Roger Fisher’s experiences in World War II prompted him to look for another, better way to resolve conflict without sacrificing people’s individual needs and interests. Thus, along with William Ury and Bruce Patton, Mr. Fisher developed the principle that people can be moved from focusing on their positions to identifying their underlying interests and coming up with creative solutions to have those interests met. The authors also co-founded Harvard’s Program on Negotiation and wrote extensively on negotiation theory and practice.

His ongoing work to promote peace through understanding each other’s true needs will forever shape the landscape of ADR. His passing is a loss to us all.

The first was a constitutional challenge from Wells Fargo against the Nevada Supreme Court Foreclosure Mediation Program. Wells Fargo claims the mediation program itself violates the due process clause. More specifically, Wells Fargo claims a provision that allows sanctions for non-compliance, violated the U.S. constitution. Nevada’s mediation program allows judges to issue sanctions if the lender does not participate in good faith. Sanctions may include an ordered write-down of the mortgage. Wells Fargo says this violates the contracts clause and the takings clause by interfering with a contract provision and appropriating private real and personal property for public use without compensation. The court has not yet heard arguments in this case.

The latest challenge was to the City of Springfield’s City Council ordinance 7.60, which requires lenders mediate before being able to foreclose. A group of smaller banks in Springfield requested the U.S. District Court for the District of Massachusetts a declaratory judgment that the foreclosure mediation program, which went into effect on December 13, 2011, was inconsistent with Massachusetts law.  The program voluntarily halted operations pending resolution in the case.

The Springfield ordinance, “Facilitating Mediation of Mortgage Foreclosures of Owner Occupied Residential Properties,” mandates mediation prior to the lender being able to proceed with a foreclosure. The parties must mediate in good faith and try to come to a “commercially reasonable” foreclosure alternative. If the mediation is conducted this way, the mediator will issue a certificate allowing the foreclosure to proceed.

The banks mostly argued against a sister ordinance, one that charged the lenders for the maintenance of properties under their purview. But, they also challenged the foreclosure mediation ordinance, saying that the state, not the city, was the exclusive regulator of the foreclosure process and thus, the city could not create a program separate from state approval.

If true, this argument would render many other foreclosure mediation programs invalid: Providence, Rhode Island; the District of Columbia; and the City of Philadelphia, which funded, in part, the outreach for the Philadelphia Court of Common Pleas’ foreclosure diversion program. This argument might be extended as far as individual counties or court circuits that create programs, if the state itself doesn’t promote such programs. If so, foreclosure dispute resolution programs like Hawaii’s 1^st Circuit, New Mexico’s 13^th Circuit, and Illinois’ 3^rd Circuit might be found to be overreaching their powers.

The court determined that the purpose for state laws about foreclosure would not be frustrated by the existence of a city-specific program.  Specifically, the court said that the mediation program would not significantly alter either the foreclosure process or the relationship between borrower and lender. Mediation programs do not prohibit lenders from completing the foreclosure; the program just requires a “preliminary step” before doing so. Even the argument that mediation extends the foreclosure timeline and thus, interferes with the state-given right to foreclose, was not persuasive. To the court, a mediation program is a “modest effort to soften this crisis.”

As RSI predicted in its review of 2011 and forecast of 2012, litigation about mediation is on the rise.

First, let’s explore a bit more about confidentiality in mediation:

Why do mediators care so much about confidentiality?

• Primarily, confidentiality protects parties from being bound by options they discuss during mediation and setting precedent for other situations with agreements they make in individual cases. In turn, it:
  • Promotes participation by parties
  • Promotes exploration of creative options
• Confidentiality also:
  • Protects mediator from having to share information in court or elsewhere
  • Distinguishes mediation from a court hearing

Why would absolute confidentiality be a problem?

• May hide bad/unjust/illegal/unethical behavior

Why would lack of clarity about confidentiality be a problem?

