In response to the foreclosure crisis in this country, many states implemented mediation programs to assist borrowers in finding ways to avoid foreclosure. Read on to learn more about how foreclosure mediation works and how you might benefit from the process.
(To learn about other options for dealing with foreclosure, visit Nolo's Foreclosure section.)
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:
At the meeting, the parties discuss the borrower's financial situation and try to work out 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:
(To get information about each of these options, see our Alternatives to Foreclosure area.)
The mediation process varies from state to state, but it generally begins when a lender initiates a foreclosure in accordance with state law. Along with notice of the foreclosure, the homeowners will receive:
In most cases you must be in foreclosure to take advantage of the mediation programs.
However, in Oregon, mediation is available for homeowners who are at risk of default, but have not yet missed a payment. Borrowers must notify their lender that they would like to participate in mediation to be included in the program.
Foreclosure mediation is not available in all states. Check our 50-state chart to find out if your state offers mediation to homeowners facing foreclosure.
Generally, foreclosure mediation programs are created by state law or mandated by court order, but certain municipalities have passed ordinances implementing mediation as well. Consequently, there are statewide mediation programs in some states, while in others mediation may only be available only in certain counties or particular cities.
In some states, the state government budget pays for the mediation program. Other states have added supplemental charges to the filing fee that lenders must pay when initiating the foreclosure to cover 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 cannot afford the fees.
You can always contact your lender or the loan servicer (which is the company that manages your loan account) to try to work something out. But borrowers sometimes find that lenders and servicers are non-responsive to their needs. State-sponsored mediation programs are designed to force the lender to communicate with the borrower and facilitate the loss mitigation process.
Foreclosure mediation programs do not require the lender to provide the borrower with a way to avoid foreclosure, which means borrowers can leave the mediation without a solution. So what is the actual success rate of these state programs? One study has shown that homeowners who participate in mediation are 1.7 times more likely to avoid foreclosure than those who did not. The process is more successful in some states than others.
Even though participating in a state foreclosure mediation program will not always help you prevent a foreclosure, it doesn't hurt to attend the meeting. The lender may be more likely to agree to a nonforeclosure solution. And you might qualify for a loss mitigation option that you hadn’t previously considered.
If you are facing 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.