Keys to a Successful Foreclosure Mediation

Foreclosure mediation programs have been instituted in many States hardest hit by the foreclosure crisis. Although each State may establish different rules and processes for foreclosure mediation, the primary goal of foreclosure mediation nationwide, is to help bring the lenders and borrowers together to engage in a dialog and exchange of information needed to determine whether the borrower may qualify for available rescue funds and programs, with a goal of keeping the borrower in the home and avoiding foreclosure. 

Foreclosure mediation proceedings can be quite costly to the lender, due to the amount of time which the mediation will delay the foreclosure should the parties fail to reach an agreement through mediation; due to the amount of additional attorney’s fees that the lender will incur as a result of the mediation process; and due to travel expenses, if the court is one of many that now require a representative from the lender’s office to appear in person at the mediation hearings.  A practice started by some courts that perceived lenders were not genuinely participating in the mediation process and therefore forced the lender representative to appear in person. Because of the rising expense of foreclosure mediation, it is imperative for lenders to avoid these traps and unnecessary delays that often plague foreclosure mediation.  

What can a lender do to get the most out of foreclosure mediation?  One preliminary step that should be considered by lenders to help minimize mediation delays and expenses is to conduct personalized outreach to borrowers prior to the first mediation hearing.

Overwhelmingly, borrowers are unaware of the lender’s loss mitigation options and procedures going into the first mediation hearing.  The initial mediation sessions are generally spent providing the borrower with a loss mitigation application and a list of documents which are needed from them for the lender to commence the loss mitigation review process.  Often no meaningful discussions can occur at the first mediation hearing because the lender has had no preliminary contact directly with the borrower. 

Following the first mediation session, the mediator will likely grant the borrower additional time to complete the application and return it to the lender.   In many instances, the borrowers will be given several opportunities to complete this task, especially if a partial packet is provided by the borrower.  In some instances, the document exchange process could cause delays that equal months of time, and while these delays occurs, the lender is unable to commence its loss mitigation review until all of the documents have been received and during this time the foreclosure continues to remain stayed by the mediation. 

These delays can be avoided.  Lenders should reach out to the borrower prior to the first mediation hearing to ascertain whether the borrower wishes to keep the property, and if so, to work closely with the borrower in order to obtain a completed application for loss mitigation prior to the first mediation session.  The lender should strive to complete its review of the application prior to the first mediation hearing, and should be in a position at the hearing to present either a loan modification offer, or alternatively, to explain in detail to the borrower and the mediator, why the borrower’s application may have been denied.  

Many times a mediation hearing is held and the lender has received financials from the borrower but has not yet completed a review of those financials.  Advising the mediator that the packet is under review will simply cause the mediator to schedule another hearing date, and add additional expenses to the mediation process for the lender. Therefore, priority should be given by the loss mitigation team to review those applications that relate to the account in foreclosure mediation.

If the borrower’s application is denied,   then the lender needs to be prepared to quickly shift the focus of the discussion to liquidation options.  If a representative will be present at the mediation hearing, the representative should have the necessary authorization to offer some incentive, such as cash for keys or a waiver of deficiency, to entice the borrower to agree to have the case removed immediately from mediation and returned to the active foreclosure docket.  If the parties fail to reach an agreement at the mediation hearing, many mediators will continue to hold the case in order to permit the borrower to seek out additional assistance which may, or may not be available to the borrower.

Additionally, courts are becoming less forgiving of lenders who fail to appear for mediation hearings.   Lenders must make the necessary arrangements to have a representative available for mediation hearings when the court requires a representative to appear either in person or by telephone.  Failure to abide by the court’s requirements could, and often will, result in the administrative dismissal of the lender’s foreclosure, and could also result in additional sanctions against the lender.  Not to mention that mediators have a tendency to act tougher in future cases towards lenders who fail to abide by the court’s requirements.  

Lenders need to be diligent when it comes to foreclosure mediation.  There is a lot at stake for both borrowers and lenders.  Lenders should not find themselves falling victim to delay games played out in mediation. Rather, lenders can institute practices that will help to minimize delays and expenses.  Lenders must show the mediators that they share a genuine interest in helping borrowers seek out loss mitigation opportunities. One way to accomplish this is through personalized outreach to borrowers prior to the first mediation hearing.  Furthermore, lenders must also show the courts that they respect the mediation process by appearing at the mediation hearings that are scheduled.  Establishing practices that strive for these goals can result in resolving foreclosures earlier in the mediation process and reducing the growing expenses associated.