A mediation program is usually a great way for a plaintiff and defendant to sit down with a neutral arbiter to hash out their differences. And, to come to a resolution that is usually better than continued litigation. Mediation is successful in all types of disputes including personal injury cases, contract disputes, and even divorces. However, in these cases, circuit court judges will readily punish a party who fails to attend mediation. Or, who attends but fails to comply with the mediation order.
In 2009, the Florida Supreme Court forced every Florida Circuit Court (the courts in which Foreclosure Lawsuits hearings occur), to implement a mediation program for homeowners facing Foreclosure. This program was called the "Residential Mortgage Foreclosure Mediation" (RMFM) Program. The idea was for lenders to provide an in-person or telephonic meeting with the Homeowner/Defendant in the presence of an impartial mediator to discuss the Foreclosure Lawsuit. And, to discuss possible alternatives (including Loan Modification, Deed in Lieu of Foreclosure, and Short Sale).
The cancelation of the RMFM Program happened in 2011 following widespread criticism of the program. The RMFM failed because it had no teeth. Also, judges were reluctant to punish the mortgage companies for failing to mediate in good faith. And, because borrowers were not receiving the cooperation they needed from the banks. In short, the RMFM was a complete waste of time. And not because mediation is a bad idea. But because of the limited loss mitigation options. And, because most state court judges could not or would not enforce the program.
In 2012, the Bankruptcy Court in the Middle District of Florida implemented its own version of the failed RMFM. But, unlike the state court version, it has seen a much higher success rate. One Orlando bankruptcy attorney reported a 90% success rate, with 18% of his modifications involving principal reduction.
Following the lead of the Middle District, the Southern District of Florida Bankruptcy Court has initiated its own loss mitigation mediation ("LMM") program. The LMM Program kicked off on April 1, 2013. And, unlike the Middle District, the Southern District's program has more requirements for all parties. Moreover, it includes debtors in all chapters, not just in Chapter 13. Chapter 7 debtors may use LMM to request a surrender of the property (a real surrender that provides for a transfer of title). Chapter 13 debtors may use LMM to request and apply for modification through mediation. Or, to surrender any property they no longer want to own.
The Southern District’s program also includes the utilization of a document processing program called the DMM Portal. Participants in the LMM program will use this secure online portal for the exchange of documents and communication. This program will help ensure that documents are sent between the lender and the borrower. And, that they are not lost or misplaced. Instant uploads and verification of transmissions are a hallmark of the portal.
Election to participate in the LMM program will suspend any pending motions for relief from stay ("MFR"). However, while an LMM is pending, debtors will have to pay 31% of their gross monthly income through the Chapter 13 plan as an "adequate protection" payment. The fees a debtor will have to pay to participate in the program will typically include a $1,800 fee to their bankruptcy attorney for handling the modification through their Chapter 13 plan. And, an approximately $300 fee to the mediator.
Does the bankruptcy mediation program guarantee a residential loan modification? No, but it does make it much harder for a mortgage servicer to reject a modification. This is because of the stringent requirement to act in good faith. For instance, if a servicer rejects a HAMP application, it will have to explain why. Often, a rejection is based upon a miscalculation, a misinterpretation, or an oversight. In this program, the debtor’s attorney can demand that the servicer’s representative explain his calculations. Often, the mistakes are found and corrected, resulting in the modification being accepted.
While mortgage modification and bankruptcy may not be the solution to all distressed mortgage problems, they will certainly provide an additional venue for homeowners in need. Applying for a modification through bankruptcy may provide relief from the dischargeable debts that are keeping the debtor from being able to make the mortgage payments and provide the lenders a guarantee that the borrower is no longer obligated by those burdens.
If you have questions about foreclosure, loan modification, bankruptcy, or other alternatives, please feel free to call my office at 888-886-0020, send an e-mail to emil@fleysherlaw.com, or complete the contact form below.
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