Some states, counties, and cities give homeowners the right to participate in foreclosure mediation. Mediation consists of one or more meetings with the foreclosing lender or the lender's representative, such as the loan servicer, and a neutral mediator to try to find an alternative other than foreclosure. Foreclosure procedures are usually put on hold while you participate in mediation.
During mediation, the parties discuss the borrower’s financial situation and consider different options to prevent a foreclosure, like by completing a loan modification, short sale, deed in lieu of foreclosure, repayment plan, or something else. Attending foreclosure mediation doesn’t guarantee that you’ll be able to keep your home, but it does boost your chances of stopping the foreclosure process. And even if you can’t work out a foreclosure avoidance option, you’ll probably at least buy yourself some extra time to live in the home.
Many courts and state legislatures implemented foreclosure mediation programs for residential homeowners in response to the foreclosure crisis and Great Recession. Mediation programs came about in three ways: through new state laws, judicial orders, or administrative orders from local courts. So, foreclosure mediation isn't available everywhere. Statewide programs exist in some places; in others, mediation is available only in specific counties or particular cities. Other localities don't offer foreclosure mediation at all.
If you’re already in foreclosure and mediation is available, you’ll probably get a notice about its availability along with the foreclosure paperwork. Otherwise, you can talk to a lawyer to find out if foreclosure mediation is available in your area or review your state’s statutes to see if the legislature passed a foreclosure mediation law. (Keep in mind that your state’s laws won’t mention any judicial or administrative orders about foreclosure mediation programs, though.)
If your state, county, or city offers a foreclosure mediation program, your lender must follow the program guidelines. Mediation processes vary widely from place to place, but the procedures usually begin when the lender starts a foreclosure.
When foreclosure mediation is available, homeowners typically get the following information along with notice of the foreclosure:
Some programs require the lender to participate if the homeowner opts into the program. Other programs require participation, even if the homeowner doesn’t request it. In a New York foreclosure, for example, for foreclosure actions involving borrower-occupied properties, state law requires the court to hold a mandatory settlement conference, which is like foreclosure mediation, within 60 days of the filing of the proof of service with the court clerk. The court sends a notice to the parties advising them of the settlement conference’s time and place and the documents that they should bring to the meeting. Likewise, Connecticut’s foreclosure mediation program requires participation. Usually, mediation programs compel the lender to participate with an authorized representative, bring specific documents, and explain decisions to deny loss mitigation options.
Foreclosure proceedings are sometimes stayed (postponed) during the mediation proceedings to allow for good-faith negotiations. Usually, a neutral third party oversees the mediation, but a few programs are unsupervised. In New York, a court supervises the settlement conference (mediation) process. In California, however, the lender certifies its own compliance with state requirements.
Sometimes, the state’s government budget pays for foreclosure mediation. In other places, the lender has to pay a fee when beginning a foreclosure to cover the program's costs. A few mediation programs require the homeowner to pay a fee to participate in mediation, but borrowers who can’t afford the fees can usually get the amount waived or reduced.
If the lender doesn’t participate in good faith, most programs permit the homeowner to ask a court to review the mediation proceedings. This safeguard ensures that lenders make an effort to help the homeowner avoid foreclosure.
If your state, county, or city offers foreclosure mediation, you should strongly consider participating. While foreclosure mediation programs don't make the lender give you a loss mitigation option, according to one study, people who participate in mediation are almost twice as likely to prevent a foreclosure as those who didn’t. Some mediation programs are more successful than others. For instance, the Connecticut courts have provided data showing that between 2008 and 2016, around 26,000 mediations were completed. Of those, 73% ended with the homeowner keeping the property. In another 17% of cases, the homeowners arranged a sale, short sale, deed in lieu of foreclosure, or a negotiated departure date. So, overall, Connecticut’s mediation program showed a 90% success rate.
Even though participating in foreclosure mediation might not ultimately help you avoid a foreclosure, it’s usually a good idea to give it a shot. Lenders are often more likely to agree to a nonforeclosure solution in mediation, or you might learn about (and qualify for) a foreclosure avoidance option that you didn’t previously contemplate. If nothing else, you might get some extra time to stay in the home because foreclosure typically stops during the mediation. During this time, you can save some money because you’ll be living in the property payment-free.
You can contact your loan servicer directly to try to work out a way to avoid foreclosure, whether foreclosure mediation is available or not. Under federal mortgage servicing laws, in most cases, the servicer has to communicate with you when you fall behind in your payments to let you know about loss mitigation options. State laws sometimes require lenders to get in touch with borrowers to discuss ways to avoid foreclosure, too.
If you’re facing a foreclosure and want to learn whether a foreclosure mediation program is available in your area, or you need other information about foreclosure in your state, consider talking to a foreclosure lawyer. It’s also a good idea to contact a HUD-approved housing counselor, who can help you (for free) pursue a loss mitigation option and tell you about different foreclosure-avoidance programs.