Foreclosure mediation program continues shaky start

Nov 14, 2012
Queenie Wong

Oregon’s new mediation program was meant to help thousands of homeowners avoid foreclosure.

But more than four months after the program started, only one homeowner has gone through mediation.

“I think it’s a huge disappointment,” said Jeff Manning, a spokesman for the Department of Justice, which helped launch the program. “The Department of Justice and a lot of other folks worked really hard to put the program together and believed it would be a big step forward. It’s been a serious blow to everyone involved that it hasn’t worked out that way.”

The state launched the foreclosure mediation program in July. It allows homeowners to meet face-to-face with their lenders and a neutral third party mediator to discuss alternatives to foreclosure.

About 1,500 homeowners were expected to qualify for foreclosure mediation per month, according to Department of Justice estimates made before the program launched.

But the estimates were based on the average number of nonjudicial foreclosures filed in each county since 2007. It didn’t account for more lenders processing foreclosures through the courts.

The mediation requirement was to kick in when a lender filed a foreclosure and mailed a notice of default to the homeowner, which is known as nonjudicial foreclosure.

In judicial foreclosure, the lender sues the defaulting borrower in court.

By going through judicial foreclosure, banks could avoid the mediation requirement.

State officials, consumer advocates and banking associations have pointed to an Oregon Court of Appeals decision — which also occurred in July — as one reason why banks shifted to judicial foreclosure.

The court ruled that lenders using the Mortgage Electronic Registration Systems to package and sell mortgages rapidly must go through the courts to begin foreclosure.

In Marion and Polk counties, the number of nonjudicial foreclosure filings have dropped drastically since July. At the same time, the number of notices of pendency — a written notice that a lawsuit has been filed involving real property — have increased, indicating that lenders are moving to judicial foreclosure.

The total number of notices of default filed in both counties declined from 170 in May to 14 in October.

The majority of the state’s mediation requests have come from homeowners who have not defaulted but are at risk of doing so. The law, however, doesn’t define an at-risk homeowner, and there have been different interpretations of whether lenders are required to enter into mediation with those homeowners.

About 68 percent of lenders didn’t respond to requests for mediation from at-risk homeowners, according to estimates from the DOJ.

“One of the reasons why we aren’t marketing this option is if the banks aren’t playing and not going to be participating then that’s just a source of frustration for the homeowners who choose that track at this point,” Mike Niemeyer, the DOJ’s Alternative Dispute Resolution Coordinator, said at a meeting Tuesday that provided an overview of the program’s outcomes.

Niemeyer also said that with the low case volume, the mediation program hasn’t been self-sustaining. The program was supposed to be funded through mediation fees paid by the lender and homeowner, and the DOJ has been tapping into start-up funds to keep the program running.

The state has amended its contract with the Collins Center for Public Policy, a nonprofit based in Florida that is running the mediation program, from $120,000 per month to $80,000.

“We are doing what we can in terms of working with the contractor and our own overhead to keep those costs down as much as possible given the reduced number of participants and the reduced number of revenue that we have,” he said., (503) 399-6694
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