Minnesota AG Seeks Foreclosure Mediation Law

By:: Kara Johnson | January 11, 2010

The Minnesota attorney general has said she and allies in the state legislature will try again this year to enact a foreclosure mediation law giving at-risk borrowers a chance to save their homes.

Attorney General Lori Swanson, State Rep. Debra Hilstrom and State Sen. Linda Scheid have announced that they will seek passage of a bill requiring that homeowners facing foreclosure be given an opportunity to meet with their lenders to try to negotiate a settlement. Such discussions would give homeowners a chance to discuss with their lenders whether a loan modification, short sale or other measure short of foreclosure might be an option.

“We keep hearing from consumers who face corporate bureaucracies in which paperwork gets lost and calls aren’t returned, or where banks claim their hands are tied because the loan has been sliced up and sold on Wall Street,” said Swanson. “We need to cut through the red tape and get some help to people,” said Swanson.”

A similar bill was passed last year, but was vetoed by Gov. Tim Pawlenty.

Already required in 14 states

Fourteen states currently have mandatory foreclosure mediation laws, either as the result of legislation or orders issued by state courts. Most recently, the Florida Supreme Court ordered on Dec. 29 that homeowners must be given an opportunity to enter mediation before a foreclosure court hearing may be held.

“Around the country, courts and legislatures are stepping up to create a process where homeowners in trouble can work with their lenders to try to find solutions,” said Rep. Hilstrom, chief House author of the proposed bill “Minnesota needs to step up too.”

Based on farm protection act

The bill vetoed last year by Gov. Pawlenty was based on Minnesota’s 1986 Farmer-Lender Mediation Act, under which a lender could not foreclosure on a family farm unless the lender first offered to mediate the debt. The law, which the legislature renewed last year, was the nation’s first farmer-lender mediation law.

“Foreclosures hurt everybody,” said Senator Scheid, chief Senate author of the bill. “Our bill tries to bring some common-sense to the process by requiring lenders to communicate with borrowers before a foreclosure occurs to see if a reasonable solution can be found to avoid foreclosure.”

The proposed Homeowner-Lender Mediation Act would require that lenders give homeowners the opportunity to participate in non-binding mediation before a foreclosure may take place. Borrowers wishing to do so must first undergo financial counseling. The hope is that requiring lenders to engage in negotiations will encourage them to make a greater effort to avoid foreclosure.

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