I have talked previously about how useful mediation can be if you’re facing foreclosure of your home. With the crisis in the mortgage market and the downturn in the value of homes, many banks do not want to foreclose on properties as they may not be able to sell it for more than the value of the outstanding loan. Because of this, many banks are interested in trying to re-negotiate mortgages and re-finance. Mediation can help get the bank and homeowner talking, bridge any gaps and can create a win-win scenario for the homeowner (who can keep their home) and the bank (who can keep a customer and revenue flowing in).
Some states have used mediation in this arena more than others. I’ve posted before about Ohio’s extensive use of mediation. You can read in interesting op-ed in the Minneapolis-St. Paul Star Tribune about a program in the mid 1980’s that forced delinquent farmers and lenders into mediation to save farms. The authors (one of whom is the president of the Association for Conflict Resolution) make a case that a similar program should be put in place for homeowners in trouble today. They argue:
In a bad market, the bank could be eating $40,000 to $100,000 on the deal. The result is terrible for the bank, and worse for the homeowner, who with children in tow is left out on the street and in the cold.
Here are just a few options when banks and homeowners sit down and talk:
•Lowered payments and extended payment terms to give borrowers time to get back on their feet.
•A temporary decrease in the interest rate.
•Deed-back leases, in which the bank takes ownership and the family pays a rent it can afford. If the economy improves, the family can repurchase the property.
•Helping the homeowner sell the property and forgiving the loss between the sale price and the outstanding mortgage in exchange for cooperating on a voluntary liquidation.
•An agreement that calls for the homeowners who default on a negotiated solution to leave the property immediately so the bank can resell it without the delay of foreclosure.
Any of these solutions could cut the bank’s potential loss considerably — and they would leave the homeowner with some dignity and options.
The beauty of mediation is that it allows the burden of the mistakes to rest on the shoulders of the banker and the homeowner who got into this problem together and now will get out of it together.
A mediated settlement usually takes a day of work or less. Cost to the bank: $1,000 to $2,000. (Mediated agreements would then need to be drafted into legal agreements by a lawyer.) The result: Bankers get payments — perhaps delayed, and perhaps less than what is owed — while homeowners weather the crisis, have roofs over their heads and keep their children in their same school. Everybody wins.
Again, if you find yourself in this situation and want to try mediation, give me a call at 732-963-2299 or contact me through my website. I am on the court roster of mediators for Superior Court in New Jersey.