Fighting Foreclosure When the Lender Doesn't Follow State Mediation Procedures

If your state offers foreclosure mediation, but your lender does not comply with program requirements or acts in bad faith during negotiations, you may be able to stop the foreclosure.

Foreclosure mediation provides a way for homeowners to work with their lender to find a way to avoid foreclosure. If your state offers foreclosure mediation, but your lender does not comply with program requirements or acts in bad faith during negotiations, you may be able to stop the foreclosure.

Read on to learn more about foreclosure mediation programs, general mediation requirements for lenders, and how you can challenge the foreclosure if the lender doesn’t comply.

(If you are struggling to pay your mortgage or facing imminent foreclosure, visit our Foreclosure section for help.)

What Is Foreclosure Mediation?

In response to the foreclosure crisis of the late 2000s, many states and several municipalities have implemented residential foreclosure mediation programs to encourage homeowners and lenders to get together and come up with a way to avoid foreclosure. Mediation consists of a meeting between:

  • the borrowers
  • their lender, and
  • a mediator (though not all programs require a third-party mediator to attend the meeting).

At the meeting, the parties discuss the borrower's financial situation and try to find a way for the homeowner to keep the home (through a loan modification, repayment plan, or forbearance agreement, for example) or give up the property without going through a foreclosure in a short sale or deed in lieu of foreclosure. (To get information about these and other options to avoid foreclosure, see our Alternatives to Foreclosure area.)

(To find out if there is a foreclosure mediation program in your state, see Nolo’s State Foreclosure Mediation Programs area.)

Typical Mediation Program Requirements

Mediation programs vary from state to state, but there are a few common elements.

Homeowner requirements. In most cases, you must be in foreclosure to participate and the home must be a one to four unit residential property that is owner-occupied as your primary residence. Generally, homeowners receive notification about the program when a lender initiates a foreclosure.

Along with notice of the foreclosure, the homeowner will receive information about:

  • how to enroll in the mediation program if enrollment is not automatic
  • which documents you’ll need to bring to the mediation
  • the mediation timeframe, and
  • the availability of HUD-approved housing counselors and/or low-cost legal services available in the state.

Lender requirements. Mediation requirements for lenders also vary from state to state. Generally, a representative of the lender (sometimes an attorney) must attend the mediation on behalf of the lender. This person must have authority to agree to a proposed settlement. The lender is sometimes required to be available by telephone.

The lender is usually required to bring certain documentation to the mediation. Typically, it must provide:

  • a payment history
  • copies of the note, mortgage/deed of trust, and assignments; and
  • an updated itemization of all overdue amounts, including fees and costs.

In some states, the lender must file a certification that it complied with the requirements of the program and reviewed the borrower for an alternative for foreclosure before it can continue with the foreclosure. (In other states, the mediator files the certification.)

Courts take foreclosure and foreclosure mediation very seriously since the end result is often a family losing their home. A lender’s failure to comply with mediation program procedural requirements may serve as a basis for challenging the foreclosure.

(To learn more general information about foreclosure mediation, see Nolo’s article State Foreclosure Mediation Programs.)

Lender’s Obligation to Negotiate in Good Faith

Some states, like Washington and New York, require the lender to act in good faith during the mediation process. If the lender does not mediate in good faith, the homeowner may be able to stop the foreclosure sale. (Learn more about Washington's Foreclosure Mediation Program and New York Foreclosure Settlement Conferences.)

Other states do not specify any consequences if the lender acts in bad faith at the mediation. However, if there are viable options to avoid foreclosure and the lender engages in repeated bad faith negotiations, most courts will not allow a foreclosure to proceed. In these circumstances, courts in most jurisdictions have authority to require parties to the foreclosure to negotiate in good faith.

Lender Must Also Meet Pre-Foreclosure Loss Mitigation Requirements

Even if there is no statewide mediation program, some states have certain pre-foreclosure loss mitigation requirements for lenders. A lender’s failure to comply with pre-foreclosure loss mitigation requirements may also serve as a basis for challenging the foreclosure.

For example, California law requires that the lender or mortgage servicer personally contact the homeowner by phone or in person 30 days before recording a notice of default (the official start to the foreclosure process in that state) to assess the homeowner's financial situation and explore options to avoid foreclosure. (Learn more about California Laws That Encourage Foreclosure Alternatives.)

How to Fight the Foreclosure

If you think your lender is not complying with mediation requirements and want to fight the foreclosure, the way you go about it depends on whether the process is judicial or nonjudicial. (To learn about the differences between judicial and nonjudicial foreclosures, see Nolo's Judicial v. Nonjudicial Foreclosure topic area.)

Judicial foreclosure. In a judicial foreclosure, the lender files a lawsuit in state court. You will receive a foreclosure complaint, petition, or similar document, along with a summons. In this type of foreclosure, you can raise the issue in your answer to the complaint, in opposition to the entry of a judgment, or in a motion to dismiss the foreclosure action. (To learn more, read our article How to Fight a Foreclosure in Court: Judicial Foreclosure.)

Nonjudicial foreclosure. With a nonjudicial foreclosure, the foreclosure is completed completely outside of the court system. There is no court hearing or other opportunity for you to raise this issue so you'll need to file your own lawsuit for injunctive relief to stop the sale if the lender is not in compliance with mediation requirements. (To learn more, read our article How to Fight a Foreclosure in Court: Nonjudicial Foreclosure.)

(To learn about the foreclosure laws in your state and find out if your state ordinarily uses a judicial or nonjudicial foreclosure process, check our State Foreclosure Laws topic area.)

When to Hire Counsel

If you are facing foreclosure and think that the lender has not complied with mediation procedural requirements or has acted in bad faith during the negotiations, you should speak to a qualified attorney who can advise you about what to do in your circumstances.

To learn more about different foreclosure defenses, see our Fighting Foreclosure in Court area.

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