Florida Foreclosure Mediation Program Ends with a Yawn

Florida has ended its foreclosure mediation program begun in 2009. The state Supreme Court scuttled the program because it was only settling 4% of the cases. It appears the program had lots of problems, including a failure to contact borrowers and a resistance by lenders to participate actively. What else is new? The legislatures and courts who like mediation because they think it will reduce judicial case loads also think they should get it for free. And the reality is that no foreclosure mediation process can work miracles because the banks simply don’t have enough incentive to cut deals with borrowers.

So this development is probably of limited importance, both for the mediation field and for mortgage debt crisis.

4 thoughts on “Florida Foreclosure Mediation Program Ends with a Yawn”

  1. I have had the opportunity to observe judicial foreclosures from the perspective of working for a creditor’s attorney. The biggest concern should be to educate mortgagors about their potential courses of action when facing a foreclosure. It seems that most defaulting mortgagors fall into two camps: 1) The overwhelmed that do nothing (Vast majority of judgments are default judgments) 2) The mis-informed that take matters into their own hands and can possibly make matters worse.

    A defaulting mortgagor can’t typically afford an attorney, but could at least maximize his or her leverage by educating themselves on the basic concepts. By understanding the redemption period, deficiency judgments and the perils of loan modifications, perhaps more defaulting mortgagors could be enough of a “thorn in the side” of the bank to push them towards mediating more enthusiastically.

    As it is now, plaintiffs attorneys have the process down to an assembly line level of efficiency, and there is no incentive to mediate earnestly. An informed defendant would be wise to contest the foreclosure and add time to the process. As it is now, many mortgagors don’t contest, and at most, end up negotiating directly with the bank.

    This leads to rash decision making like loan modifications that drastically raise the principal balance owed. Now the property is further underwater, and the mortgagor will be left with an unrealistic balloon payment at the end of the amortization period. These kind of modifications usually just delay the inevitable, and the party defaults again within a year.
    Some may even go into their 401K or other retirement savings to reinstate the mortgage. These are the kind of decisions that overwhelmed and uniformed defendants make. It doesn’t matter how available mediation is when the two parties are speaking a different language. There really should be more focus on a proactive foreclosure education program,and then mediation could be more effective.

    That being said, the whole problem calls for a macro-level solution. There are too many properties underwater in this country and it is stifling the residential real estate market. We need to find a way to lower the principal owed on so many of these at-risk properties to reflect their true distressed market value. That way, troubled mortgagors will see lowered monthly payments. In addition they may be able to sell the property for a reasonable asking price without having to resort to a short-sale or go through foreclosure. Besides, most banks aren’t seeking deficiency judgments anyway; so, principal balance owed becomes less relevant. Lowering the balance owed on these troubled properties is the only way to take the edge off of the foreclosure crisis.

    One thought is that HAMP could be expanded (only about 7% of the allocated $50 billion has been spent), and modified to encourage reductions in principal owed (not just interest rate and monthly payment.)

    Here is a link to an interesting article about a buy-back solution being used in Massachusetts http://www.latimes.com/news/opinion/commentary/la-oe-cherry-foreclosure-20111028,0,7487293.story

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