Mandatory Foreclosure Mediation: A Good Idea?

The Florida Supreme Court has ordered a review of its 18-month-old mandatory foreclosure mediation program.  Should a similar process come to Wisconsin?

In July 2011, Wisconsin had the 10th highest foreclosure rate in the United States, only four spots behind the State of Florida.  Several initiatives in Wisconsin have attempted to inject mediation into the foreclosure process, with varying amounts of success.  Purely voluntary processes are flailing – with lenders refusing across the board to even attend the voluntary mediations.  More suggestive processes are seeing varying amounts of success.

However, it seems that the Florida program has also been slow to gain ground.   (The Florida program requires that lenders try to reach a mediated agreement prior to seeking judicial involvement.)

A recent report from Florida shows that only 3.6% of these mediations are resulting in written agreements.  This is a far cry from the generally stated 85% national success rate for mediation in general.  Why such a vast disparity?

First, the 3.6% number is of all cases, not just the cases in which the borrowers agree to take part in the mediation process. (As stated above, the program is compulsory for the lenders – it is voluntary for the borrowers).  The settlement rate jumps to nearly 25% when the mediation is actually accepted by both parties.

Second, the nature of foreclosures has an inherent power imbalance.  Mediators are trained to be cognizant of a power imbalance and must work hard to make sure that the power imbalance does not affect a party’s ability to self-determine an outcome.  With the mountain of paperwork that they must sign between the promissory note, mortgage, rights of assignment, and other forms, borrowers may feel that there is nothing that they can do – perhaps due to a lack of knowledge of options.

Third, having worked as counsel for banks in a foreclosure, I know that the bank is often not interested in “creative” solutions.  Deed-in-lieu of foreclosure and maybe a payment plan – this was the limit of the creativity the banks would normally show in a foreclosure situation.  And why should they show more?  The law, the contracts, and the facts are all in their favor.  There is little need to negotiate.

However, is a 25% success rate that bad?  Getting 1 in 4 contested foreclosures out of the court system is a great thing.  In July 2011, there were 4,534 foreclosure filings in Wisconsin.  Even at 3.6% success rate, there would be 163 fewer foreclosures per month.

Wisconsin should look into the Florida program, as well as the programs in Ohio and New Jersey, and should find a way to add this compulsory mediation step into the foreclosure process.

Editor’s note:  Marquette University Law School has a Milwaukee Foreclosure Mediation Clinic.

This Post Has One Comment

  1. Natalie Fleury

    While Michael raises some very good points about many of the difficulties with foreclosure mediation in Brown County and elsewhere in the country, there are positive examples of foreclosure mediation in Wisconsin–for example, Milwaukee County. Lenders agree to participate in mediation, on average, in 75% of the eligible cases when homeowners apply for mediation through the Milwaukee Foreclosure Mediation Program (MFMP). In my mind, that hardly constitutes “flailing.” When MFMP staff meet and consult with others across the country working in foreclosure mediation, our colleagues are impressed with the level of participation the MFMP achieves as a “voluntary” program.

    That’s not to say that the point that foreclosure mediation has an inherent power imbalance is not valid, and it’s something that we’ve examined repeatedly over the 2 ½ years that the MFMP has been in operation. In those cases where the homeowner has the financial wherewithal to support a modification, the lender typically presents a modification offer and the homeowner decides to take it or leave it. There is very little back and forth or option generation, which leads some to argue that it isn’t really mediation at all.

    However, mediation in the foreclosure arena, at least as practiced through the MFMP, includes the key aspects of mediation as laid out in the ABA’s Model Standards of Conduct for Mediators: An impartial third party facilitates the communication and negotiation and promotes voluntary decision making by the parties to the dispute. The fact that the parties are exchanging information in a facilitated process where both parties have the opportunity to ask questions and educate the other about their respective situations makes for a valuable mediation session, particularly in a situation where the exchange of financial information has been a source of frustration for all parties.

    The Journal Sentinel recently ran an article that reported that delinquencies in Wisconsin are at 6.06% as of June 2011, compared to a national rate of 8.11%. While there is still no end in sight for the mortgage foreclosure crisis, mediation programs are providing opportunities for homeowners and lenders to sit down together and go over options. Recent MFMP statistics show that approximately 30% of the cases accepted to mediation in Milwaukee County result in a retention agreement, and as Michael points out, getting contested foreclosures out of the court system is a great thing.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.