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Court Mediation Prompts Pre-Filing Foreclosure Mediation Program

Just Court ADR, January 4th, 2011

Three years after the first foreclosure mediation program launched in Ohio, more jurisdictions are reporting their program statistics. Resolution Systems Institute has long advocated that courts should monitor and evaluate their own programs. Monitoring and evaluations provide a tool for identifying how to improve programs for parties, lawyers, and courts.

Now, evaluation is helping improve mediation services outside the courts. In late December, the Florida Supreme Court Committee on Alternative Dispute Resolution Rules and Policy’s Mortgage Foreclosure Subcommittee released a report on the one-year-old statewide foreclosure mediation program. Unfortunately, only seven of twenty Florida circuits were in a position to report data, even a year after the program began. The results reflect that about half of eligible homeowners respond to information about the program and about one third of cases that go to mediation end in a settlement.

The Committee recognizes that not enough data was captured to represent a statistically significant set and requested the Supreme Court extend the data collection process until more data is available. It expresses what I wish all courts would—that data collection and reporting is essential and should lead to “revisions to the Program in order to further refine and create an environment for program success.”

One recommendation that did come out of the Committee: encourage more pre-suit mediation. Interestingly, Fannie Mae, the hybrid government-sponsored enterprise (GSE)/private corporation that supports the secondary market for mortgages, responded with a mediation program of its own.

For mortgages in its portfolio (with some exceptions) Fannie Mae is implementing a pre-suit foreclosure mediation program in all twenty Florida circuits. The program first speeds up the timeline for foreclosure; servicers send the first notice of foreclosure alternatives after the homeowner is only 31 days late on a payment. Servicers are now required (under Fannie Mae’s direction, not the state of Florida’s) to refer all delinquent mortgage loans to an attorney in Fannie Mae’s Retained Attorney Network. Servicers also must provide all referred attorneys with contact information for a primary liaison/team to whom all inquiries and documents should be directed throughout the mediation process. That attorney will then use a software tool, Clarifire, to evaluate the loan for mediation eligibility and conduct a mediation between the servicer and the borrower—all before filing any foreclosure papers with the courts. Fannie Mae reserves the right to fine servicers for failing to comply with the program. The program went into effect on January 1, 2011.

This program certainly meets the Committee’s recommendation to conduct more mediations pre-suit. Instigating conversations between lender and borrower are, after all, one of the primary goals of foreclosure mediation programs. Too often, borrowers have tried to contact lenders to discuss their loans, but cannot reach someone with authority to negotiate with them. Lenders, too, try to contact borrowers to offer work outs, but find borrowers who don’t understand or simply don’t respond.

Generally, it is better for feuding parties to meet and discuss options before a suit is filed than to wait until everyone has lost money and time shuffling legal papers. With Fannie Mae’s program, homeowner advocates worry about the neutrality or quality of lawyers doing the mediations, as has been questioned before with Fannie Mae’s counsel choices. But especially in the foreclosure context, where a legal process for exploring alternatives already exists, the more conversations parties can have before court, the better. It not only will help homeowners see the proverbial light at the end of the tunnel sooner (whether that be a loan modification, a faster foreclosure, or another foreclosure alternative), but it will help servicers reduce costs (filing, lawyer’s fees, etc.) by working out alternatives sooner. It may also encourage greater accountability for both parties, since Fannie Mae can fine the servicer for failing to comply and the homeowner’s BATNA is to have a foreclosure case filed against them.

How might we translate this lesson to other states’ foreclosure mediation programs? To other types of court-connected mediation programs?

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One Response to “Court Mediation Prompts Pre-Filing Foreclosure Mediation Program”

  1. Kent Lawrence says:

    Great article; keep it up. A wide audience SHOULD be interested in how the different programs are working, as well as their characteristics. RSI performs a real service in both “boiling this down” and allowing, via links and its Resource Center, greater detailed data to be accessed easily.

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