Foreclosure Mediation Programs

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 What is Mediation?

Mediation is an alternative dispute resolution where a neutral third party helps two parties to work out a settlement or compromise. Mediation is often used to help resolve issues rather than proceed to a lawsuit, and provides the parties involved a chance to talk through the problem.

What Makes Foreclosure Mediation Different?

Foreclosure mediation is specifically meant to help homeowners who may be at risk of foreclosure. Many states offer foreclosure mediation programs as a way for homeowners to avoid losing their homes to foreclosure. The mediation consists of a meeting between you, your lender, and an impartial mediator. During the meeting, you will discuss ways to best handle the situation, and try together to work out options to avoid foreclosure.

Some options that you may consider, aside from foreclosure mediation, include:

Debt Modification in the Event of a Foreclosure

This is where your lender may agree to change your obligation under your promissory note to help you be better able to make your payments. Ultimately, you will still have to make mortgage payments, but they may be more affordable under the loan modification.

Repayment Plans to Prevent Foreclosure

Your lender may agree to help you work out a repayment plan. Even if they do not change the terms of your loan under your promissory note, they may agree to allow you to make lower payments until you are able to get your finances in order so you can return to your regular payment terms.

Short Sale to Avoid Foreclosure

A short sale is when the property is sold quickly, often at a loss. The proceeds from the sale are less than the amount the homeowner may have left to pay on the mortgage, but some lenders are willing to accept the short sale proceeds and cancel or forgive the remaining payments.

Deed in Lieu Of Foreclosure

A Deed in Lieu of Foreclosure (sometimes called a “deed in lieu”) is a specific deed used as an alternative to foreclosure. With a deed in lieu, the homeowner transfers their deed to the lender or bank instead of having to make payments through the course of the foreclosure proceedings. Basically you use this to transfer the property to the lender to fulfill the debt.

What Starts the Foreclosure Mediation Process?

The actual foreclosure mediation process depends on the state where the property is located. In most cases, the process starts after a lender begins the foreclosure process. Essentially, the lender has issued a notice to the homeowner that they are behind in their mortgage payments, and the lender is planning on pursuing foreclosure as laid out in the mortgage documents. When a lender begins foreclosure proceedings, they are required to follow certain standards, including providing notice of foreclosure to the homeowner.

In states where foreclosure mediation programs are available, the lender will send out the notice of foreclosure as well as:

  • A foreclosure mediation notice;
  • Details on how to opt-out of the foreclosure mediation program (in some areas the program is automatic); and
  • Information about the state’s low-cost legal services and housing counselors approved by the U.S. Department of Housing and Urban Development (HUD)

Where Can I Get Foreclosure Mediation?

While foreclosure mediation may sound attractive if you find yourself in a position where you’re having trouble making your mortgage payments, it is very important to note that it is not available everywhere. While many states offer the program, not every state offers foreclosure mediation programs.

Who Pays for Foreclosure Mediation?

It depends on where you live and the rules your state has in place. Some states will foot the bill for the mediation program. Others will require a fee from the lender when they file the foreclosure action. In some cases, if the state requires a fee from the homeowner, the cost is usually free or at a reduced rate for people who may not be able to afford the full fee.

What Documents Do I Need to Bring for Foreclosure Mediation?

The documents required for mediation will also depend on where the foreclosure mediation takes place. Some states have strict requirements about documentation. At the very least, you may be required to provide your current financial information and a proposal on how you would like to avoid foreclosure.

The lender will be required to provide documentation, as well. They may have to provide information regarding the value of the property, such as a recent appraisal or a short sale estimate, as well as their proposal on how to avoid foreclosure.

From there, the mediator will help both sides to discuss the pros and cons of the proposals, the realistic options, and hopefully reach a resolution that is acceptable to both the homeowner and the lender.

Should I Contact My Lender to Start Foreclosure Mediation?

You can always attempt to contact your lender. However, some people find that working directly with their lenders can be difficult. The lender’s representatives may be slow to respond at times, and some people may not feel that the lender is very helpful in helping them avoid foreclosure.

Do I Need an Attorney If I Want to Try Foreclosure Mediation?

Foreclosure mediation may help to save your home from foreclosure, but it may not prevent it altogether. If you are facing a foreclosure proceeding, talk to a foreclosure attorney. An attorney with experience in this area can help you navigate the different options you have, and hopefully help you keep your property.

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