State's foreclosure mediation lacks teeth, advocate say

A program designed to put homeowners in contact with lenders has had mixed results

  • A foreclosure sign hangs on a fence in front of a home on April 6, 2011.
A foreclosure sign hangs on a fence in front of a home on April… (Justin Sullivan, Getty…)
December 20, 2013|By Natalie Sherman, The Baltimore Sun

After losing her job as a teacher, Guernica Williams tried for months to get her bank to modify the mortgages on her Windsor Mills home. When her unemployment insurance ended in 2012 and she defaulted, she kept trying, leaving voice mails for a changing roster of case managers and repeatedly submitting documents.

In September, she met with a Wells Fargo representative at a court-administered mediation session, where she received assurances that the bank would review her loan, if she submitted additional documents. She sent the paperwork, then more paperwork, but a letter still arrived informing her that her house would be sold this month.

"I've done everything I was supposed to do and they either did not get back [to] me or they send me the same information back and forth," said Williams, 38, who lives at the home with her 13-year-old son. "It seems like they're playing a cat-and-mouse game."

A 2010 state law gave homeowners in foreclosure the right to mediation, a face-to-face meeting meant to stop the runaround many homeowners faced in dealing with lenders and the companies that service mortgages. But three years later, legal advocates and others say mediation has done little to help many troubled homeowners and that some of the practices the law was designed to stop still continue.

"They're more of a status conference than an actual negotiation or substantive discussion about ways in which a home can be saved," said Owen Jarvis, a staff attorney for the St. Ambrose Housing Aid Center who said he has worked on about 100 mediation cases.

Legislators intended for the law to push banks to consider alternatives to foreclosure. Before foreclosing on a home, lenders are required to sign an affidavit vouching that they have looked at other options and explain why they aren't possible. Administrative law judges oversee the session, acting as facilitators without the power to order resolutions or fact-finding.

"At its core, it seems like you should gauge the success of foreclosure mediations based on the number of homes that were saved," Jarvis said. "There are few cases, very few, in which I can say that it was because of mediation that a home was … saved."

Maryland's foreclosure rate was the third-highest in the nation in November, with nearly 4,000 foreclosure filings, or one for every 618 housing units, according to real estate information company RealtyTrac. That number is up 42 percent since this time last year and has risen year-over-year for the last 17 months, a reflection of a backlog of old loans now being processed, according to the state.

Since the mediation law went into effect, about 24 percent of eligible homeowners have opted to participate. In recent months, requests for mediation soared, to a record 519 in October, compared to between 100 and 150 a month after the law first passed, according to the Maryland Department of Housing and Community Development.

Of the roughly 9,000 foreclosure mediation cases closed through November, DHCD figures show that about 26 percent have ended in agreements between the homeowner and the lender, ranging from short sales to a commitment to review the case, pending submission of additional documents. The majority of what the state considers agreements — 1,648 out of 2,306 — are contingent resolutions, which require additional steps before an outcome is reached.

Homeowner advocates said contingent agreements often lead to more rounds of repetitive document exchange. Worse, they said, many lenders resist writing down the agreements and the foreclosure moves ahead, despite promises that an application for a loan modification will be considered. This resurrects the "dual-tracking" practice the state's law was designed to stop, they said.

"Overall it's been a huge help to homeowners, but there are some problems that we've seen that are really frustrating," said Cheryl Hystad, executive director of Civil Justice, a Baltimore nonprofit that provides low-cost legal assistance. "The real concern comes when the lender promises that they will take steps and they won't foreclose, and the next thing you know, they're foreclosing and they haven't done what they said they were going to go."

Hystad and others said they want to see the General Assembly or the state toughen up the mediation process next year, by adding provisions to require written agreements, even for contingent deals, and empowering judges to determine if banks are acting in good faith.

"The idea of mediation was we sit there, we reach an agreement, we write it down," said Vicki King Taitano, director of Maryland Legal Aid's foreclosure assistance project. "If you're going to make something work and work as it was intended to work, then it should work that way."

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