Guide to Foreclosure Mediation : How to Get Help to Stop a Foreclosure Sale.
Foreclosure mediation is a formal process where a neutral third party - the mediator - facilitates a meeting between a homeowner and their mortgage lender. The objective is to reach a "loss mitigation" agreement that allows the homeowner to stay in their property or exit the home gracefully without a foreclosure appearing on their credit report. This page is about what mediation is, how it works, steps to take and other aspects of the process.
Mediation is maybe the most robust legal tool available to homeowners. Foreclosure mediation is a formal meeting between a homeowner and their mortgage company that is overseen by a neutral third party known as a mediator. The purpose of the session is to determine whether there is a reasonable solution that allows the borrower to keep the property or exit the home in a way that avoids the most damaging consequences of foreclosure.
Warning - Avoiding Mediation Scams: As government programs decline, predatory "Foreclosure Rescue" firms have increased. A common one is the "Pay-to-Mediate" Scam - no private company can guarantee a loan modification. If a firm asks for an upfront fee to "represent you in mediation," walk away.
How Foreclosure Mediation Works
During mediation, the lender must review the homeowner for what is known as “loss mitigation.” These are programs designed to reduce the lender’s financial loss while helping the borrower resolve the mortgage problem. A successful mediation session may lead to a loan modification, repayment plan, or another negotiated agreement.
Mediation is not "legal advice," nor does the mediator have the power to force a lender to change the terms of a loan. Instead, the neutral, third party mediator ensures that the lender follows federal and state servicing guidelines. They verify that the lender has accurately reviewed the homeowner’s financial documents (the "Loss Mitigation Package") before moving forward with a foreclosure sale. The process generally follows this timeline:
- Request/Notice: Depending on the state, mediation is either "Automatic" (triggered by the foreclosure filing) or "Opt-in" (the homeowner must request it within a specific window, usually 15–30 days).
- Preparation Phase: The homeowner meets with a HUD-approved housing counselor to prepare a financial packet, including an RMA (Request for Mortgage Assistance).
- The Session: The mediation session itself is typically conducted virtually or in person. Participants generally include the homeowner, the lender’s representative, the mediator, and sometimes a housing counselor or attorney representing the borrower.
- Resolution: If both sides agree on a solution, the terms are documented in writing. If no agreement is reached, the foreclosure process may continue.
Judicial vs. Non-Judicial Mediation
Your rights in mediation are largely dictated by whether you live in a Judicial or Non-Judicial foreclosure state.
- Judicial States (e.g., Florida, New York, New Jersey, Illinois): Foreclosures must go through the court system. Mediation is often part of the court's "Conciliation" process. Homeowners have more time to request mediation because the process is overseen by a judge. In these states, lenders can schedule a foreclosure sale through a trustee process.
- Non-Judicial States (e.g., Washington, Oregon, California, Nevada): Foreclosures happen outside of court via a "Trustee's Sale." In these states, mediation laws are usually statutory. For example, in Washington, the Foreclosure Fairness Act provides a specific window where a housing counselor or attorney must refer the homeowner to mediation.
Important Terms Used in Mediation
Mortgage servicers often rely on industry terminology that can be confusing for homeowners. Understanding these terms can make mediation sessions easier to navigate.
- Loss mitigation refers to any program that reduces the lender’s financial loss while helping the borrower resolve the delinquency. Examples include loan modifications, repayment plans, forbearance agreements, short sales, and deeds-in-lieu of foreclosure.
- Another concept commonly discussed during mediation is the Net Present Value test, often called the NPV test. This calculation helps lenders decide whether modifying the loan is financially better than completing a foreclosure. If the numbers show that modification would reduce losses, the lender may be more willing to approve the request.
- Homeowners may also hear the term dual tracking. Federal consumer protection rules prohibit mortgage servicers from moving forward with a foreclosure sale while a complete loss mitigation application is still under review. Mediation can help enforce these protections because it requires lenders to document the status of the application.
