Some states (around 14), certain counties, cities, and even some courts offer special mediation programs to homeowners in foreclosure. These mediation programs bring the borrower and foreclosing lender to the table to work out a way to resolve the matter.
While a particular outcome isn't guaranteed if you decide to participate in mediation, you might be able to get a foreclosure avoidance option, like a modification or a short sale, or at least buy yourself some more time to live in the home.
"Foreclosure mediation" is a process that sometimes helps homeowners keep their homes after falling behind in their mortgage payments. In foreclosure mediation, the homeowner and foreclosing lender (or servicer) meet with an impartial facilitator (the mediator) to discuss the borrower's financial situation and explore options to avoid a foreclosure, such as a modification, short sale, deed in lieu of foreclosure, repayment plan, or something else.
Unfortunately, foreclosure mediation isn't available everywhere. Statewide mediation programs exist in some places, while in others, foreclosure mediation programs are available only in specific counties or cities. Other places don't offer foreclosure mediation at all. However, courts can order mediation.
If you live in one of the states, counties, or cities that offers a foreclosure mediation program, your lender must follow the program guidelines. The mediation process varies from program to program, but the process usually begins when the lender initiates a foreclosure under state law.
Along with notice of the foreclosure, homeowners typically get:
In some states, the state government budget covers the costs associated with a foreclosure mediation program. Other states add supplemental charges to the filing fee lenders must pay when starting a foreclosure, which covers the program's costs.
A few mediation programs require the homeowner to pay part of the mediation costs. But free or low-cost mediation is usually available for borrowers who can't afford the fees.
A few states have a law specifically requiring lenders and servicers to negotiate in good faith with homeowners about loss mitigation options before proceeding with a foreclosure sale. But in most places, state law doesn't require the lender or servicer to negotiate in good faith. However, courts generally have the authority to require the parties to a foreclosure to negotiate in good faith.
So, if required to negotiate in good faith, the lender's representative generally must not do any of the following:
Still, even if good-faith negotiations are required, foreclosure mediation programs don't force the lender to provide borrowers with a way to avoid foreclosure. This 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 don't. The process is more successful in some programs than others.
The bottom line is that while attending foreclosure mediation doesn't ensure that you'll be able to avoid losing your home to a foreclosure, it might increase your chances of working something out.
Borrowers may work with their loan servicer directly to try to find a way to avoid foreclosure, whether foreclosure mediation is available or not. In most cases, federal law requires servicers to contact borrowers behind in their payments to inform them about loss mitigation options.
State law might set out loss mitigation requirements, too.
Even though participating in foreclosure mediation might not ultimately help you avoid a foreclosure, it doesn't hurt to attend the meeting (if available). The lender could be more likely to agree to a nonforeclosure solution, or you might qualify for a loss mitigation option you hadn't previously considered. Or you might buy yourself some extra time to remain in the home because foreclosure typically stops during mediation.
If you're about to go through a foreclosure and want to find out if a foreclosure mediation program is available where you live or if you need other information about foreclosure in your state, consider talking to a foreclosure attorney. An attorney can also represent you in the mediation process.
If you can't afford an attorney, a HUD-approved housing counselor can also provide information (at no cost) about loss mitigation options and foreclosure avoidance programs in your area.