Foreclosure mediation in Md. -- and elsewhere
If you're a Maryland homeowner behind on your mortgage, you now have the right to ask for mediation when your lender starts foreclosure proceedings.
This rule change kicked in last Thursday, so it's too early -- way, way too early -- to know how well it will work. But with mediation/negotiation programs under way in all or part of 21 states, we might get a few clues from experiences elsewhere.
New Jersey, for instance. Like Maryland and most jurisdictions with mediation programs, the Garden State doesn't make sit-down meetings between borrowers and lenders mandatory but instead allows homeowners to opt in if they want to.
According to a mediation report by the Center for American Progress, about 50 percent of participants in that state are reaching settlement in their mediations, most of which allowed the borrowers to stay in their homes. But most struggling homeowners aren't in the mix -- because they're not opting in.
[L]ike opt-in programs in other areas of public policy (a popular example being organ donation), participation rates are below 25 percent. In contrast, eligible homeowners participate around 75 percent of the time in programs with automatic scheduling.
Jurisdictions have seen the value of foreclosure mediation; nothing in mediation requires the parties to settle—they only do so if settlement nets the servicer greater value than foreclosure—and the high rate of settlements speak to its efficacy. The remaining obstacle is low participation.
The center also takes issue with the way Maryland slotted mediation into the foreclosure time line -- as the last step before the foreclosure auction can proceed. It thinks the number of settlements will rise if mediation comes earlier.
Otherwise, it argues, "a servicer is an inch away from a foreclosure sale and will have little incentive to deal, having already expended much of the time and money foreclosure mediation is intended to save."
If you're interested in a rundown of the Maryland program (when, how, etc.), see this Q&A.