Mandatory mediation on tap for foreclosure process

Mandatory mediation on tap for foreclosure process

URBANA — “What we have here is failure to communicate,” the warden says to a prisoner played by Paul Newman in a scene of the movie “Cool Hand Luke.”

In courtroom hearings on foreclosures, Judge Mike Jones often sees exactly that — a failure to communicate — between the homeowner and the bank, he said, recalling the movie quote recently in Courtroom H.

As the primary judge in Champaign County who oversees foreclosure cases, over and over again Jones has watched frustrated homeowners appear before him and say they could not get the same person from the bank on the phone twice, or they gathered up all the documents they were told to get and sent them to the bank, only to be told they were lost or the file was incomplete. Also not uncommon is the lawyer appearing for the bank does not know the status of the foreclosure, nor does he or she have the authority to settle the case, Jones said.

Come Oct. 1, Champaign County will join a growing number of counties in Illinois where people facing residential foreclosure will undergo mandatory mediation. The process will entail a homeowner meeting with counselors (approved from the U.S. Department of Housing and Urban Development), reviewing and discussing alternatives to foreclosure, and meeting with an independent mediator and with a representative of the bank. Also key to the mediation is the requirement that a person representing the bank must appear in person or via phone and that person must have authority to settle the case.

“Once you get people face-to-face, where you can exchange information and find common ground, it can be resolved,” Jones said. “Everybody shows their cards.”

The sooner people come to the table, the better the outcome for all involved, said Stacey Tutt, director of the University of Illinois College of Law Community Preservation Clinic. Clinic staff have represented people in numerous foreclosure cases in recent years.

After seeing mandatory mediation programs being implemented around the state, Tutt approached Jones with the idea for Champaign County. So far, at least 10 other counties, including Will, McLean, Tazewell and Kankakee, have adopted such programs. They’ve all come about following last year’s decision by the Illinois Supreme Court to allow courts to establish foreclosure mediation programs. However, each program has to be approved, and Jones said he expects Champaign’s presiding judge, Tom Difanis, to approve theirs this month.

“It’s a locally controlled program” and will be provided at no extra cost to taxpayers, Jones said. The HUD-approved counselors and mediators will be paid for with money from the state’s settlements with banks over their roles in the nation’s foreclosure crisis, including “robosigning” foreclosure documents and losing documents. Also, increased filing fees will help pay for the program long-term.

Local foreclosure filings in Champaign and Vermilion counties have fluctuated in recent years, peaking in 2010 with 563 in Champaign and 417 in Vermilion. Last year saw a decline to 353 foreclosure filings in Champaign and 216 in Vermilion.

Typically, the process kicks off when a homeowner is three months late in mortgage payments. A form letter from the bank is sent to the homeowner stating the total balance of the mortgage is due. A complaint is filed in court and a summons is sent to the homeowner.

Once filings are made, the junk mail starts arriving — “and there are a lot of scams out there,” said Janice Parker, Illinois education and relations manager with Novadebt, a HUD-approved counseling agency that works with Champaign homeowners. Staff from Novadebt, the College of Law Community Preservation Clinic and Land of Lincoln Legal Assistance Foundation will be working with homeowners as part of the new program.

Overwhelmed, homeowners may fall for some of these rescue fraud scams, paying someone thousands of dollars to reportedly help settle the case, or they may stop reading their mail, Parker said. Some may feel as if they should pack up and leave.

“It’s just heartbreaking,” Tutt said. “Panic may set in.”

The process can drag on from a year and a half to two and a half years. During that time, properties may sit vacant and deteriorate, causing property values to decline, possibly even attracting criminals to the neighborhood, said Dan Flannell, Chief Judge of the Sixth Judicial Circuit, which includes several counties in East Central Illinois.

“Community preservation gets lost. We think saving a home from foreclosure benefits the homeowner (only), but the whole community benefits,” Flannell said.

Come Oct. 1, when Champaign homeowners facing foreclosure receive the initial summons in the mail, it will inform them they must attend a pre-mediation conference. That might sound off-putting, Tutt said.

However, she wants them to know it’s a free service and provided by counselors they can trust, by people who will provide them with helpful resources. They will help them gather the necessary documents and understand the process. And there will be deadlines both parties will need to meet along the way.

During mediation, the bank must send a representative in person or via the phone. If not, the judge could take a number of actions, one of which is dismissing the case, according to Jones.

Mediators are currently being recruited, will complete 40-hour training and must be approved by the judiciary, he said. 

A borrower can opt out of mediation. However, Jones said it most likely would be in their best interests to go through it.

“By following the mediation process, you’re increasing the likelihood of a positive outcome,” he said. 

It can help expedite the foreclosure process, too.

Banks don’t want to be in the business of buying and selling homes, and it’s in their interest to settle, he said.

Any number of outcomes could occur. The two parties could agree to a loan modification (such as adjusting the loan terms like length or interest rate, to make the loan more affordable); reduce the principle owed on the mortgage; agree on a “graceful exit,” such as a short sale, when the property is sold for less than the amount owed on the property; or agree on relocation assistance for the homeowner, Tutt said.

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rsp wrote on August 10, 2014 at 8:08 am

I'm glad to see this get started. Several years ago I had a minor financial problem and missed one payment. The interest was added each month. I continued to make the next payments. I repeatedly asked the same person about a loan modification after he refused to let me pay it gradually. The bank insisted I could only talk to him and even tried having another organization call him to no avail. Finally I contacted John Lee Johnson. He talked to the VP at the bank. Turns out the person I was dealing with hadn't even opened my file, didn't know I had equity in my home, and his refusal to look in a file cost me $8000.