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Just Court ADR

The blog of Resolution Systems Institute

The Bread and Butter of Non-Judicial Foreclosure Mediation

Just Court ADR, June 22nd, 2011

Here at the Just Court ADR blog, we focus on just that – court-connected alternative dispute resolution. But occasionally, a dispute resolution system becomes so popular that it grows beyond the walls of the courthouse and replicates itself, like good yeast, into new shapes.

The latest ADR bread to rise outside the judiciary is foreclosure mediation. Much has been said here and elsewhere about the variety of mortgage dispute resolution systems across the country. But little commentary has focused on how jurisdictions that do not require foreclosures to go through the court system (hereinafter “non-judicial foreclosure states”) somehow connect the foreclosure process to an ADR system. The answer is not simple, as each non-judicial state with a program does it differently. But for states seeking to form systems in which lender and borrower can meet face-to-face with a third-party neutral, having a few time-tested recipes may help.

Some non-judicial states choose to connect the foreclosure process to the court system through another existing court call. Arizona is creating a program in the bankruptcy court in which borrowers going through bankruptcy can request a meeting with their lender to negotiate their mortgage. This is modeled, in part, off of Rhode Island’s much-litigated-but-now-validated bankruptcy court foreclosure mediation program. The feds have even taken notice of this format. Congress has a few bills before it that suggest instituting similar programs nationwide.

While Nevada’s foreclosure process is non-judicial, the foreclosure mediation program is run by the state judiciary. With a robust history of providing ADR services, the judiciary was the go-to administrator for such a program.

Similarly, Hawaii’s non-judicial foreclosure mediation bill requires the judiciary to assist and support the program. However, unlike Nevada, Hawaii’s court system already had a foreclosure mediation program up and running. Though it may seem obvious that lenders would choose the simpler one over the more demanding one, advocates of the non-judicial bill are surprised to learn that at least one mortgage giant is shifting all its non-judicial foreclosure cases to the judicial system.

The same mortgage giant likes the non-judicial foreclosure mediation program in Florida. Though Florida is a judicial foreclosure state (and has a judicial foreclosure mediation program), Fannie Mae realized that it could start negotiations far before entering the courtroom. In partnership with counties, it started a pre-filing mediation program to get lenders and borrowers at the table when borrowers first default on a mortgage (30 days after) instead of waiting for the 90 day mark to file, then be scheduled for a court date another few weeks down the road.

Three jurisdictions have given the job of gatekeeper to the jurisdiction’s Recorder of Deeds (or equivalent). In D.C., Boston, and Washington state, lenders that wish to foreclose must file a certificate of mediation completion before being allowed to file a transfer of title in the deed office. Local or state departments (Insurance and Banking in D.C., Commerce in Washington state) or local mediation organizations (Boston) serve as administrators of the mediation program.

Knowing how to mix the various ingredients of a foreclosure mediation program outside the guidance of a court may not be easy. However, as many jurisdictions are learning, getting the ratio right can lead to wholesome programs or deflating loaves.

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