Mediation Urged to Limit Foreclosures

By:: Kirk Haverkamp | November 22, 2010

The Department of Justice and HUD are promoting expanded use of third-party mediation as a way to prevent foreclosures, saying the approach has proven effective in states and municipalities where it has been tried.

More than 25 such programs have been created in at least 14 states, according to a new report from the two government bodies, with some boasting settlement rates of 70-75 percent that allow up to 60 percent of borrowers to reach settlements that allow them to remain in their homes.

Although not all programs have these success rates, the report identifies a number of common features shared by successful mediation programs, including the use of trained housing counselors and pro-bono attorneys as mediators. It encourages that states and other jurisdictions look to such approaches in seeking to limit foreclosures.

“Jurisdictions around the country are increasingly offering mediation programs as an opportunity for lenders1 and homeowners to reach mutually agreeable and beneficial alternatives to foreclosure,” the report read. “Mediation programs have the potential to decrease the number of defaults resulting in foreclosure, increase the likelihood that mortgage terms can be renegotiated, and facilitate “graceful exits” … for homeowners who are unable to keep their homes.

Such exits, for homeowners unable to negotiate loan modifications to keep their homes, include such approaches as a shorts sale or deed-in-lieu of foreclosure, which can provide a homeowner better terms than an outright foreclosure while minimizing the lender’s losses.

Jurisdictions with foreclosure mediation programs include Illinois, Florida, New Hampshire, New York City and Milwaukee, Wis. Some jurisdictions, such as Nevada and Providence, Rhode Island, require mediation before a foreclosure can proceed.

Foreclosure mediation programs are often overseen by retired judges in some jurisdictions. The report notes that mediation process helps lower the burden on the legal by ensuring that only the most difficult cases end up in court.

HUD also announced that it is providing guidance on how communities can use Community Development Block Grants to fund housing counseling programs, which can tie into foreclosure mediation. It is also launching a training webinar focusing on foreclosure prevention strategies and resources, designed for homeowners, housing counselors, mediators and others.

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