Foreclosure Mediation – a good idea?

By: M. Yang Massachusetts is one of many States contemplating, if not already passed, a law on mandatory mediation prior to lenders foreclosing on residential mortgages. There is no doubt that MA residents are faced with financial struggles that impact not only their jobs but the domino effect of losing their homes to foreclosure when they lose their jobs or hours. So is this a good idea for MA residents? To answer, let’s take a look at the proposed legislation.

Representative Vincent A. Pedone of Worcester, 15th district, proposed House Bill 1649 (and Bill 4003) earlier this year. There are also Senate Bills 1805 and 1725 by Senator Spilka of Middlesex and Norfolk proposing a program for mediation in foreclosure proceedings. Specifically, the House Bill states, “in that program the mortgagor will have the opportunity to negotiate an agreement with the mortgagee. The mortgagor is encouraged to meet with a housing counselor or attorney prior to mediation.” All of these bills propose that the homeowner be given the right to participate in mediation (if exercised, the lenders must also participate) before a Court grants a lender a judgment for foreclosure sale.

So yes, this is a good idea, mostly because it gives the individuals an opportunity to sit down with a live person representing the big lenders, presumably, with authority to make a deal. That seems to eliminate one of the biggest hurdles in dealing with a foreclosure machine, that is the bank. The biggest benefit if these bills pass goes to those who have an income but not enough to make their mortgage payments. It will not help those who lost their income all together. This makes sense because the lenders probably will not “negotiate” a lower payment, higher interest, give the borrowers more time to make payment or any other options if there’s no income at all. So what’s the incentive for lenders to negotiate? It’s more cost effective to get something (if not the full payment) than to spend the tens of thousands of dollars it takes to foreclose on a property. Therefore, if you have SOMETHING to offer, the lenders (should) listen.

So who are you going to get as a mediator? The big difference between the House and Senate bills are that the House bill calls for court employees as the mediators. This is a huge burden on the Courts and its budget since mediators need a 33-40 hour training for confidentiality to be upheld. The Senate bill, on the other hand, allows mediators who “provide mediation services for the attorney general or are mediators for current approved community mediation”. This broader definition of those who can mediate seems to be a better option since the Court employees are already stretched thin.

It’s a good idea but is this going to happen? Well, simply put, SHOW ME THE MONEY! The House bill doesn’t specifically seek a dollar amount but only states, “the money necessary to establish and operate the foreclosure mediation program shall be appropriated to the judicial department.” The Senate bill gives power to the Attorney General to implement the program and train the mediators but “subject to appropriation.” So at the end, these legislators have good intentions and have made the first step in the right direction but without clear cut and ample appropriation towards implementing these mediation programs, the light seems dim.