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The Future of Residential Mortgage Foreclosure Mediation
07/12/2012The Florida Supreme Court created the Task Force on Residential Mortgage Foreclosure Cases in March, 2009, to recommend a method of implementing a Residential Mortgage Foreclosure Mediation Program to deal with the mounting backlog of foreclosure filings in Florida. (No. AOSC09-8). Based upon the recommendations of the Task Force, the Court entered an Administrative Order in December, 2009, finding that foreclosure case filings in Florida trial courts totaled 369,000 during the prior year, that Florida has the third highest mortgage delinquency rate in the country, the worst foreclosure inventory, and nearly one half million pending foreclosure cases statewide at the close of 2009 when the Order was entered. The Court categorized the problem as "a crisis (which) continues unabated."
In the final report of the Task Force to the Court, the lack of communication between lenders and borrowers was noted to be the most significant issue impeding early resolution of foreclosure cases, and that case management and mediation were the best techniques for resolving cases. Based on the Task Force report, the Court ordered that all residential mortgage foreclosure cases involving homestead property must be mediated before trial. A program manager was to be employed by each circuit to manage the process, and the various circuits were required to implement administrative orders carrying out the mandate of the Supreme Court.
Among the requirements of the program was the creation of a web-enabled information platform, where the borrower was required to provide certain financial information to the lender which could be accessed through the internet. Foreclosure counselors were provided by the circuits to meet with borrowers before mediation. Informal discovery was likewise allowed from either party. Failure of either party to comply with the discovery provisions and requests for additional information needed to negotiate in good faith at mediation would potentially subject that party to sanctions, ranging from delay of the final hearing to dismissal of the action.
The program managers for each circuit were required to establish a panel of Florida Supreme Court Certified Civil Circuit Mediators, specially trained in residential foreclosure mediation matters, to serve as mediators in the program. Sylvia Stripling and I served on the panels managed by the American Arbitration Association in the 8th, 17th and 18th Circuits. After mediating approximately 100 cases between us, we were encouraged by the results. We found a common thread running through many of the cases. First of all, the borrowers almost uniformly complained that they had not been able to communicate with the lending institution in an effective way towards resolution of their problem. They often reported that they had made multiple submissions of the required documentation to the lender, but were told by lenders that the information was not received. On the other hand, the lenders would often point out deficiencies in submissions by borrowers, and referenced that some of the financial material was outdated before the case got to mediation. Inasmuch as borrowers were required to bring all of their documentation with them to mediation, we were often able to solve these communication problems during the mediation itself by e-mailing or faxing deficient or supplemental financial information. A certain perseverance on the part of the mediator is required in order to make this occur, since the knee-jerk reaction to the problem was to suggest impasse and submission and review of the material at a later date. The conscientious mediators would try to make the mediation process successful by the instantaneous exchange and review of materials while everyone was present and able to deal with the problem face-to-face. This would often result in a resolution or at least significant progress toward a resolution.
As in all mediations, the Court required the presence of parties at mediation who have the authority to settle. However, in this special type of mediation, there were practical problems prohibiting the personal attendance of banking representatives, who were often located in remote parts of the county. Because of this practical problem, the Supreme Court required the personal appearance of the lender's attorney and the borrower, but it allowed the lender's representative to appear by phone. By and large this never posed a problem at mediation. In fact, we found that most of the mediations conducted in this fashion rapidly evolved into open discussions between the lender and borrower, without the need for separate caucuses. This was the first time these parties had been able to discuss a resolution of the problem in a constructive and structured, yet informal manner.
The homeowners in these cases seemed to come from all walks of life and different socio-economic backgrounds. We had nurses, school teachers, small business owners and members of the labor force come before us, many of whom had lost their jobs or had illnesses or other family circumstances that contributed to their getting behind in their mortgage payments. We were extremely gratified when we could participate in a process which actually reached a solution for these people. Sometimes the solution would come by way of loan modification. However, in other cases there would be a short-sale or possibly a deed in lieu of foreclosure. In these situations, the homeowner knew that the home had become unaffordable and was provided with a graceful way out.
From the standpoint of the lenders, it was far better to resolve the problem at mediation than to go through the expense of the foreclosure process. In instances where loan modifications could occur, certain government programs assisted the lender in refinancing. Even if it required some concessions by the lender, it was a better solution than taking back the house and having more unwanted inventory on the bank's books.
The program operated for approximately two years before the Supreme Court discontinued it by its Administrative Order No. AOSC11-44 in December, 2011. In a brief Order, the Court terminated the program as a statewide managed mediation program, saying only that it had determined that it could not justify its continuation. However, the Court left it to the chief judge of each circuit to adopt or employ any alternative dispute resolution methods allowed by §44.102, Fla. Stat., and Rule 1.700(a), Fla. R. Civ. P.
The question now is what the various circuits will do about ADR in an environment where the residential mortgage foreclosure case load remains unabated. In the immediate future, the Supreme Court has ordered that the statewide program will remain in effect until completion of mediation of all cases that had been referred to mediation before the date of the order terminating the program. The future of ADR beyond that is seemingly uncertain in many of the circuits in North and Central Florida. The Honorable Paul Silverman, General Magistrate for the 8th Judicial Circuit, has stated that, "The RMFM Program has been discontinued and mediation will no longer be required in every residential mortgage foreclosure case. Requests for mediation will be considered on a case-by-case basis." The 8th Circuit will appoint mediators who are qualified to handle mortgage foreclosure mediations on an as-needed basis. In the 4th Circuit, the Jacksonville Bar Association has served as program administrator, but is winding down the program. The same is true of the 9th Circuit which includes Orlando. However, the 5th Circuit will continue its RMFM Program on a temporary and trial basis under its program manager, Oasis Alliance. In the 7th Circuit, which includes Daytona, the program manager is Upchurch, Watson, White and Max. Although the mandatory program is winding down, Upchurch, et. al. is launching a statewide voluntary foreclosure mediation program, based upon "....numerous requests from lenders, lenders' attorneys and borrowers...."
In conclusion, I am forced to disagree with those who believe that mediation in residential foreclosure cases does not work. From our experience and the experience of those on the AAA mediation panels with whom I have spoken, the RMFM Program has made a valuable contribution to borrowers, lenders and the court system if for no other reason than it provides a much needed forum for the parties to attempt to resolve their differences. The Task Force's original conclusion that lack of communication between the parties has been a major problem in resolving cases will still be true after the program completely ends. Without foreclosure counseling and mediation, lenders will continue to have insufficient loan modification packages, borrowers will still not be able to reach the appropriate person at the lending institution by phone, and judges will be all the more frustrated by the unabated crisis of too many foreclosure cases in the court system.