Foreclosure Diversion And Mediation In The States

The recent mortgage foreclosure crisis, whose economic effects are well known, transformed state legal structures governing the mortgage foreclosure process. What had been a relatively routine system of default judgments and auction sales has evolved into a negotiation and workout practice in which homeowners contest foreclosures, demand loan modifications and short sales, and propose other alternatives to foreclosures. A profusion of state laws and court orders were adopted between 2008 and 2014 with the aim of promoting negotiated foreclosure alternatives. These laws have produced a variety of experiments in the “laboratories of democracy.” The defaults—whether home loans are renegotiated, defaults are cured, or homes are sold at auction—have varied tremendously among the states. We can now begin to assess the desirability of these new laws and procedures, and more importantly, identify the foreclosure reforms that merit wider adoption. One of the most effective legal innovations has been the use of mandatory pre-foreclosure mediation, introduced in about half the states during this period. The Uniform Home Foreclosure Procedures Act (UHFPA), approved by the Uniform Law Commission in 2015, incorporates permanent provisions for pre-foreclosure mediation in all residential mortgage foreclosure cases. The uniform law provisions are modeled on the most successful state programs and were drafted with the aid of judges, mediators, and attorneys with experience in several state foreclosure mediation programs. This article begins with a brief history of the foreclosure crisis and the progressive adoption of foreclosure mediation programs in various states. Next, it will summarize the empirical research and data measuring the effectiveness of those programs. Both the benefits of mediation and the costs, including delay, will be considered and compared. The article will then discuss the ways in which foreclosure mediation may or may not differ from conventional mediation standards embodied in the Uniform Mediation Act, and in particular, how and why courts enforce a duty to mediate in good faith. Finally, the mediation provisions of the new UHFPA and the case for their adoption will be presented