When your mortgage company notifies you that it plans to take your property because you fell behind on your payments, foreclosure has begun. Several states have programs called "foreclosure mediation" to help homeowners and lenders negotiate an alternative with the assistance of a mediator -- someone with no financial interest in the property. Turning to foreclosure mediation does not automatically stop the legal process of property repossession, but it does give residential property owners an opportunity to keep their home.
Eligible Property and People
As of the date of publication, properties being foreclosed must be one- to four-unit primary residences in most of the 29 states offering foreclosure mediation, according to the Resolution Systems Institute. Rhode Island requires borrowers to have filed for bankruptcy before foreclosure mediation is available, while Delaware and Maine make meeting with a housing counselor a prerequisite. Some states require homeowners to participate in foreclosure mediation; others, such as New York, give borrowers the option to decline participation.
What to Expect
Foreclosure mediation sessions are not like trials seen on television. The borrower and a representative from the mortgage company meet with a mediator. Phone conferences are permitted in a few states, including Indiana. During the one- to two-hour sessions, the borrowers present as much new employment and financial documentation as possible to plead their cases. Borrowers can have an attorney present, usually at their own expense. No session occurs if the lender refuses to participate, an option that the Wisconsin program provides.
The Mediator’s Role
The mediator remains neutral throughout the session. If the borrowers can present information about their financial situation that the bank had not known prior to the foreclosure mediation, and can demonstrate that ending the foreclosure proceedings would be more beneficial to the lender, the mediator can require the lender to modify the loan terms. In other cases, the mediator helps both parties agree to another way to end the loan obligation, such as the borrower giving the property deed to the lender in a procedure known as a "deed in lieu of foreclosure."
How foreclosure mediation is financed varies by state. Vermont, Florida and Connecticut do not charge borrowers, while Indiana and Iowa make lenders pay a fee. Several states impose fees on both parties, but charge borrowers less. For example, lenders in Maryland pay a $300 filing fee and borrowers pay a $50 mediation fee, according to a 2012 analysis by the Resolution Systems Institute. Grants and funding from state and local budgets can also cover program costs and mediator compensation.