June 2012Volume 100Number 6Page 296

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Real Estate Law

Housing Crisis Intervention: Foreclosure Mediation in Illinois

Foreclosure mediation helps homeowners find relief – or at least closure – in an often forbidding legal process. It also relieves pressure on an overwhelmed court system. But programs vary from county to county. Here’s a look at what’s underway.

In mortgage foreclosure mediation, at least two outcomes represent success: the lender agrees to modify the loan so a family can stay in the home, or the defendant-borrower agrees to give up the home in exchange for the lender releasing the borrower from further liability.

But Lisle attorney Steven B. Bashaw, who currently defends homeowners in foreclosure cases after spending 25 years representing banks, says there is a third kind of success, harder to quantify but no less important: “Defendants who are successful in understanding the system and are fairly dealt with in the system — defendants who get due process,” Bashaw said.

Bashaw, a stalwart of the ISBA’s Real Estate Law Section Council, has participated in 10 mortgage foreclosure mediations in Cook County and six in Will County on behalf of homeowner-borrower clients. Importantly, he said, foreclosure mediation puts the borrower in direct communication with the lender.

“What the mediation program does is force somebody with some authority and some intelligence [from the lender’s side] to at least come to the phone, if not the mediation, and take a hard look,” Bashaw said. “I think the mediation works because it gets vice presidents [involved], and I think that’s a good thing. From the other side, it takes people through a process. And whether they get a loan modification or not, it’s not just a roll of the dice.”

“Most people who go through foreclosure can’t afford a lawyer and don’t understand the system. They come into the courtroom, they’re embarrassed and don’t know what’s happening to them,” Bashaw said.

“I try to give them an understanding of what’s happening. If you understand it, you [thereby] come out in the end with a silver lining….I see these court systems as providing the framework for that.” (See sidebar for more about Bashaw’s role in helping one client.)

“[T]he crisis in the courts is very real”

Mortgage foreclosure mediation, which is underway in many states around the country, first appeared several years ago when the housing crisis began to escalate.

“[T]his crisis is affecting personal tragedy in many families’ lives when they lose their home,” Illinois Supreme Court Justice Mary Jane Theis said at an ISBA CLE presentation in February (see sidebar). “Another aspect of this is the crisis in the courtroom.”

In Cook County Circuit Court, where 11 judges are assigned to hear mortgage foreclosure cases from a section in the Chancery Division devoted solely to those types of actions, an “astronomical” 78,000 mortgage foreclosure cases were pending in February, Theis said.

“Certainly, the tragedy of both the families and our national economic health perhaps outweighs the crisis in the courts,” Theis said. “But the crisis in the courts is very real.” Foreclosure mediation, Theis said, can relieve some of the pressure.

For pro se litigants, having the opportunity of “sitting down with someone who can direct them through the process is a really important piece,” Theis said, “[not only for] our neighbors who are losing their homes, but also in terms of the integrity of the court.”

Mediation is also upstream protection for a court system flooded with foreclosure cases, Theis said. “It’s a diversion program, in a sense, of cases to settlement so that not all 78,000 cases are going to be ending up in our courts,” Theis said.

At Theis’ suggestion, the Illinois Supreme Court in April 2011 formed a special committee to formulate proposals aimed at helping those facing the loss of their homes and improving the judicial process in mortgage foreclosures throughout Illinois. In addition to identifying best practices for mediation programs, the committee is looking at rules for mortgage foreclosure cases that could be adopted by the supreme court to improve management of cases around the state.

No matter which party to a foreclosure you represent, you need to familiarize yourself with mediation. But how does it work in practice?

That depends to some extent on where your case is filed. In addition to Cook County, court-annexed mortgage foreclosure mediation programs in Illinois have been established in some iteration in Will, Peoria, Madison/Bond, and McLean Counties.

Here’s a look at them, starting with the smaller downstate programs and working up to the huge Cook County program. All are available at no cost to defendant-borrowers.

Will, Peoria, Madison/Bond, and McLean County programs

The Illinois Supreme Court has approved mediation in the counties of Will in the 12th Judicial Circuit, Peoria in the 10th Judicial Circuit, Madison and Bond in the 3rd Circuit, and, more recently, McLean in the 11th Circuit.

Unlike Cook County’s mediation program, which is financed largely by county funds, the plaintiff in every filed residential foreclosure in Will, Peoria, and McLean counties pays an additional filing fee to help fund mediation programs there. There is no such fee in the Madison/Bond program.

Will and Peoria. The Will County program, launched in August 2010, and the Peoria County program, which began in June 2011, are essentially identical.

Any complaint filed for residential foreclosure in Peoria and Will counties is automatically scheduled for a mandatory pre-mediation conference within 60 days. Along with the summons, defendant-borrowers get a notice that informs them of the mediation program and advises them to gather certain financial information.

At the pre-mediation screening, a mediation coordinator determines whether the borrower meets initial criteria for a loan modification or workout – e.g., his or her monthly income must exceed expenses.

