Friday, June 4, 2010
Homeowners Turn to Mediation for Relief
Nationwide foreclosures being initiated have slightly dropped in the past year. However, delinquent home loans have actually increased by 40 percent. An estimated 10 percent of all home loans are delinquent by 60 days or more, and in Florida the rate is more than 20 percent. HOPE NOW, a group of 38 private lenders started in 2007, recently reported that 2.9 million permanent home loan modifications have been offered since their program began. In addition, the Home Affordable Modification Program (HAMP), which allotted $75 billion towards the prevention of foreclosures, was implemented by President Obama last March. HAMP recently released a report stating that 300,000 modifications have been granted and an estimated 3.275 million delinquent loans are eligible for the program. Even with the measures taken by these programs, the increasing number of delinquent borrowers requires additional steps to encourage lender/borrower negotiations and prevent foreclosures.
Considering the enormous time and expense lenders face litigating a foreclosure action, one would think it would be in the lender's best interest to modify every loan possible and provide a way for the borrower to pay back a substantial, if not full, portion of the loan. Lenders have communicated their desire to help struggling homeowners facing true financial hardship but are also bound to honor the terms of their contracts with investors who have purchased the loans. This apparent struggle of interests between the lenders, their investors, and the borrowers may be the reason delinquent homeowners find loan modifications to be so rare and elusive.
Specialists in the area of loan modification and debt negotiation have indicated that the primary obstacle experienced by homeowners in their attempts to obtain a loan modification is the inability to get a loan servicer or lender to sit down and negotiate with the homeowner. This lack of communication between the lender and borrower has prevented early resolution of foreclosure cases. The Florida Supreme Court determined that effective case management and mediation techniques are the best way for courts to ensure that the necessary communications occur early enough to avoid wasted resources of the courts and parties.
In December of 2009, the Florida Supreme Court issued an administrative order requiring the lower circuit courts to adopt rules for mandatory mediation on all residential foreclosures. The mediation program mandates referral of new foreclosure cases to mediation within 5 days of service of process. The court may not enter any default or summary judgment until the mediation is completed. The lenders are required to file with the Complaint and bring to the mediation "any polling or servicing agreement with investors maintaining an interest in the property that may affect the plaintiff's ability to mediate and completely settle the foreclosure action." If a lender or its representative with full authority to settle does not appear, the court may dismiss the case. The cost of the mediation is born by the lender to avoid discouraging borrowers from agreeing to quickly mediate the issues because of the cost. However, the court may tax costs to the borrower as part of the judgment if the lender prevails. Some of the options discussed in the mediations are: modification of the mortgage terms, partial loan forgiveness, short sale, deed in lieu of foreclosure, placement of delinquent payments at the end of the loan term, principal set aside, waiver of deficiency, repayment plan, loan reinstatement or right of bank to rent property to the former borrower at market rental rate.
The mandated mediation program will provide struggling homeowners with an opportunity to possibly resolve the issues surrounding their loans that they otherwise might not have received. Unfortunately a downfall that accompanies this new measure is the extra burden placed on the mediation programs which have not received additional funds from the state to subsidize the increased workload and need for additional mediators. At the end of 2009, the Florida Supreme Court estimated there would be 465,000 foreclosure cases pending in 2010.
Contact one of our attorneys today to find out what your rights and alternatives may be.