Previous articles on Mortgage Foreclosure Mediation can be found HERE and HERE, and additional links to resources for foreclosure mediation are HERE. No one should face foreclosure without consultation with an attorney or advocate. The information provided here does not take the place of an attorney or advocate to act on your behalf. This article merely gives some ideas to consider during mediation.
The article, “The Mortgage Foreclosure Crisis: Can We Talk?” by Robert A. Mering, published March 2010 on website Mediate.com (click HERE for article) has some useful ideas. It states:
As these [foreclosure modification] programs are presently being administered, both borrowers and mortgage loan servicers alike tend to find the entire modification process dehumanizing. Many workout and loss mitigation departments maintain very little continuity. When homeowners call, they may speak with a different person each time or cannot find a person who has any authority to negotiate. Conversely, many servicers are simply overwhelmed. They may honestly strive to reach an agreement with borrowers; but their agents are frequently inadequately trained and have no real power to address the borrowers’ needs. Rarely, if ever, do the two sides actually engage in face-to-face dialogue. The almost inevitable result is formulaic responses by the lender and bewilderment and frustration by the borrowers. There are few opportunities afforded for the parties to sit down and honestly analyze the alternatives to foreclosure or devise a workout strategy that will result in a long-term solution to the problem.
Judicial foreclosures are almost always far costlier and take longer than nonjudicial foreclosures (more commonly referred to as “trustee sales”); and the judgment debtors’ statutory rights of redemption and to possession of the property for up to a year following the foreclosure sale have a substantially adverse effect on bid prices.
The two principal advantages that mediation offers are its flexibility and its intensity. For both MHA and non-MHA eligible properties, mediation presents a range of available options that are typically given scant attention by overworked loan modification departments. These include principal reductions, extending the term of loans, transfers to relatives or other third parties or having them act as additional guarantors, staged or plateaued restructurings, blended equity mortgages, forbearance until the borrowers can obtain new employment or other steady source of income, refinancing with a different lender, and a transition strategy where borrowers who can’t afford one home swap it for another property in the lender’s REO portfolio.
In cases where the borrowers simply cannot afford to keep their homes or a successful restructuring doesn’t appear to be in the cards, a mediation can also arrange for what the Center for American Progress, the influential think tank founded by John Podesta, President Clinton’s former Chief of Staff , refers to as a “graceful exit”.*
A “graceful exit” can include such strategies as deeds in lieu of foreclosure; short sales; surrender agreements in which the lender agrees not to disclose the default to credit reporting services; reconveyance of the property with a leaseback to the borrowers (with or without an option to buy); even so-called “cash for keys” to provide the borrowers with moving expenses or other cash in consideration of their reconveying and voluntarily vacating the property. While the last option may sound heretical – pay defaulting borrowers to move? – in the long run, the savings to the lenders in foreclosure costs and the ability to put the home on the market at an earlier date can be considerable.
The Home Affordable Foreclosure Alternatives Program ("HAFA") may further provide incentives to borrowers, servicers and investors alike to encourage such surrender strategies. For example, Supplemental Directive 09-09 provides servicers $1,500 in incentives and fully releases borrowers from any future liability for debts when they utilize a short sale or deed in lieu of foreclosure on a HAMP-eligible loan; however, it requires that all junior liens be paid off in full and, at present, [and] is voluntary . . . .
|Remember some strategies: principal reductions, extending the term of loans, transfers to relatives, having relatives act as additional guarantors, staged or plateaued restructurings, blended equity mortgages, forbearance, refinancing|
*quote is from Andrew Jakobic & Alon Cohen, “It’s Time We Talked: Mandatory Mediation in the Foreclosure Process” 10 June 2009 American Progress Report.