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Foreclosure Mediation, Saving Homes, and Appropriate Dispute Resolution

Heather Scheiwe Kulp, February 23rd, 2012

As someone who reports on foreclosure mediation around the country, I am thankful for the work of the Department of Justice and the National Consumer Law Center, which have both published extensive reports on the benefits of foreclosure mediation in recent weeks. The DOJ’s report is a follow-up on an Access to Justice Initiative conference RSI attended last year, which focused on how foreclosure mediation programs can be evaluated for their effectiveness. The NCLC report is the work of Geoff Walsh, a consumer lawyer who focuses on the foreclosure crisis and how consumers benefit from mediation programs that address foreclosures and provide a mechanism for servicer accountability. Walsh also helpfully demonstrates (on pages 33-41) how foreclosure mediation does not have to cost states too much and does not have to extend the foreclosure timeline.

While I agree with most of the assessment these reports provide, I’d like to highlight a couple of points – based on RSI’s experience and expertise in the court ADR field – with which I disagree.  I wonder if other pre-foreclosure-crisis ADR experts might have had a similar reaction.

No one-size-fits-all structure

In the wake of the statewide portion of Florida’s foreclosure mediation program ending, NCLC makes a good suggestion that all foreclosure mediation programs should provide for robust outreach to borrowers. This results in much higher rates of participation than in programs with limited outreach. But, NCLC makes blanket recommendations, recommendations that would not result in higher rates of settlement, about the mediation sessions themselves. For example, NCLC recommends that every program be an opt-out as opposed to an opt-in. If this shift occurred in every program, some areas with a huge foreclosure caseload (such as Chicago with over 50,000 a year or Miami where one in five homes are in foreclosure) would find it nearly impossible to create a mediation program that could service all those cases. Perhaps opt-out programs work well in smaller states with more capacity, but opt-out is not a design element that fits every foreclosure mediation program.

This example leads to a critique of NCLC’s overall approach to the study. Instead of recommending that programs tailor themselves for situations particular to each state’s foreclosure process (which varies even between counties in a state), NCLC proposes broad guidelines and commends every state to adopt them. As dispute system designers know, the first step in creating a foreclosure mediation program is to identify the goal. If the goal is to save as many homes as possible from foreclosure, that program may look very different than a program which has a goal of reducing the load of cases on a jurisdiction’s foreclosure docket. Differing structures do not mean one program is more effective than the other (unless the structure does not fit the goal). Instead, each program needs to examine its own goal, select metrics to use to track whether that goal is being achieved, partner with a system designer who knows how to match a goal to a structure, and regularly evaluate the program using the pre-selected metrics to determine where the program needs to change to better meet the goals. If we’re honest with the goals of a program, perhaps mediation is not the appropriate dispute resolution process to meet the goals.

What mediators can do

Both the DOJ report and the NCLC report cite mediation’s success in other contexts as the reason it was selected as a process to manage the foreclosure crisis. When courts have looked to mediation to help in other situations, they have cited a few characteristics of mediation that render it the best process to achieve their goals. Whether mediation is used in family cases, small claims cases, or major civil disputes, mediation is an appropriate forum for some disputes, some of the time.

First, mediation gets everyone in a dispute focusing on the same problem at the same time. In the foreclosure context, this means that communication about the single case at hand can happen in a focused period in time, without the disconnect of a borrower talking to multiple representatives at a servicer’s office and not getting the same answer twice. Everyone takes the time (sometimes a set amount, sometimes as long as is needed, sometimes in multiple sessions) to look through a file, talk about individualized solutions, and work toward next steps on that single case. Mediation, more than a court hearing or other setting, provides that forum.

Second, mediation can be a forum to discuss each case confidentially, so creative solutions may be generated. In the foreclosure context, servicers are very nervous about any precedent that would bind them to reducing principal on every loan. But, in mediation (which is a confidential process in almost every state), the servicer may be incentivized by the confidentiality to offer a principal reduction in individual cases. Moreover, confidentiality helps the borrower deal with questions and emotions they may want to keep out of the public square (anger, shame, frustration, etc.) and a good mediator recognizes those emotions, gathers more information, and helps the borrower generate options. Unfortunately, neither report praises confidentiality as a benefit in the foreclosure context. In fact, the NCLC report (at 27) recommends mediators be required to report party behavior and statements made in mediation as part of an accountability mechanism for servicer behavior. Pointedly, and much to the chagrin of mediators who pride themselves on not being judges, this section of the report is called “Judicial Enforcement.”