“Sometimes the numbers are not going to be there, sometimes the borrower has chosen to walk away from the property and they never show up,” said Kurt Sangmeister, Will County court administrator. “In an ideal world, they get their paperwork in, the lender has some basis to work on, and the mediator is then able to facilitate a settlement agreeable to both parties.”

If the borrower meets initial criteria for a loan modification or wishes to give up the property in a consent foreclosure or other arrangement, a full mediation conference before a mediator is scheduled.

“The goal, where possible, is to keep borrowers in their home,” Sangmeister said. “Sometimes borrowers are just paralyzed. They don’t know what to do. Obviously, they’re in over their head — payments are too big, they may be unemployed now because the economy hasn’t been too good. Sometimes the mediator is able to counsel people that maybe it’s a good time to get out, turn over the keys, take the loss on the property and move on with their lives.”

Mediators in Will and Peoria counties, many of whom are attorneys, are paid $150 for each file and prohibited from practice in residential mortgage foreclosure proceedings there. In Will County, Sangmeister said, mediators are supplied by a private firm, Foreclosure Mediation Specialists.

At mediation, a representative of the lender with full settlement authority is required to appear and participate in good faith. Under Illinois Supreme Court rules, failure to attend or to participate in good faith will trigger court sanctions, including possible dismissal of the action. If the borrower fails to appear without an excuse, the mediation is terminated and the matter referred to the trial court.

“Many times, [defendant borrowers] already tried to contact their lender to try to work some refinance out. A lot of times they have trouble getting somebody on the telephone,” Sangmeister said. “The duty of our program is that the case doesn’t proceed for the foreclosure process until that lender actually comes to the full mediation conference and attempts in a good faith fashion to work towards a settlement.”

Officials in Will and Peoria counties said most lenders have been cooperative, making their decision-makers available for the mediation process. “I’m encouraged by that communication line being open,” Chief Peoria County Circuit Judge Michael Brandt said.

“Peoria County experienced a great increase in foreclosure filings as probably the whole nation did,” Brandt said. “This appears to be a viable alternative to the usual court proceedings that frustrated many involved because there were folks from time to time who wanted to renegotiate and weren’t able to get a hold of the people they needed….”

Madison/Bond. In Madison and Bond counties, defendant-borrowers opt in to mediation by completing a request for mediation and a financial questionnaire attached to their court notice. From there, program administrator Linda Jun reviews the information and notifies the lender and borrower whether the case qualifies for mediation.

In screening cases for eligibility, Jun said she checks to see if the defendant-borrower lives in the property in question and uses a formula designed to determine whether the homeowner can make a reasonable monthly mortgage payment.

Eligible defendant-borrowers meet in a pre-mediation conference with the program administrator and the lender’s attorney to prepare for mediation, Jun said. But the vast majority of the cases are resolved before mediation. Trained pro bono attorneys and volunteer mediators conduct the full mediations.

Since the program started in June 2011 and through the end of March, about 80 percent of homeowners who applied to participate in the mediation program have been accepted, and 36 of them have kept their homes or renegotiated financing, Jun said.

Kevin Stine, a shareholder of Mathis, Marifian & Richter, Ltd. in Belleville who represents regional banks and serves on the Illinois Supreme Court Mortgage Foreclosure Committee, said he likes the voluntary nature of the Madison County program, where there were more than 1,100 foreclosure filings last year.

“If a homeowner opts in, then I think they’re trying to help themselves,” Stine said. “That’s what you need. You want a homeowner who’s going to be proactive and try to find a way to resolve this.

“It’s stressful going through litigation, and it’s probably more stressful to the homeowner than the bank.”

McLean County. McLean County Circuit Court is among the latest courts to embrace foreclosure mediation. Launched on March 1, the program incorporates students from the University of Illinois College of Law’s Community Preservation Clinic as pro bono 711 lawyers who help represent the interests of the homeowners.

All foreclosure actions filed in McLean County are subject to a new filing fee to fund the program, and lenders are required to serve a special summons on homeowners informing them of their right to participate. For more about the McLean County program, see Adam W. Lasker’s LawPulse item, “Foreclosure mediation programs finding homes throughout the state,” in the April 2012 IBJ.

Cook County

The Cook County Circuit Court’s Mortgage Foreclosure Mediation Program was launched in April 2010 with $3.5 million in funding from the Cook County Board. The opt-in program was created by the circuit court through a collaborative effort with leaders in the mortgage foreclosure field.

The program features three main components: Community outreach, housing counseling, and legal aid.

When a bank or other mortgage lender files a foreclosure complaint in Cook County, the homeowner who gets a foreclosure summons from the court and lives in the home in question can first call a toll-free help line operated by the Illinois Housing Development Authority to schedule a free meeting with a housing counselor. Housing counseling is followed by a free consultation with an attorney from Chicago Legal Clinic. Defendant-borrowers can also seek help at an advice desk run by the Chicago Legal Clinic in the courthouse in Chicago’s Daley Center.

The defendant-borrower can then present a motion for referral to mortgage foreclosure mediation, and a judge decides whether the motion to refer the case should be allowed.

