The Residential Mortgage Foreclosure Mediation Disaster, Florida Style

The recommendation of the Florida Supreme Court committee to abandon the current statewide, mandatory residential foreclosure mediation program should come as no surprise to anyone familiar with the operation of the program. I am referring, of course, to the mediators who have sat through thousands of mediations and would bear witness to what has actually gone on – if only they could. The analysis offered by the committee to support its recommendation – a low rate of settlement – suggests how poorly conceived was the entire program and how little the committee understands the idea of mediation.

There is only one group that has benefitted from the enormous investment in time, resources and money made by The Florida Supreme Court in its mediation program -banks and other lenders. There is nothing in the mediation program itself that benefits homeowners. The explicit intention of the mediation program was to quickly and efficiently move the flood of foreclosure cases through the judicial system while providing homeowners a stop along the way to see if they could work something out with their lender. The explicit motive for the Supreme Court’s intervention in the foreclosure “emergency” was the assertion that “Florida’s economy will continue to be depressed as long as there are massive numbers of mortgages that have not been resolved by foreclosure.”  Why is that a concern of the Court? What about the hundreds of thousands of men, women and children being dispossessed of their homes?

The mediation program, as conceived and adopted by the Court, was built upon a set of assumptions, expectations and magical thinking that insured that the program would eventually fail. The basic concepts of financing property ownership are ancient and fully evolved in our legal system. In the not so distant past, mortgage foreclosures were routine and seldom contentious. Suffice it to say that things changed; not the law, but the business practices surrounding home ownership and financing. Banks and other lenders have a long history of creating, surviving and then profiting from crises. There is very little in the mediation program that benefits a family facing the loss of their home.

The mediation session was touted as a negotiation between the homeowner, who was presumed to be in default on her mortgage, and the lender. In order for the negotiation to be productive, the borrower and the lender were required to provide certain information prior to the mediation session. The homeowner was required to attend, with or without a lawyer; the lender’s lawyer was required to be present while the lender’s representative could appear by phone. The homeowner was required to have full authority to settle: the lender’s representative was to have reviewed the borrower’s documents and be in a position to negotiate a resolution, which, according to the Mediation Order entered by the court, included the authority to modify the terms of the mortgage. The moment the mediation began, and there is controversy about when it actually begins, the entire process begins to resemble Alice in Wonderland. Nothing that takes place in the mediation ever sees the light of day because the mediation is CONFIDENTIAL. Nothing emerges from the rabbit hole. The Court has created a system that orders people to do things but provides no mechanism to enforce its orders. In fact, the Court is totally in the dark about what is actually happening in the mediation. No wonder that participation has been disappointingly low. If the program worked, i.e. homeowners had a realistic chance to stay in their homes, they would participate. Perhaps the word is out that it is a meaningless exercise, one that is deeply concerned about the welfare of the lenders but has little or nothing to offer homeowners. It is a system that undermines the integrity of the entire judicial system.

In truth, the possible outcomes available to borrowers at mediation resemble a very skimpy menu in a Chinese restaurant. There are a handful of programs sponsored by the federal government. The lenders are expected to push the homeowner’s financial data through the government program algorithm to see whether it qualifies for anything. If not, the lender may have so called “in house programs,” which often require a separate submission of data after the mediation session is concluded. It is very difficult to persuade lenders to agree to a second mediation because it costs them $750.00 and it inevitably slows the race to a final judgment of foreclosure. There is widespread agreement that the government programs have failed to accomplish their goal – keeping people in their homes. The “in-house” programs have not fared any better. There is no definition of negotiation that describes this process. There is no flexibility and there is no discretion vested in the lender’s representative. The committee points out that since the mediation program began “a number of crises occurred…including the robo-signers scandal, the discovery that plaintiffs were filing fraudulent documents with the courts, the collapse of two major foreclosure law firms, civil and criminal investigations of lender and lenders’ attorney foreclosure practices, and the banks’ voluntary moratoria on foreclosure filings.” None of these events have anything to do with the efficacy of the mediation program. They only raise questions about why the judicial system is so invested in viewing the avalanche of foreclosures as an emergency that it is responsible for resolving.

The great awakening that is taking place among Florida’s homeowners should be alarming to citizens, their lawmakers and their judges. Assuming that real estate prices suddenly begin to appreciate at a prudent, realistic rate, it will take hundreds of thousands of homeowners decades before they again have any equity in their homes. More realistically, most underwater homeowners will never get to the surface without the lenders taking a severe haircut on the principal balances (think of the banks that hold Greek government bonds.)   Unless there are effective ways to reset the value of real estate, there really isn’t much to talk about at mediation.

                       

Roger C Benson

Roger C. Benson began mediating in 1989 and has been doing so fulltime since 1998. He has been a lawyer since 1973. He has mediated a great many cases involving a broad range of issues. He is a primary trainer in Florida’s 40 hour Supreme Court mediator certification program. He is… MORE >