Why
Foreclosure Mediation? The Vermont foreclosure process is lengthy and complicated, so there is
no way to substantively address the process in sufficient detail in one blawg
entry. But you can’t get anywhere in
life without trying, so here goes…
Despite all the press out there about robo-signings, bad affidavits, lost
notes and gross misdeeds by banks, the fact remains that the majority of
foreclosures are initiated after legal cause and standing has been
painstakingly researched by the lender’s counsel. Vermont has all but taken care of many of
these problems by requiring lenders to jump through hoops in order to even file
a foreclosure case. While it is not
always the case, and seeking counsel is always recommended, in most cases, the
borrower will find that the lender has their substantive legal ducks in a
row. Now whether the actual accounting
is in order and whether a larger servicer has lost or misapplied checks is a
different issue all together, but that comes later.
In order to actually foreclose in Vermont, in most cases the lender has
to: file the proper paperwork, notify the borrower of their rights, including
the right to mediation, get a judgment from the Court if there is no response
with an accounting, give an occupying homeowner 6 months to redeem (ie pay off the debt in full), and
thereafter set an auction for sale. The
process, then, barring no complications, takes no less than 8-10 months. If a borrower answers, challenges the
default, requests mediation or otherwise participates or objects, the process
can be even longer. When considering the process and that the end best result
for the lender is likely merely ownership of the property, it is safe to say
that in the vast majority of the cases, the lender doesn’t actually want to
complete a foreclosure—the lender just wants to be paid. While this is generally true for all lenders,
it is especially true for the large national mortgage servicers, as explained
below.
As a result of the bailout, many mortgage servicers are required to
comply with various home retention and modification programs, the most popular
being the HAMP, Home Affordable Mortgage Program. Under these programs, servicers are incentivized
to offer modifications to borrowers that reduce their payments and make the
home affordable. In order to do so, many
of the programs lower the interest rate considerably, stretch out the term and
defer or even eliminate principal, depending upon the borrower’s income and
home value, among other things. The
standards for each program are extremely rigid.
Only with strict compliance to the documentation guidelines can a
borrower get a modification offer. While
some seem ridiculous, (“what do you mean you need the blank ‘balance your
checkbook’ page 3 of my bank statement?”), servicers cannot deviate from the
fraud prevention measures and auditing standards. No modification of any kind will be offered
without the lender receiving a complete documentation package that they can
send to underwriting.
Enter mediation. The Vermont
mediation process provides a forum for this documentation exchange and review
to be policed. The mediation program was created in response to horror stories
about borrowers being denied or not even reviewed for HAMP and other government
programs based upon an arguable failure to provide documents. The borrowers insisted that all necessary
items were sent; the lender cited to missing documentation. While I have no doubt that the larger lenders
and servicers have lost or misplaced their fair share of documentation,
especially in the early days of the programs, I also have no doubt that
borrowers have failed to complete the paperwork based upon poor communication,
assumptions regarding the requirements and mistrust. Surely it would be logical to assume that the
page 3 described above would not be needed, but that assumption would be wrong!
The mediation program allows effective communication to enter the process
where the exchanges between the parties and the review under documented
programs can be policed by the mediator and ultimately by the Court. Borrowers do not have an absolute right to
modify their obligations under the note, so modification is not always the
outcome. But when the loan is modified,
the case is ultimately dismissed.
If
modification is not an option, the process at least insures that the parties
are communicating and that all foreclosure alternatives have been
considered. Loan balances and payment
application can be reviewed, as well as the specific reasons for a denial of
modification. Borrowers can ask
questions about the status of the foreclosure case and sale date, which may
result in them seeking counsel to explore other options, such as a Chapter 13
bankruptcy. Since the onset of the mediation
program, a good percentage of borrowers have successfully modified their
mortgages and have been able to keep their homes, which is a win for both
sides. And isn’t that what mediation is
all about—reaching a solution where everyone gets something they want?
