Yet, when these struggling homeowners seek help from their lenders to stave off foreclosure, they often enter a Kafka-esque nightmare of endless faxes, phone calls and paperwork requested by a parade of faceless employees.
It's one thing to give someone the run-around by phone or email. But quite another when they are sitting right in front of you. That's why more and more states are requiring face-to-face mediation before a bank can foreclose on a homeowner.
Minnesota is the latest state hoping to give mediation a try. After a first attempt was vetoed by the Governor, the state legislature will try again this year to get a foreclosure mediation bill enacted into law. it would compel lenders to negotiate with mortgage holders with the goal of eliminating foreclosures.
"We keep hearing from consumers who face corporate bureaucracies in which paperwork gets lost and calls aren't returned, or where banks claim their hands are tied because the loan has been sliced up and sold on Wall Street," Minnesota's Attorney General Lori Swanson said in a press release. "We need to cut through the red tape and get some help to people."
Last year, Governor Tim Pawlenty vetoed the Homeowner-Lender Mediation Act, which is based on the successful "Farmer-Lender Mediation Act," passed by the Minnesota Legislature in 1986 to tackle the farm crisis. Minnesota was the first state to enact such a law, under which a lender could not foreclose on a family farm without first offering to mediate the debt. The program, which was renewed by the legislature last year, has proved popular. The University of Minnesota Extension Service announced in November that family farm mediations were up by 86 percent in 2009, compared to 2008.
"Around the country, courts and legislatures are stepping up to create a process where homeowners in trouble can work with their lenders to try to find solutions. Minnesota needs to step up too," said Representative Debra Hilstrom, chief House author of the Homeowner-Lender Mediation Act.
Mediation can provide an intimate interaction between a faceless bank and a homeowner seeking to keep their home. Mandatory foreclosure mediation programs are already under way in other parts of the country. Connecticut, New Jersey, Maine, Florida and Nevada are among the fourteen states that have put their own programs in place, with good results.
In many cases, as struggling homeowners have eagerly lined up for a chance to make their case to a live human, demand for the programs is overwhelming already stretched court systems.
Since the Nevada Foreclosure Mediation Program began in July 2009, more than 3,400 of the more than 29,000 homeowners who received default notices have requested mediation in an attempt to hold on to their homes. But by the end of October, only 372 mediations had been conducted, according to a December report from the Nevada Judiciary.
New York, which established mandatory mediation at the end of December, anticipates that as many as 9,000 cases could go through a two-step mandatory settlement conference. The Supreme Court of Florida issued an administrative order in late December requiring a mediation program to handle the glut of foreclosures clogging the state's courts. Florida has the third-highest mortgage delinquency rate in the nation and an estimated 456,000 pending foreclosures statewide, according to a December article in The Miami Herald.
There are other issues, too. "The challenge with mediation is that lenders usually send their junior-most representative, who has very little authority to productively work out a resolution," Jorge Newbery, director of American Homeowner Preservation in Cincinnati told HousingWatch. So, while mandatory mediation is a well-intentioned step, he says, it "rarely results in worthwhile dialogue and instead prolongs the process," he said.
That alone can be good news for desperate homeowners: a drawn out process can help them stay in their homes that much longer as they try to find a long-term fix.
However, Jane and Joe Homeowner still need to find that fix as quickly as possible. Sacramento-area attorney Jonathan G. Stein told HousingWatch, "Until someone puts an actual moratorium on foreclosures and puts some teeth into the law, banks will do whatever they can to...foreclose." Banks, he said, would rather just get the loans off their books.