The foreclosure crisis has continued to deepen despite counter measures at the federal level that have proven largely ineffective. Subsequently, consumer advocate groups and community organizations have argued for foreclosure mediation programs, because they are quick to implement and possibly provide additional help to homeowners. As a result of substantial efforts, foreclosure mediation programs have now taken shape in over a dozen states.
What is a Foreclosure Mediation Program?
In general, a foreclosure mediation program is a program that requires a mortgage holder or servicer to have some contact with the borrower or homeowner for the purpose of considering alternatives to foreclosure. Alternatives to foreclosure typically include the following:
- deed in lieu of foreclosure (allowing the homeowner to transfer the property directly to the mortgage holder instead of going through the foreclosure process)
- short sale(allowing the homeowner to sell the property for less than the balance of existing liens on the property)
- loan modification(changing the terms of the loan to make it more manageable for the homeowner or to avoid a foreclosure)
- forbearance(halting the foreclosure process for a period of time and is generally used to allow the homeowner more time to cure the delinquency)
Foreclosure mediation programs vary greatly and are only available in a limited amount of states or localities. Some programs require very little contact between the mortgage holder or servicer and the borrower. Other programs require a face-to-face meeting between the parties moderated by either an administrative law judge or a court appointed mediator. The purpose of foreclosure mediation is to give the homeowner a chance to receive some form of help in dealing with a foreclosure action. At the very least, the homeowner will receive an application or information from the lender to aid them in obtaining assistance. This may seem like no big deal but it is sometimes very difficult to obtain even this from mortgage holders or servicers; often it’s difficult to even get to talk to a real person. Also, borrowers may not fully understand the foreclosure process, let alone the alternatives they may qualify for. Mediation can give borrowers more time to learn about their rights and to get the help they need to deal with the delinquency.
Example of a State Foreclosure Mediation Program - Maryland
The State of Maryland recently passed legislation creating a foreclosure mediation program. Under the new legislation, lenders must send an application for a loss mitigation or loan modification program to the homeowner. The homeowner can use this application to apply for help from the lender before a foreclosure action is filed. Once the application is submitted, the lender must complete a loss-mitigation analysis to determine if the homeowner is eligible for assistance. This analysis must be completed at least 30 days prior to a foreclosure sale. In the event of a denial, the lender is required to file a final loss-mitigation affidavit with the court stating the reasons why the borrower was turned down. Within 15 days of receiving the final loss-mitigation affidavit, the homeowner may file a request for mediation by filling out a form accompanying the affidavit and submitting it along with a $50 fee to the Circuit Court where the foreclosure action was filed. If the homeowner properly requests mediation, the foreclosure process comes to a halt until mediation is complete. The mediation will typically be held within 60 days of receipt of the borrower’s written request and fee. Mediation consists of a face-to-face meeting between the homeowner and the lender and is overseen by an Administrative Law Judge. The details regarding the mediation itself are still largely unknown, but will hopefully become clearer in the coming months. Maryland’s foreclosure mediation program is best characterized as one that allows borrowers to “opt-in". Other areas have adopted more aggressive programs that require mediation before a foreclosure sale can occur.
Foreclosure mediation programs can be beneficial to homeowners. They provide more time and information to homeowners facing foreclosure. They also provide a real opportunity for homeowners to get help before a foreclosure sale occurs. Even if help is not available, these programs offer homeowners the opportunity to get some closure before their home is auctioned off. Some programs are more aggressive than others, but they all offer some benefit. If you are facing a foreclosure sale please speak with an attorney or a housing counselor immediately. The longer you wait the less options you will have regardless of what state you live in. If you do not get help you may very well lose your home.