Some states, as well as certain counties and cities, offer special mediation programs to homeowners who are in foreclosure. These mediation programs bring the borrower and foreclosing bank to the table with the goal of working something out. While a particular outcome isn’t guaranteed if you decide to participate, you might be able to get a foreclosure avoidance option, like a modification, or at least buy yourself some more time to live in the home.
Read on to learn more about how foreclosure mediation usually works and how you might be able to benefit from the process.
Foreclosure mediation is a process that sometimes helps homeowners keep their homes after they’ve fallen behind in their mortgage payments.
In foreclosure mediation, the homeowner and bank (or servicer) meet with an impartial facilitator (the mediator) to discuss the borrower’s financial situation and explore options to avoid foreclosure, such as a modification, short sale, deed in lieu of foreclosure, payment arrangement to catch up on missed payments, or something else. Attending foreclosure mediation doesn’t ensure that you’ll be able to avoid losing your home to a foreclosure, but it might increase your chances of working something out.
Unfortunately, foreclosure mediation is not available everywhere. Statewide mediation programs exist in some states, while in other states foreclosure mediation programs are available only in certain counties or particular cities. Other places simply don't offer foreclosure mediation at all.
If you live in one of the states, counties, or cities that offers a foreclosure mediation program, your bank has to follow the program guidelines. The mediation process varies from program to program, but the process usually begins when the bank initiates a foreclosure in accordance with state law. Along with notice of the foreclosure, homeowners typically get:
In certain states, the state government budget covers the costs associated with the foreclosure mediation program. Other states add supplemental charges to the filing fee that banks have pay when starting a foreclosure, which covers the costs of the program. Also, there are a few mediation programs where the homeowner must pay part of the cost of the mediation, but there is usually free or low-cost mediation available for borrowers who can’t afford the fees.
Foreclosure mediation programs don’t force the bank provide the borrower with a way to avoid foreclosure, which means borrowers might finish the mediation and still end up losing the home to foreclosure. But one study showed that homeowners who participate in mediation are 1.7 times more likely to avoid foreclosure than those who didn’t. The process is more successful in some programs than others.
So, even though participating in foreclosure mediation might not ultimately help you avoid a foreclosure, it doesn't hurt to attend the meeting. The bank could be more likely to agree to a non-foreclosure solution, you might qualify for a loss mitigation option that you hadn’t previously considered, or you might just buy yourself some extra time to remain in the home because foreclosure typically stops during the mediation process.
Borrowers may work with their loan servicer directly to try to work out a way to avoid foreclosure. This is true whether foreclosure mediation is available or not. Federal law, in fact, requires servicers in most cases to contact borrowers who are behind in their payments to inform them about loss mitigation (foreclosure avoidance) options. (Get an overview of federal laws that protect homeowners in the foreclosure process.)
If you are about to go through a foreclosure and want to find out if there is a foreclosure mediation program available where you live—or you need other information about foreclosure in your state—consider talking to a foreclosure attorney. If you can't afford an attorney, a HUD-approved housing counselor might be able to help you.