• If the court or mediators do not let parties know that mediation may not be confidential, because of many exceptions, parties may have the impression that mediation sessions have blanket confidentiality and thus reveal things that could jeopardize them later
• If parties do not understand that a court can override confidentiality protections, parties may make an undesirable or illegal agreement and not know about, and thus seek to exercise, their due process right to seek redress
• It may falsely promote open exploration of options when those discussions could be used later
• Confidentiality provisions differ considerably state-to-state, including whether the state has adopted the Uniform Mediation Act, so unless a court or mediator explains the local provisions, a party may have an expectation that mediation in one state is the same as mediation in the next
• Blanket confidentiality can help create a more equal playing field for mediation parties; so, if the setting is not actually confidential (but the parties or one party believe it is), the inequality between parties (here, Oberman is most concerned about disadvantaged minority groups) may be exaggerated in any agreement or post-mediation proceedings.
• The lack of clarity may falsely promise privacy when there is limited privacy

Especially when she perceives that an increasing number of court mediation programs require (whether formally or informally) the litigant to go to mediation, thus giving the party the impression that the judge is ordering (coercing?) a party to participate in a process that may or may not be private, Oberman wonders whether court mediation violates the constitutional right to privacy. Oberman argues that if people do not know what rights they forego to participate in mediation, or what rights they have in such a process, the courts—and mediators as representatives of the courts—are violating their constitutional rights.

She argues that informed consent, not confidentiality, is the basis for self-determination in mediation. Oberman is not saying that confidentiality is not worthwhile; in fact, she promotes recognizing confidentiality as an application of the constitutional right to privacy and preserving its use in mediation. But, to ensure that litigants’ constitutional rights are preserved requires that parties “be made aware of the limitations of confidentiality within the legal framework.”

This necessitates that court-connected mediators, who Oberman says “function as representatives of the law and the court,” should inform parties accurately about “the legal rights and limitations represented in the choice to maintain or waive confidentiality in mediation.”  The responsibility of mediators with regards to a party’s right to privacy, she continues, is to 1) give accurate legal information about confidentiality and privilege that applies; 2) ensure parties understand the information; and 3) determine that parties are capable of making a decision in their own best interest.

I can hear the cringing already. Mediators giving information? Mediators, who may or may not be attorneys, being responsible for informing people of their legal rights? Mediators reviewing confidentiality provisions that may or may not be settled points of law? Ack!

But Oberman is not the first to assert that mediators, as part of the legal system, have a responsibility to share information (not legal advice) with parties prior to and during mediation. Richard Zorza, an advocate for self-represented litigants and access to justice, asserts that mediators may, and at times should, provide information to parties. He interprets our own Model Standards of Conduct, which he says allow us to give information that we are qualified by our training or experience to provide (VI[A][5]). The mediator cannot personally ensure that each party has made a free and informed choice to reach particular decisions (I[A][2]), but Zorza reads the Model Standards to mandate that we do figure out how to make self-determination and a quality process possible, especially when the party does not fully understand what mediation is (VI[A][10]).

While you may not agree with Oberman or Zorza, court-connected mediation programs are facing an important challenge. With the increase in pro se litigants in court and the continued growth of court-connected ADR, how can mediators continue to “conduct a mediation based on the principle of self-determination [in which each party] makes free and informed choices as to process and outcome” (I[A]), especially if confidentiality provisions are not clear?

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?

So where is the money going?

Some states are using the money to fill funding gaps in services related to the foreclosure crisis: affordable housing (FL), vacant building demolition (OH), low-income family energy assistance (IN), and services for kids displaced by foreclosure (MI).

But, many states—Wisconsin, Missouri, Arizona, California, Texas, Maine—have chosen to take over half of their portion of the $2.66 billion earmarked money and apply it to general fund budget deficits. They are using the money to pay for things like state college and university salaries (MO), public education (PA), and pay raises for state employees (VA). In some cases, they are not specifying how they will use the money, other than to balance the state budget (VT) or give the legislature some discretionary spending (MD). The argument from these states is that the foreclosure crisis has already caused gaps in the general state budget, so it’s only fair to let the banks pay to refill these gaps. But this hurts the prospects of dispute resolution programs being funded to help resolve the current mortgage crisis.

Twenty-seven states are resisting the urge to divert this money away from foreclosure prevention. State representatives in Wisconsin introduced a bill to prevent Governor Walker from diverting funds from the settlement for general purposes. In Illinois, Attorney General Lisa Madigan says she opposes any efforts to distribute the money any way but for foreclosure prevention, despite Illinois’ significant budget crisis. Still, as of this date, only four of the 27 states that are using the earmarked funds for foreclosure prevention—Arizona, Florida, Washington, Wyoming—have said they will use the funds for foreclosure mediation programs.

Perhaps foreclosure dispute resolution programs, and those who support them as a worthwhile process to resolve foreclosure disputes, need to make a greater showing about how dispute resolution can improve states’ recoveries. By being clear about a program’s goals and regularly reporting on whether those goals are being met, foreclosure dispute resolution programs can demonstrate their ability to foster communication and understanding in the midst of community crisis.