Can a Mediation Save your Home from Foreclosure?

In 2009, Florida Supreme Court issued an order mandating foreclosure mediation for all residential homesteaded properties. In other words, upon filing a foreclosure action on a primary residence, the banks are now required to attend mediation with the borrower before the case can proceed, or at least provide the borrower with the option. Under this order, borrowers have the right to ask their lenders for a “plaintiff’s disclosure” before mediation. It can include four things: a payment history, a current appraisal of the property, the bank’s estimate of the mortgage loan’s present net value, and documentary evidence proving the bank owns and holds the mortgage note.

The mediation program is designed to function as a fast track for mortgage loan modifications where the borrower was unable to get results working directly with the servicer outside of the court system. The documents required of the borrower are essentially identical to those required under the Making Home Affordable Modification (HAMP) program. The difference is that the bank’s attorney is supposed to provide an accounting of the loan and a “Net Present Value” of the property which should facilitate a smoother more transparent negotiation. Reports are mixed as to whether the bank’s attorneys are providing this information accurately and promptly. However, the more frustrating problem is that the plaintiff/bank/servicer’s attorney may not have the authority to settle because its client does not have the authority to settle. Sound confusing? It is. It is often the case that the servicer is bringing the foreclosure action on behalf of the true owner of the loan/note (usually another bank or Real Estate Investment Trust). Without a grant of authority from the true note holder, the servicer’s attorney is powerless to enter in to a settlement agreement at mediation.

The statistical results of this mediation program are so far, scattered and inconclusive. A December analysis released by the Florida Supreme Court showed about 6 percent of cases referred to mediation statewide result in written settlements for homeowners, although not all circuits were included in the calculations. For example, the report shows that 12 percent of mediations ended with written settlements last month in Broward County, but no figures are available for Palm Beach County. Furthermore, the report did not provide any details as to how many mediations have been canceled or postponed and for what reasons. I am hoping that a more thorough and inclusive report will be issued at the end of 2011’s first quarter.