If a modification is approved, the borrower may first be placed into a trial period plan. During this time the homeowner makes reduced payments for several months to demonstrate that the new payment amount is affordable. If the trial payments are made successfully, the modification may become permanent.
Direct Benefits of the Mediation Process
Mortgage servicing companies are often large organizations where homeowners may speak with a different representative each time they call. Mediation requires the lender to assign a representative with decision-making authority who can review the file and discuss options directly.
- Transparency: Lenders are often large, bureaucratic entities. Mediation puts you in direct contact with someone who has the authority to make decisions.
- Stalling the Sale: In most jurisdictions, the foreclosure sale is legally stayed (paused) while the mediation process is active.
- Document Verification: Lenders frequently claim they "lost" documents. In mediation, the mediator creates a record of what was submitted and when, making it much harder for the lender to claim the application is incomplete.
State-Specific Mediation Programs
While federal programs have shifted, these states maintain robust mediation or conciliation frameworks. If your state is not listed, you may still have rights under local court rules or the "Right to Cure" statutes.
- Connecticut: The Foreclosure Mediation Program (FMP) is one of the nation's oldest. It is available to owner-occupants of 1-to-4 family residential properties.
- Washington State: The Foreclosure Fairness Act (FFA) requires lenders to participate in mediation if the homeowner is referred by a housing counselor or attorney.
- Nevada: The Foreclosure Mediation Program (FMP) allows homeowners to request mediation after receiving a Notice of Default. It is known for its "Good Faith" requirement, where lenders can be sanctioned if they do not participate properly.
- District of Columbia: D.C. has a mandatory mediation program where lenders must provide a mediation notice before they can record a notice of foreclosure.
- Oregon: The Oregon Foreclosure Avoidance Program requires a face-to-face meeting between the lender and the homeowner.
- Maryland: Provides "Post-File" mediation where a homeowner can request a session within 25 days after the lender files the Order to Docket in court.
Documents Needed for a Mediation Review
Preparing a complete financial package is one of the most important steps in the mediation process. Mortgage servicers must verify the borrower’s financial condition before offering assistance, and incomplete paperwork can delay the review.
Most lenders require a Request for Mortgage Assistance form, which serves as the standard application for loss mitigation programs. Homeowners are also typically asked to provide a hardship explanation describing why they fell behind on payments and how their financial situation has changed.
Income documentation is another key requirement. Borrowers generally need to provide recent pay stubs along with federal tax returns from the previous two years. This may include 30–60 days of consecutive pay stubs and the two most recent years of tax returns (with Form 4506-C signed). Bank statements covering the most recent two months are also commonly requested.
Additional forms may be required depending on the lender’s policies. These may include authorization forms that allow the servicer to obtain tax records or certifications related to mortgage fraud compliance requirements. The Dodd-Frank Certification is also usually needed, which is a form certifying that you have not been convicted of certain mortgage-related felonies.
Where to Get Help
Homeowners seeking mediation assistance can start by contacting a HUD-approved housing counseling agency. These nonprofit organizations help borrowers prepare financial documents, understand available programs, and connect with state mediation services when they exist. The Consumer Financial Protection Bureau has a tool to find a HUD counselor at https://www.consumerfinance.gov/find-a-housing-counselor/.
Low-income homeowners may also qualify for free legal assistance through organizations funded by the Legal Services Corporation. These programs provide foreclosure defense and help borrowers navigate mediation requirements. https://www.lsc.gov/grants/our-grantees.
If a mortgage servicer refuses to review an application properly or appears to be violating consumer protection rules, complaints can be submitted to the Consumer Financial Protection Bureau at https://www.consumerfinance.gov/complaint/.
Another resource is NeighborWorks America, a national network of nonprofit housing organizations that often administer or support foreclosure prevention programs across the country. Website: https://www.neighborworks.org/.
Related Content From Needhelppayingbills.com
|
Need help navigating programs?