Update on Home Foreclosure Mediation

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• Hawaii enacted landmark legislation in May to address concerns with home foreclosure processes, requiring mediation of non-judicial foreclosures.  But in June legislators held hearings to try to clarify issues surrounding the 100-page bill.  Among other concerns, Fannie Mae is shifting all new matters to judicial foreclosure, to which mediation does not apply.  Hawaii’s Mortgage Foreclosure Dispute Resolution Program is to begin by October 1 and be self-funding from fees collected from the parties.  Hawaii Reporter (June 30, 2011); MortgageOrb (June 13, 2011); KHNL/KGMB (May 6, 2011); KITV.com (May 6, 2011); BusinessWeek (May 2, 2011)
• Connecticut is tweaking its successful foreclosure mediation program to prevent any foreclosure proceedings for eight months on cases that are in mediation.  Under the current dual track system, litigation can proceed even while mediation is being conducted, which causes confusion.  The new proposal awaits signature by the governor.  Connecticut Post (June 18, 2011); LoanSafe.org (June 10, 2011)
• Final rules for Washington, D.C.’s foreclosure prevention program have been put in place after six months, and require mediation prior to moving forward with foreclosure.  Among other provisions that some fear may trap lenders, mediators can impose fines of $500 per day for failure to act in “good faith.”  The Washington Post (May 20, 2011)
• Wisconsin is providing a $230,000 grant to Marquette University Law School for a third year of operation of the Milwaukee Foreclosure Mediation Program, using funds from the successful Countrywide Financial Corporation litigation.  In addition, a new mediation program is beginning for homeowners facing foreclosure in Racine and Kenosha counties, which will be funded by a $100 fee from each party.  WisBusiness.com (June 27, 2011); Journal Times.com (June 9, 2011)
• Legislation passed by the House in Delaware would require mediation between lenders and homeowners before foreclosure can proceed.  The mandatory mediation program, with an opt-out for homeowners, would take the place of the current voluntary program run by the Superior Court.  Forbes.com (May 11, 2011); Delaware Online.com (May 5, 2011)
• Legislative efforts are under way to create a mortgage foreclosure mediation program for Boston, Massachusetts.  WWLP.com (June 30, 2011)
• A Florida program permitting mediation prior to foreclosure of Fannie Mae-backed mortgages is spreading within the state and may be expanded by Fannie Mae to other states.  The voluntary program is intended to bring parties to the table when the borrower is only 65 days late with mortgage payments.  Florida’s mandatory mediation program, by contrast, is for homeowners already in foreclosure.  News-press.com (May 24, 2011)
• A requirement in Iowa that creditors foreclosing on property must notify borrowers that they can receive free mediation ends on June 30, unless extended.  The mediation program, Iowa Mortgage Help, is run by the attorney general’s office, which has been seeking legislation to continue the requirement.  Radio Iowa (June 10, 2011)
• To comply with state default mediation regulations across the U.S., providers are turning to online videos to help borrowers learn about the mediation process.  The online services make in-person counseling more efficient.  National Mortgage Professional Magazine (June 27, 2011)

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John Turley,   Plymouth MI	07/29/11
Michigan foreclosures/short sales
In Michigan, mediation is taking place within the mortgage holder short sales process in lieu of foreclosure. It is not an exact model for adoption or emulation for negotiation or mediation since the short sell expert is not necessarily a trained mediator. Every case appears to be unique, although there is a defined process with predictable steps and outcomes in place. Homeowners in danger of foreclosure due to missed mortgage payments as a result of lost jobs or reduced incomes are working with realtors to review their options. Instead of an outright forfeiture of their property within a designated period of time according to law, there are ways for the homeowner to negotiate with the banks to take a lower payoff on the balance rather than the bank assuming ownership of the property. The defendant may also avoid bankruptcy. What does not happen is a sit down between the mortgagee and the mortgagor with an ADR specialist acting as the neutral to mediate the terms and the final payoff. The negotiations do not take place online entirely. It is more of an exchange of data and documents between the financial institution and the party in default via the short sale expert who acts as the negotiator and in effect the mediator. Terms are concluded; however, it is not as if respective positions are heard and facilitated by the middle person. It is more like "you owe us $____, and we agree to accept $____. I can pay you $______ contingent upon the sale of my home with $____ in cash, etc. The short sale expert negotiates with both parties to reach a financial agreement with terms. Here is how the mediation takes place in Michigan. The bank is notified that the borrower wishes to proceed to a short sale of their property to avoid foreclosure. A real estate agent finds a buyer who will buy the property in default for an agreed upon amount. The bank wins because they will receive a negotiated payoff instead of another home that they do not need nor want. The new buyer moves into the foreclosed home and may write their new mortgage with the bank that originally foreclosed. The seller of the property or more precisely the short seller may walk away from the foreclosed property or negotiate a new mortgage for a new home with a different bank. The banks are generally satisfied because they receive some monies rather than none with the opportunity to write 1 or 2 or new mortgages. The key to this transaction is to work with the bank's loss mitigation department. Here is where the negotiations take place. The short sales expert is akin to an ADR specialist because this person knows how to get the deal done to satisfy the mortgage holder, the lender, and the realtors. The latter receives sales commissions on the properties in question. It is a WIN/WIN for all parties including the negotiator or short sale expert if the process is done correctly. The sale breaks down when the process is not observed. Only 5% of the experts know what they are doing in this field since the practice is tainted by corruption, greed, unethical practices, stupidity, and ineptitude. As a trained mediator, negotiator, and ADR specialist, we are completing these types of sales in Michigan. I also hold a real estate license although one is not necessary to do the above. It is not so much a legally mandated issue as it is one of timing and working with the banks to stop the foreclosure process and to accept for example $300,000 instead of $555,000 or whatever amount is due. When I wrote my paper for online mediation and negotiation in Professor Rainey's course at Creighton University's Werner Institute for Negotiation and ADR, I focused on the 30 day window between the foreclosure notification by the bank to the mortgage holder and the resumption of the default process. I thought that this 30 day cooling off period was the window of opportunity for mediation. Actually, the window stays open longer since the entire short sale process may take as long as 6 mos. The fastest short sales are completed in 60=90 days from start to finish. The key is to start the process with the banks ASAP. The banks are always the strongest party; however, the skill is to negotiate from strength since the banks dislike foreclosures. The mediations are proceeding in Michigan under a different format and process than the conventional image of disputing parties with the ADR specialist as the facilitator. The process is complex and demanding; however, it works well when in the hands of the experts such as my wife. John C Turley Add New Comment

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