Wednesday, March 4, 2009

Mediation and Mortgage Foreclosure

I have commented previously here on the characteristics of disputes that are appropriate for resolution by mediation. With the large number of mortgage foreclosures anticipated during the rest of the current recession, only some of which are anticipated to be prevented by federal mortgage refinance and modification guidelines , one may wonder whether it makes sense for state court systems to implement mandatory mediation programs as an adjunct to court determination of these foreclosure actions. Perhaps you saw CNN video footage of a Florida state court's rapid fire processing of foreclosure actions. The Florida Bar has recently proposed mandatory mediation of foreclosures (perhaps they saw the video footage too). Apart from the policy and political implications of this proposal, is mediation likely to have a beneficial effect on the court administration of a large number of foreclosure actions?

Some states, such as Connecticut, have already implemented such mortgage foreclosure mediation programs, while New York, where I hang my hat, has not (New York requires, with respect to subprime mortgages, for homeowners to receive 90-day pre-foreclosure notice to alert borrowers that they are in default or foreclosure and advise them that there may be help available. Another provision establishes mandatory settlement conferences to bring a borrower together with the party initiating the foreclosure proceeding to attempt to reach a satisfactory conclusion. No mediation is called for in these settlement conferences).

Which court system has got it right?

I think mediation is probably not an apt dispute resolution mechanism in the mortgage foreclosure context. There is no real relationship between the parties in which interests and objectives can be worked through. The lender wants to maximize its net present value. While there may be information that the homeowner can provide the lender that will lead the lender to pursue modification as opposed to foreclosure (hence the New York mandatory subprime pretrial conference), there would be nothing tangible that I see that a mediator can add to this informational exchange that would enhance the resolution of the dispute.

Moreover, while there may be substantial asymmetry in knowledge and resources available to the foreclosing lender and the homeowner that should be addressed (hence the New York mandatory pre-foreclosure notice of where to get help), mediator neutrality would seem to prevent a mediator from expanding upon the type of information the homeowner could get from the local legal aid/housing rights office.

So what would mediation offer of any tangible benefit to the process beyond the information and meeting requirements set forth in the New York statute?