Foreclosure is the legal process that a lender or servicer uses to repossess a home. If the homeowner misses mortgage payments, the lender may petition a court to sell the property. The lender will use the proceeds of the sale to pay off the mortgage loan made to the homeowner. Foreclosure laws differ from state to state. Some states have special laws that protect homeowners and tenants in the event of a foreclosure.
The Rising Tide of Foreclosures
Over 1.3 million properties were foreclosed on last year in the United States. Foreclosure has major impacts on people and communities. The increase in foreclosures has left many people homeless. The neglected homes have become a safety hazard, with some people illegally living in the homes and using them for drugs and prostitution. In some areas of Florida, California and Massachusetts, vandals have broken into abandoned homes and stolen property and copper piping. Several cities and states have decided to address the foreclosure problem by using mediation. This article discusses the program implemented in New Jersey, but Connecticut, Ohio, and Philadelphia, PA also have mediation foreclosure programs. Wisconsin, Minnesota, Providence, RI, and Jacksonville, FL are in the midst of planning foreclosure mediation programs.
New Jersey’s Statewide Mediation Program
In January 2009, New Jersey established the only statewide mediation program in the country. When a lender starts the foreclosure process, the court is required to send the owner a brochure about the state’s Foreclosure Mediation Program. The homeowner may opt for mediation if all of the following are true: (1) the house is the homeowner’s primary residence, (2) the homeowner is not in bankruptcy, and (3) the property is a 1-, 2- or 3-family residence. The lender is required to attend the mediation proceeding.
At the proceeding, the homeowner, lender, attorneys, and other parties meet with a mediator to discuss the possibility of a workout. Attorneys from all over the state have volunteered to mediate the proceedings. Workout plans usually require the homeowner to show that they have the ability to pay a modified monthly mortgage payment. The ultimate goal of the mediation program is to cut down on the amount of residential foreclosures in New Jersey.
Does Mediation Work in Foreclosure Cases?
The evidence indicates that mediation works well in foreclosure cases. Giving the homeowner and the lender the opportunity to work together is always a positive step. In the past, the homeowner may have tried to call the lender to talk about a workout plan, but was unable to reach anyone with decision-making capacity at the lender’s office. Now, the lender and the homeowner are together in one room and can discuss all their options with the help of the mediator. The homeowner and lender share the common goal of doing what’s necessary to keep the homeowner in the house. Lenders do not want to foreclose on the property because the balance due on the loan is usually more than the value of the home. In addition, it can cost an average of $30,000 for a lender to foreclose on a home! Banks are usually willing to modify aspects of the loan, to a certain degree, to ensure that the homeowner can stay in the house.
Lenders will usually be flexible when they discuss workout plans with homeowners, but they do have limits. One of the stumbling blocks for homeowners is the amount of missed mortgage payments. Homeowners have a variety of reasons for not making their payments. They might have had a medical emergency, or lost their job, or some other change in their finances. Mediation can help a homeowner that had a temporary emergency that resulted in them missing a few payments. But if a homeowner has missed mortgage payments for several months or more, the amount of missed mortgage payments can add up quickly. When the homeowner sits down at the mediation session with the lender, the lender will want the homeowner to establish a plan to pay back those payments. If the homeowner is in a difficult financial situation, they might not be able to pay back a year’s worth of missed payments. In that case, the lender will probably choose to go forward with the foreclosure proceedings.
Even if the lender and the homeowner can’t agree on a workout plan, mediation can still allow the parties to plan a graceful exit for the homeowner. The lender might even pay the homeowner money to leave the property without a lengthy and expensive legal battle.
The Future of Foreclosure Mediation
Mediation might not solve every foreclosure case, but it provides a way for parties to discuss their concerns and interests. States and towns across the country have shown that they are willing to explore mediation for foreclosures. Hopefully, such program programs will allow more people to stay in their homes and avoid foreclosure.
Bernadette Hayes is a trained mediator. She lives in Washington, D.C.
NJ Judiciary Foreclosure Mediation Program, nj.gov
Vacant and Abandoned Properties, usmayors.org
New Jersey Foreclosure Laws, RealtyTrac.com