Third, mediation is a process that gives parties an opportunity to speak their minds and empowers parties themselves to make decisions about their lives. Especially in a case area that overburdens the court system, such that few judges have the time to offer a listening ear, mediation may be a very appropriate forum for foreclosure disputes. Parties report feeling more satisfied with that process than a court process, even if they do not reach an agreement. This is quite important in the foreclosure context, as not every borrower will qualify for a foreclosure alternative. Mediation can be a place where borrowers experience an enhanced sense of dignity and justice, despite the potential of no settlement.  Tracking party’s conception of procedural justice is an essential part of evaluating programs regularly. Thankfully, the DOJ supports RSI’s view that monitoring and evaluation of foreclosure mediation programs make them better.

What mediators cannot do

One misplaced recommendation in the NCLC report is that foreclosure mediation programs could “fix” “major problems with servicers’ loss mitigation reviews” (see page 17).  Mediation programs, and mediators in them, cannot remedy problems external to the process. Mediation can serve as a venue for document exchange and review. But, mediators should not be the ones to review documents for accuracy and completeness, as this shifts the mediator into a judicial/attorney role that jeopardizes neutrality. If a program does require a check on documents exchanged, the program should provide a screener to do so outside the mediation process. Mediation cannot, and should not, fix any corporations’ process; if the process needs changing to comply with laws and best practices in an industry, then the process should have at least judicial oversight and, as the DOJ report and a Brennan Center for Justice report suggest, could be improved by providing legal representation for borrowers. That way, attorneys could file claims seeking enforcement of federal, state, and judicial regulations around document exchange. This provides a mechanism for reviewing problems with servicers’ loss mitigation reviews without jeopardizing the confidentiality within the mediation session itself.

The NCLC report also suggests that all programs should outline “enforceable standards” that ensure servicers “negotiate in good faith.” Foreclosure mediation programs like Nevada’s having taken such recommendations to heart and have created mediator reports that ask mediators to describe party behavior and recommend sanctions based on that behavior. Based on recent case law, judges must comply with mediators’ recommendations for sanctions.  While other mediation programs have not gone so far, many have established similar expectations of mediators to report on party behavior, specifically, servicer behavior.

Whenever long-time mediators hear this, they tend to get very uncomfortable. “Don’t they follow the UMA? Don’t they have ethical standards that require confidentiality? Doesn’t that jeopardize mediator neutrality?” These are all good questions, both for mediators in their own practice and for programs to grapple with as they set the goals—and policies that support the goals—for their foreclosure mediation programs. A program may decide that, for them, having a mechanism to report bad party behavior in foreclosure mediation is more important than maintaining mediator ethics. But is it then mediation? And if not, should we resist it, or embrace a new dispute resolution process as a symbol of ADR’s ability to adjust to new situations?

As other mediation colleagues have mentioned, perhaps it’s time to create a new dispute resolution process—a new system better fit to the goals some people have for foreclosure mediation. Some jurisdictions have already chosen to avoid the label “mediation.” Some call the process facilitation. Others call it a settlement or conciliation conference. Any thoughts about what this system might look like? What would you call a new process? Or is mediation good enough? If mediation is sufficient, what should be changed, if anything, to bring foreclosure mediation programs in line with traditional values of mediation?

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2 Responses to “Foreclosure Mediation, Saving Homes, and Appropriate Dispute Resolution”

  1. Kent Lawrence says:

    Great article. Anyone who SERIOUSLY is looking at these programs with the view of maximizing their effectiveness (however defined) should be reading and pondering the reports AND this article’s points.

  2. M.R.Stevan says:

    Everybody should try to educate themselves and stay informed about foreclosure laws and practices, regardless of their choice to hire an attorney or go for “DIY” approach. I will bookmark this article and share it with everyone who needs to know more about the matter.

Leave a Reply to Kent Lawrence