In response to the ongoing foreclosure crisis in this country, many states have implemented mediation programs to assist borrowers in finding ways to avoid foreclosure. If you are a homeowner facing foreclosure in Vermont, you may be eligible to participate in the state’s foreclosure mediation program. Read on to learn more about how the program works and how you can benefit from the process.
(To learn about other options for dealing with foreclosure, visit Nolo's Foreclosure section.)
What is Foreclosure Mediation?
Foreclosure mediation is a process that is used to help homeowners avoid foreclosure by coming up with an alternate solution that benefits both the borrowers and the lender. Mediation consists of a meeting between:
- the borrowers
- their lender, and
- an impartial third-party (the mediator).
At the meeting, the parties discuss the borrower's financial situation and try to negotiate a way for the homeowner to keep the home or give up the property without going through a foreclosure. By working together, the parties are often able to reach an agreement.
Potential outcomes of mediation include:
- loan modification
- forbearance agreement
- short sale, or
- deed in lieu of foreclosure.
(To get information about each of these options, see our Alternatives to Foreclosure area.)
Vermont Foreclosure Process
Most foreclosures in Vermont are either by strict foreclosure or judicial sale, which means the lender has to go through state court to get one. (Learn more about the Vermont foreclosure process.)
(To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
Vermont Foreclosure Mediation
Vermont law provides certain homeowners in foreclosure with the right to mediation. (Vt. Stat. Ann. tit. 12 § 4631, et seq.)
Originally, the Vermont mediation program only applied when the foreclosure action involved a loan that was subject to the federal Home Affordable Modification Program (HAMP) guidelines. (Learn more about HAMP.)
However, House Bill 431 (signed into law on April 26, 2013) made changes to the Vermont mediation program effective December 1, 2013. The act expanded the program to:
- require mediation in virtually all mortgage foreclosure actions in Vermont (unless the loan involved is not subject to any government loss mitigation program requirements such as HAMP or any loss mitigation program offered by Fannie Mae or Freddie Mac, or the lender makes a reasonable effort to meet with the borrower in person to discuss loss mitigation options)
- make the program permanent by repealing a provision that would have ended it on the date that the federal Home Affordable Modification Program (HAMP) was repealed, and
- require the mediator to hold a premediation telephone conference to help the homeowner and lender complete any necessary document exchange and address other premediation issues.
Eligibility for Foreclosure Mediation
Vermont homeowners in foreclosure are eligible for mediation if:
- the dwelling consists of four units or less, and
- is occupied by the owner as a principal residence.
Notification of Availability of Mediation
The lender will serve notice to the homeowner along with the complaint and summons. The notice will:
- advise the homeowner of the homeowner's rights in the foreclosure proceedings
- state the importance of participating in mediation even if the homeowner is currently communicating with the lender or loan servicer
- provide contact information for legal services, and
- include a form that can be used by the homeowner to request mediation from the court.
The court will refer the case to mediation whenever the homeowner requests mediation prior to four months after judgment is entered (and before the end of the redemption period). However, the court may:
- shorten the four-month period
- decline to order mediation if the mortgagor requests mediation after judgment has been entered and the court determines that the mortgagor is attempting to delay the case, or
- decline to order mediation if the mortgagor requests mediation after judgment has been entered and there is good cause to deny mediation.
The Mediation Report
After the mediation is complete, the mediator must file a report within seven days. Once the court receives the report, it will determine whether the mortgage servicer complied with its obligations under the mediation statute. The court can impose sanctions, including stopping the foreclosure, if the court finds noncompliance with the mediation statutue.
Cost to Participate in Mediation
The homeowner does not have to pay a fee to participate in the mediation program, but is responsible for his or her own costs, including the cost of an attorney, if represented, and travel costs, if any.
Should You Participate in the Foreclosure Mediation Program?
Even though participating in Vermont’s mediation program does not guarantee that a foreclosure will be avoided, it doesn't hurt to participate in the program. The lender may be more likely to agree to a nonforeclosure solution during mediation than if you approach it outside of the program. Or you might qualify for a loss mitigation option that you hadn’t previously considered. For more information on Vermont’s foreclosure mediation program, go to www.leg.state.vt.us/statutesmain.cfm and go to Title 12, Chapter 163, § 4631 et seq.