This month, Resolution Systems Institute was invited to consult on residential mortgage foreclosure mediation at the Uniform Law Commission’s (ULC) Mortgage Foreclosure Committee meeting. The ULC is a non-governmental organization that drafts laws which states may voluntarily adopt in whole or use in part to create their own laws. The Committee is considering drafting a uniform law on foreclosures and is interested in including a provision on foreclosure mediation. RSI provided its Mortgage Foreclosure Mediation and Mitigation Models report, along with other materials, to the Committee prior to the meeting. I, as staff attorney at RSI, along with four program managers from foreclosure ADR programs around the country, addressed the Committee and forty interested observers from lending, borrowing, academic, and governmental sectors. The following are my opening remarks:
Greetings, members of the Committee and observers. Thank you for the opportunity to present you with our research and experience in foreclosure alternative dispute resolution programs. We represent a few of the 23 states, both judicial and non-judicial, that offer foreclosure ADR programs in at least one location within the state. While we share many common experiences and beliefs about the benefits ADR brings to the foreclosure crisis, we also offer the Committee a diversity of geography, context, and opinions about foreclosure ADR structures. We hope this diversity will support the Committee’s goal of engaging intelligently and thoroughly with issues related to foreclosure ADR.
Through today’s meeting and my memo, I use the term “foreclosure ADR” to connote a process by which a borrower and servicer representative meet with a neutral third-party to discuss alternatives to foreclosure. Though often referred to as “mediation,” foreclosure ADR programs actually span a broader range of ADR processes than the narrower term “mediation” implies. Also, mediation is often regulated, at least in part, by state law (such as this body’s own Uniform Mediation Act, which is enacted in eleven states) or local rule; these regulations may be more restrictive than a foreclosure ADR program may wish, or they may add an additional hurdle to state adoption of a uniform law. Moreover, the ADR community continues to engage in a lively debate about whether foreclosure mediation should be called mediation at all. Some programs, and I look now to Judge Rizzo of Philadelphia, have intentionally avoided using the word mediation altogether. Hence, I will use the term foreclosure ADR and allow my colleagues to expand on how they or their governing bodies termed the process in their respective locations.
Regardless of title, an ADR process provides many benefits in the context of mortgage defaults. First, let me clarify that mediation does not equal loss mitigation; it is a process in which loss mitigation and other options can be discussed. Loss mitigation should happen before, during, and after mediation. That said, mediation provides unique opportunities that traditional mortgagor/mortgagee loss mitigation efforts do not. Previous to a dispute resolution session, the borrower may have called the lender multiple times and received a different person with different information each time. Similarly, the lender’s loss mitigation department has likely reached out to the borrower through letters and phone calls, to no avail. A dispute resolution session, then, provides borrower and lender the first opportunity to focus on this one case for an extended period in time. Parties can exchange information and discuss the particular situation as never before.
Still, dispute resolution provides even greater benefit than a basic “meet and confer” requirement, as California and Michigan have both adopted. The communication is facilitated by a third-party, who provides a measure of balance in a situation where power imbalances are common. The neutral asks challenging questions of both sides, reality tests the statements of both parties, and where applicable, helps parties generate and explore options to reach resolution. Borrowers can learn more about the foreclosure process and their retention and relinquishment options. Lenders can explore creative solutions in a (usually) confidential environment, without the fear of setting precedent. Parties—both parties—who have completed foreclosure dispute resolution processes report feelings of satisfaction and justice at greater rates than those that do not participate in such processes.
Some foreclosure ADR programs have also been able to connect parties to additional support services. Lenders have found online document exchange programs helpful to sort through and check the completeness of loan modification applications. Borrowers have received budget-planning assistance from housing counselors and other financial literacy experts. In a few ADR programs, such as Philadelphia’s and Cook County’s, borrowers receive the assistance of counsel. Both sides report that having a single point of contact available to answer questions creates a more efficient and effective loss mitigation process.
These benefits add up. As Reporter White explained, mortgage modifications were significantly higher in localities with ADR programs than in those without. Re-defaults on modified loans were lower in areas with ADR programs. And parties are more satisfied with the loss mitigation process, even if the borrower decides to relinquish the property.
Before determining what components and characteristics the Committee would like to draft into a uniform law, I urge you to articulate the goals for such a process. An ADR process with a primary goal of saving communities from foreclosure blight, for instance, should look different than an ADR process designed primarily to efficiently move cases through the system. Of course, these goals are not mutually exclusive, but as we examine the various components and characteristics of current foreclosure ADR options available, keep in mind that not all components will serve all potential goals. Learn from the experience of my colleagues and other foreclosure ADR programs around the country, most of which have adapted the process over time to better fit the purpose.
Our goal today is to discuss successful components of a foreclosure ADR program and how to choose and shape those components based on program goals. Attention will be paid to balancing interests of relevant stakeholders and grounding the characteristics in foreclosure ADR best practices. As judge, mediators, program managers, and national ADR researcher, we bring a wealth of professional experience to these discussions and we urge you to ask questions as you see fit.
What issues related to foreclosure mediation do you think a uniform law should address?