Annapolis Short Sales/Anne Arundel MD Waterfront Homes/Eastport MD/Historic Annapolis/Condos

Saving Your Homes from Foreclosure

Maryland Specialists 

Forclosure Mediation:  Will it Help? What to Expect

If you have the chance, you'd better grab it!

• Mediation between borrowers and lenders has been mandated by the state of Maryland since July 2010 when a property is docketed for foreclosure provided the borrower requests it in a timely basis and pays the required fee.
• (Docketing is the submission of the necessary paperwork to allow a lender/servicer to schedule the sale at auction of a property in default a minimum of 45 days later).
• Based on my first exposure to mediation, a homeowner facing foreclosure would be well advised to take advantage of this opportunity.

As the listing agent, at the request of a homeowner seeking short sale approval, I attended my first mediation recently at our county court house. I have to confess to having very low expectations; I was pleasantly surprised.

• In attendance were the borrower and his attorney and me as well as an attorney from the Trustee's office who was there, he stated, representing the investor (the actual owner of the note-that is the party the earns the income from the mortgage or takes the loss in a foreclosure or short sale).
• I found it interesting that the Trustee indicated he was representing the investor, since in my experience the Trustees always appeared to take their marching orders from the loan servicers and I had believed that they received their business directly from the loan servicers.
• The proceedings were overseen by an Administrative Law Judge (ALJ).
• The Mediation is considered confidential so I can't disclose any of the players, but I can describe in general what took place.
• The ALJ spent a few minutes gathering some facts: Where was the property in the foreclosure process? Had a short sale package been submitted? Was there an attempt to modify the loan? What did I think (!!!) was the purpose and benefit to doing the short sale? Who was the investor? Had the borrower offered any plan to pay back any portion of the impending loss to the investor?
• After the information gathering was complete, as previously arranged, the trustee got the loan servicer on a speaker phone.
• Right off the bat, the loan servicer and the Trustee provided information that loan servicers reflexively refuse to provide: the name of the investor and the name of and fact that the loan servicer's representative was actually a contractor to the loan servicer charged with handling short sales for the servicer.
• As is frequently the case in dealing with loan servicers, the contractor stated that they had not received the short sale package, not withstanding that we had submitted it the prior week and could document the submission.
• After insistence from the ALJ that the contractor check with whom ever should have been handling the file, it was disclosed that the person responsible for handling this file for the servicer was no longer with the company. Surprise!
• We agreed to resubmit the file by email directly to the contractor.
• Since the property had been docketed, as noted above, with proper advertising, the trustee can sell the property on the courthouse steps 45 days later.
• The contractor in response to questioning by the ALJ said they would respond to the short sale submittal within 30 days but would not stop the clock on the foreclosure sale while this was going on. This could have resulted in the sale of the property prior to the necessary information being gathered to even make a decision on the short sale package.
• The ALJ requested that any foreclosure action be deferred until a decision had been made regarding the short sale offer.
• The contractor became upset at this request. After further discussion including the borrower's attorney asking for additional time after the time frame for a decision on the short sale in the event of a negative outcome, the ALJ pushed the contractor to agree, albeit reluctantly, to 45 days for a decision and no foreclosure action to be taken during that 45 day period.
• Clearly, the contractor was not happy about this.
• This, in my opinion was a victory for the Mediation process, the borrower and potentially the investor, too.

It seems to be a little known fact that servicers, depending on the circumstances, stand to make more money foreclosing than approving loan modifications and short sales even though it may be in the best interest of the investor.

• The reason this is a little know fact, in my opinion, is that the loan servicers miss no opportunity to say they would rather work with borrowers than foreclose. And the news media being what it is, accepts these statements and broadcasts this as fact.
• While this is true when a bank servicing a loan also owns the loan (is the investor), it is not necessarily true when the bank is acting as a servicer for the loan due to nature of loan servicing contracts. And most of the loans the banks handle are as a servicer, not as the investor.
• As servicers, banks and servicers in general have no fiduciary duty to the investors, as best I can determine, and therefore can foreclose, denying short sales and loan modifications even though they are in the best interest of the investor, the home owner and the community. Reason: the servicer may make more money foreclosing than approving that loan modification or short sale.
• And I can speak from experience-servicers will foreclose despite the fact the deal is a good deal for the investor. How do I know this? I have had servicers say to me regarding a short sale submittal; "yeah, this is a good offer, but we're going to foreclose anyway."

Beyond that, we have seen short sales denied and the property sold 6 months to a year or more after denial of a short sale for substantially less than the denied short sale contract.

For more detail:  Special Inspector General for TARP's Report