08 Oct Foreclosure Mediation is Dismal Failure
On July 1st, Connecticut enacted a Foreclosure Mediation Program to give homeowners a chance to negotiate resolution of their mortgage delinquency without being put out of their homes. In the three months that the program has been active, Connecticut mediators has successfully resolved about 150 cases with a revised payment plan. The dirty little secret? – that was only 3% of the cases set for mediation and a even smaller and minute number of the total foreclosures filed in that three month period.
Why is the program failing? For one, the program is new and not well-known despite attempts to put notices on the front of every foreclosure case that was filed after July 1, 2008. Second, there is only a short time to ask for the mediation and it does not apply to cases filed prior to July 1. Third, the program is not well-funded by the State of Connecticut and mediators have had only a short time to become trained in the process of foreclosures. Finally, the mediators have no power to enforce a re-structure of any mortgage and lenders have little incentive to make deals.
With the intervention of the federal government and merger of banking interests, the identity of the servicers and owners of the mortgages is constantly shifting. And there is always the hope that the Federal Reserve will buy the loan, thus relieving the lender of the responsibility of dealing with any loss.
Recently, I requested mediation in a foreclosure case in August 2008 on the hope of saving a client’s home. Meanwhile, my client was talking with the lender/servicer directly on the chance a deal could be worked out without involving attorneys. A deal was promised and received by my client on a Wednesday. In the modification papers, the mortgage balance was increased $55,000.00 and even though the interest rate was reduced significantly, the increased principal balance resulted in a grand savings of $5.00 per month on the payments. When we asked for a breakdown of the $55,000.00, the response was that it would be forthcoming, but that the deal had to be executed and delivered by Friday of that week. The request for the breakdown was made on a Thursday, but the fax never came. By Friday, the lender, Washington Mutual, was no longer in existence, having been seized by the Federal Reserve Thursday night.