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Foreclosure is a painful process. Unfortunately, foreclosure has become a way of life since the onset of the real estate collapse and job-loss recession. The enormous number of foreclosure actions filed in the Florida courts has resulted in huge backlogs in a court system already plagued by budgetary cut backs.
In order to deal with this onslaught, the judges of the circuit courts turned to mediation. Some judicial circuits have opted for mandatory managed mediation programs which are administered by an outside agency. Other circuits assign the cases to mediation and allow counsel to select the mediators and schedule the mediations in the same manner as other court ordered mediations. Regardless of which method is used, the result is the same. Most foreclosure actions settle through mediation.
Foreclosure mediations come in all sizes and shapes. In some cases, lender and borrower have had little, if any, communication prior to the filing of the foreclosure action. In other cases, the borrower has received competent credit counseling and has already had meaningful discussions with the lender. Obviously, mediation usually proceeds much more smoothly in the latter case.
Initially, lenders were reluctant to consider workout arrangements with delinquent borrowers. Encouraged by generous government programs, lenders are now much more willing to work with their borrowers.
Many foreclosures involve property which is “under water,” i.e., property which now has less value than the principal amount of the mortgage. Refinancing is therefore usually not an option. Since lenders are not likely to agree to a reduction of principal, most workouts now involve mortgage modifications, sometimes preceded by a period of forbearance.
While there are a number of options to be explored during mediation, many mortgage modifications are based upon or patterned after the federal “Home Affordable Modification Plan (H.A.M.P.) a loan modification program, sometimes called the “Obama Plan.” Under this plan, the lender will reduce the interest rate, and the Treasury will match a portion of the cost of reducing the interest rate to a point where the monthly payments may be as low as 31% of the borrower’s gross income. This may also entail extending the term of the mortgage because all of the delinquent payments and costs are usually added to the back end of the mortgage. In addition, both the borrower and the lender receive financial incentives from the Government in order to encourage participation in this plan.
In some cases, the borrower cannot afford to remain in the home under any type of workout arrangement. In such cases, the mediator can help the parties explore transition strategies which can ease the foreclosure process and help the borrower relocate into an affordable situation. Alternatives which may be considered might be short sales, deeds in lieu of foreclosure, friendly foreclosures, “cash for keys,” or “deed for lease.” In such cases, the borrower may cooperate with the lender in facilitating the foreclosure process in return for cash or other relocation assistance from the lender.
As with all mediations, any foreclosure settlement plan must have two essential elements: First, it must be a plan which both parties can live with, and second, and most importantly, it has to be a plan which will work. A good mediator will ascertain enough information to be certain that he or she is able to help the parties explore those opportunities which can result in a workable and mutually satisfactory result.
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Contributed by CFR Mediator: Robert G. Bannon, JD
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Tags: foreclosure, Mediation, mediator, modification, mortgage
