More homeowners turn to mediation after foreclosure

By Jeff Schweers, USA TODAY
PORT ST. JOHN, Fla. — When Mark Weeks was laid off from his $90,000-a-year construction job 2½ years ago,he vowed to hang onto his family's house here, where he'd lived with his wife, their three children and two dogs for the last six years.

But his new job as a safety officer for a Cocoa, Fla., crane rental company barely paid a third of what he used to make, and he wound up unable to pay his mortgage. At first, he tried, unsuccessfully, to get mortgage-holder Wells Fargo to defer or lower his payments.

Wells Fargo filed foreclosure proceedings in December, when Weeks was six months behind on his payments. Weeks hired a lawyer to fight it and move the case to a court-appointed mediator — which he sees as the best last hope for getting Wells Fargo to agree to lower his monthly payments.
All foreclosures on primary residences in Florida automatically go to mediation."We just want them to work with us because we can't make it right now," Weeks said. "We weren't asking them to give us a home for free."

Teri Schrettenbrunner, head of Wells Fargo Home Mortgage Communication, said the bank is committed to helping homeowners facing true financial hardship stay in their homes they can afford, but, as is the case with all lending institutions, it has to honor the terms of its contract with the investors. "We are bound by the contracts we have with ... whoever owns the loan on the back end to do what they find acceptable in modification," Schrettenbrunner said.

Millions of working and middle-class homeowners are facing a similar predicament. An estimated 10% of all home loans are delinquent by 60 days or more, the Mortgage Bankers Association reported this month.In Florida and Nevada, two of the states where the housing crisis has hit hardest, the rate was over 20%, the MBA said.

Court-ordered mediation may be the best last option for thousands of homeowners in the foreclosure pipeline, as programs targeting the estimated 6 million delinquent home loans have been slow to put a dent in the crisis.

"Foreclosure mediations hold out the hope of removing major obstacles that have hindered efforts to slow the spread of the foreclosure epidemic," says Geoff Walsh, a staff attorney specializing in housing, foreclosure and bankruptcy issues for the National Consumer Law Center (NCLC) in Washington, D.C.

The Home Affordable Modification Program, President Obama's $75 billion initiative to prevent foreclosures begun last March, has granted 300,000 permanent modifications through April, according to the program's latest report, released May 17. The report also estimates 3.275 million delinquent loans are eligible for the program.

In addition, HOPE NOW, an alliance of 38 private lenders started in 2007, reported in April that 2.9 million permanent home loan modifications had been offered since the program began.

While foreclosure starts dropped 5% in the past year, the number of home loans that were delinquent by 60 days or more increased 40%, from 2.85 million to 3.99 million, says Faith Schwartz, executive director at HOPE NOW.

The biggest hurdle to getting a loan modified has been getting the loan servicer or lender to actually sit down and negotiate with the homeowner, says Sean DeVries, an Orlando-based loan workout specialist.

"There is no established path to get a good, sustainable modification," he says, noting that he went through nine fax numbers for a recent SunTrust client.

Sen. Bill Nelson, D-Fla., introduced legislation in December that would require any lender receiving federal insurance to go into mediation. It has been assigned to a committee, but no further action has been taken.

Many states have already passed similar measures.

"It's been very mixed, because it depends on the way the state mediation program is set up," says Walsh.

NCLC looked at 12 new or pending state statutes, he says, and "The range is incredible." Some require nothing more than the servicer checking a box on a form that says they attempted to contact the borrower. Others require servicers to show on paper their calculations comparing what they'd lose by foreclosing on a house vs. modifying the loan, he says.

"That gives the homeowner the basis for challenging whether it's a reasonable foreclosure," he says.

According to a January NCLC report:

•The Nevada Assembly approved a mediation program that took effect July 1, allowing homeowners to request mediation on non-judicial foreclosures and appointing more than 150 mediators for the program. It requires the servicer to produce several documents, including evidence that it has the right to sue and documents showing how they calculated eligibility for a loan modification.

•Maine started a foreclosure diversion program in January, setting guidelines for scheduling sessions, granting stays of proceedings and determining good-faith participation. It also authorizes sanctions on the lenders if they don't follow the newly imposed rules, including dismissal of the lawsuit.

•The New York Legislature in November amended its mandatory settlement conference law "to include all foreclosures of loans secured by borrowers' residences."

It also requires the lender to bring documents to the conferences, including payment history and itemization of the amounts needed to catch up on and pay off the loan.

Florida is consistently in the top five states for foreclosure filings, with 350,000 a year. The Florida Supreme Court issued an administrative order in December requiring all its 20 circuit courts to adopt rules for mandatory mediation on all residential foreclosures, based on a task force's recommendations.

The 18th Circuit Court in Brevard County, Fla., made mediation mandatory in March 2009, before the state Supreme Court's order. In the ensuing 12 months, 59 of the 317 cases referred to mediation have reached a modified loan payment plan, said Ollie Lyons, the manager of the mediation program there.

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"The main thing we've done is, people are able to sit down at the table and actually talk to other people," she said.

But it's stressful, she said. The state hasn't added money to the mediation programs, and there are not a lot of mediators for the overwhelming number of foreclosures, she said. "I am overwhelmed and burned out, like all mediation supervisors," Lyons said.

Eric Hammonds, a Fort Lauderdale attorney representing Weeks, said mediation forces the lenders to the table. "That's a good thing, because what happens in mediation (is) we get the actual contact person."