, not necessarily a good one. In this case, if they want to do what they seem to be doing (change the rules of mortgage foreclose after the fact) via a non-judicial process, they certainly should not call it mediation. But some are doing just that.

  2. Heather Scheiwe Kulp says:

    I agree that mediation is a misnomer for some of these processes. A few programs are calling themselves “conciliation” or “facilitation” processes instead of mediation, which I appreciate. However, I think some of these mediation programs are exactly that–mediation programs with professional mediators handling very complex cases. I wonder how you see the court-connected foreclosure mediation process being different (I think you said it changed the rules of foreclosure) than other types of court-connected mediation processes, where an additional step is simply added to the litigation process?

    • Kent Lawrence says:

      When a system starts labeling it “bad faith” because a lender refuses to cut principal owed when entitled to foreclose and “get the property” I view that as changing the rules. When a system “merely” tries to “line up” alternative solutions to foreclosure — get those borrowing, with help, to understand “the math” of their particular situation, and require those lending to sit down and evaluate THEIR options in the situation and DEAL, if it makes sense to THEM – when the governmental judicial system is being flooded and the entire economic structure is threatened by disorderly “work out” of these properties, it seems like a good idea to me.

  3. […] Just Court ADR: Reporting on Reporting on Good Faith blog.aboutrsi.org…            ADR Prof Blog: Stark and Frenkel on […]

  4. John Lande says:

    I wrote an article identifying court rules and decisions about whether parties participated in mediation in “bad faith.” Using Dispute System Design Methods to Promote Good-Faith Participation in Court-Connected Mediation Programs, 50 UCLA Law Review 69 (2002), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=358420. I concluded that bad faith rules were very problematic and recommended, instead, using dispute system design procedures to induce people to participate constructively.

    • Heather says:

      John,

      Thank you for pointing me to your article. Your writing has been a helpful resource for me as I explore this issue further in the context of foreclosure mediation. Thank you for your thoughtfulness and recommendations in this area.

  5. […] greater emphasis on good faith participation in mediation. As Heather has written before, this is not necessarily a healthy way to preserve the core values of mediation: voluntariness, […]

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