“The problem with mediation isn’t mediation, it’s homeowners opting into mediation and homeowners knowing they have the right to mediation,” Anne Balcer Norton, deputy commissioner of the state’s Office of Financial Regulation, told the House Environmental Matters Committee last week.
The biggest hurdle, it seems, is publicizing what one consumer advocate hopes will become “model legislation” for other states. Nearly 500 foreclosure cases statewide had gone through mediation as of March 9, and more than 150 are pending, according to the Office of Administrative Hearings, which oversees the mediation sessions. According to foreclosure listing firm RealtyTrac Inc., that’s out of 7,300 foreclosures that have been filed in Maryland from July through the end of February, a number suppressed by the enactment of the mediation law and increased scrutiny over foreclosure documents to weed-out so-called “robo-signed” affidavits.
Approximately 9 percent of homeowners have opted for mediation, below the 12 percent projected last year by state legislative analysts based on a similar program in Nevada.
Of the 495 mediations, 31 percent of the cases resulted in no settlement or were unresolved, the most common outcome. In 68 cases, the homeowner defaulted, and in 61 cases mediation was canceled for one of several reasons, including a homeowner declaring bankruptcy. Sixty-seven mediations resulted in a mortgage modification, and the remaining mediations ended in a variety of results, from the short sales of homes to in one case a reinstatement of the existing mortgage.
“Mediation works when there is a basis for modifying the loan and paying a fair mortgage,” said Del. Doyle L. Niemann, a Prince George’s Democrat and lead sponsor of the mediation law. “Unfortunately, there are many instances where that’s not the case anymore.”
Gov. Martin O’Malley touted the mediation program in testimony during a congressional hearing in Baltimore last week on the nation’s foreclosure crisis.
“No one wants to lose money,” O’Malley told reporters afterward. “It’s a lot better to work out a mediation than going through the expensive process” of taking a foreclosure through the court system.
In addition to the mediation option, the law requires lenders to send borrowers an application for loan modification or mitigation and information about housing counseling services 45 days before filing a foreclosure. Lenders also have to file an affidavit 30 days before a foreclosure sale, swearing that they checked borrowers’ eligibility for loan modification or mitigation options.
The new law charges lenders $300 to file a foreclosure and $50 for a homeowner to opt into mediation. The money goes toward additional staff at OAH and to pay for non-profit housing counseling programs. There was $1.4 million in the mediation fund as of January 31, according to the Maryland Department of Housing and Community Development.
Denise O. Shaffer, an executive administrative law judge overseeing the program for OAH, said the agency has hired six additional administrative law judges to help with the daily case load. The new hires have freed up 22 ALJs, many veteran mediators, to rotate among courthouses to hear foreclosure mediations, she said.
Lawyers for banks and homeowners are encouraged about the early returns on the mediation program.
“So far, I’ve been pleasantly surprised that in every case I’ve been able to work something out,” said John Gabel, a Bowie solo practitioner who represents borrowers.
Gabel has participated in four mediation sessions in Montgomery and Prince George’s counties. He said he’s found the administrative law judges overseeing the sessions to be very flexible, granting continuances to both sides if needed.
“The frustrating thing is, we have to get to mediation to work it out,” he said.
Homeowners also feel under the gun at mediation, either cutting a deal that day or facing foreclosure, Gabel added. A bank hypothetically could offer a bad deal to the owner just to be able to say in court during the foreclosure proceedings an attempt was made at mitigation.
“I think the banks are dealing in good faith, but if there’s one that isn’t, they have a big hammer they can bring down on homeowner,” he said.
Lawyers for banks said that is not their aim.
“The goal is to try to salvage the house and loan for the borrower,” said Ronald G. Deutsch of Cohn, Goldberg & Deutsch in Towson. “The majority, if not all, of the banks have bent over backward to make something work.”
Chris DiPietro, a lobbyist for the Mid-Atlantic Financial Services Association, told state legislators considering tweaks to the mediation law last week that his members are making adjustments as they continue to use the mediation sessions.
“All of my members are doing the best they can to make sure they are doing right by their customers,” he said.
The proposed changes to the mediation law are to “fix a couple problems and errors in drafting,” Niemann told his colleagues as they considered his bill, HB 728.
“We put language in in the first place because we were sort of crafting this from nothing,” he said. “We now have a basis to work from.”
Some of the changes are minor, like sending pre-stamped envelopes to homeowners rather than court clerks. Others focus on the foreclosure timeline. The biggest change would be giving homeowners 30 days to opt in to request mediation rather than the existing 15-day window, which proponents say is too soon for homeowners overwhelmed by the start of foreclosure proceedings.
“By the time they get their act together … sometimes that time has expired and it’s too late to opt in,” Norton said.
Some of that time is spent meeting with housing counselors or learning their rights as homeowners. Gabel also noted it often takes at least a month for borrowers to be matched with lawyers handling foreclosure cases pro bono.
“The most vulnerable homeowners are the ones who can least take advantage of the mediation system,” said Gabel, who also testified at the hearing.
Another change would give more regulatory power to the state’s commissioner of financial regulation, meaning future revisions to the mediation process would not have to be approved by the General Assembly.
“We think it’s going to be a lot easier and less cumbersome to make changes through the Office of Financial Regulation,” said Jeffrey B. Fisher of The Fisher Law Group PLLC in Upper Marlboro, who represents lenders.
Other changes would also aim to reduce paperwork and “legalese,” Norton said, making the mediation option clearer to homeowners.
Marceline White, executive director of the Maryland Consumer Rights Coalition, said the state’s program has been “hailed by consumer advocates around the country as model legislation and a process.”
“We hope to see participation in this program to grow so more consumers can benefit,” Carol Anne Gilbert, assistant secretary for neighborhood revitalization with the Department of Housing and Community Development, told legislators.
Daily Record Business Staff Writer Nicholas Sohr contributed to this article.