Cook County Circuit Judge Moshe Jacobius, presiding judge of the Chancery Division, said the judge looks to determine whether the case is “susceptible to successful mediation.”

“One of the factors the court might consider would be whether or not the borrower is employed, or whether they have sufficient funds to continue to pay the mortgage even with a modification,” Jacobius said. “That’s the most important factor.”

Another important factor that can come into play when deciding whether to grant a motion to refer a foreclosure case to mediation is whether the defendant-borrower wants to continue to reside in the home.

“Sometimes they’re willing to have a graceful exit, which would include: keys for cash, or a short sale, or a deed in lieu of a foreclosure,” Jacobius said. “Those might be able to be resolved outside of mediation.”

Pro bono assistance. After the judge enters an order referring a case to mediation, The Center for Conflict Resolution, a Chicago-based nonprofit that offers mediation services, assigns a mediator and schedules the negotiating session.

If a borrower does not have a private attorney, a pro bono lawyer from Chicago Volunteer Legal Services is appointed to represent the borrower during the mediation. That attorney works with the borrower and communicates with the bank on the borrower’s behalf to try to reach a settlement agreement in the foreclosure.

A 47 percent success rate. Cook County’s mediation program by the end of March touted a 47 percent success rate. That means that of the 2,754 cases that completed mediation since the program’s inception two years ago, one out of every two borrowers (1,304 people) reached some sort of an agreement with the bank, according to statistics recently compiled by the court-annexed program.

In that time, about one out of every three borrowers (1,032 people) walked away from mediation with a permanent loan modification that saved the home.

“The Cook County mediation program…has never been touted as a save-your-home program,” case management coordinator Carina M. Segalini said during the ISBA program in February. “Obviously, one of the goals of it is to save a home whenever possible. But we wanted a program where defendants have an equal chance to understand the foreclosure process, get the help they need from the resources that they need, and understand why they’re losing their home, all without detriment to the plaintiff’s side. We want to keep it fair and equal.”

Reducing the backlog. Segalini said the mediation program has evolved in the last couple of years and is now shifting toward a heavier emphasis on in-court pre-mediation screening “so that only those cases right for mediation, [cases that] have an issue to sit down and talk about, are going to mediation,” Segalini said.

One change toward that end was the hiring earlier this year of nine new employees working as case managers with judges in court to help manage and screen cases for mediation and improve efficiency.

“To the extent you can identify cases that may be more successful, it might be helpful to triage cases and first focus on [those] that appear more promising…,” Jacobius said.

Jacobius said the hiring of case managers and other changes are part of an effort to lower the number of homeowners waiting for mediation. The backlog is largely due to the high volume of foreclosure cases, limited numbers of mediators and volunteer attorneys, and delays in the exchange of documents by the parties.

The wait is substantial. A report issued last year by the court indicates that the mediation process itself, governed by Local Rule 21, takes 12 weeks. But if the clock starts at the beginning – when the order referring the case to mediation is entered – it may take longer than six months to complete the process, the report indicates. And of the 3,772 cases referred to mediation since the program started two years ago, 2,754 were completed through the end of March.

“I think the program is very effective, and it has been a tremendous benefit to homeowners,” Jacobius said. “But I believe a stronger effort to deal with the backlog will substantially enhance the program.” ■

Maria Kantzavelos <mkantz@comcast.net> is a Chicago-based freelance writer focusing on legal topics.

Find out more and earn CLE credit

For more about foreclosure mediation and a range of foreclosure related topics, including how to interview clients facing foreclosure and how to apply for a loan modification, view the FastCLE program “Navigating the Foreclosure Maze,” which was recorded February in Chicago. To find it, go to http://isba.fastcle.com, and search for the program by title under the “real estate” subject heading, or go directly to http://isba.fastcle.com/store/seminar/seminar.php?seminar=10933.

“[S]he’s savvy and disciplined now”

How mediation helped one homeowner even though she didn’t get the loan modification she sought.

A single mother came to Lisle attorney Steven B. Bashaw after trying several times for a loan modification from a major bank, which repeatedly rejected her requests. Bashaw said he crunched the numbers — factoring in 31 percent of the client’s gross income — and determined that the woman should have been deemed qualified for a loan modification, so he filed a motion to bring the case to mediation.

After a third negotiation session, the lender offered a loan modification. But when Bashaw and his client analyzed its terms, “She came out with a monthly payment that she could barely afford, only if she denied herself every luxury,” Bashaw said. “Most importantly, she lived in a condominium complex and she could rent a very similar, if not the same, unit for about $500 a month less.

“When she came to the fact that there was no equity and no utility to it, and that she would be completely strapping herself to do this, she rejected the loan modification, and the case is back on the trial call.”

Even so, Bashaw said he characterizes the mediation outcome as a success because his client through that process became reconciled.

“She feels like she had an opportunity to be heard and to hear what the mortgage company said, and she feels like she was treated with some dignity and respect,” Bashaw said. “At the end, she understood and she accepted it, and she can learn from it and move on.”

Bashaw said his client will now proceed through the foreclosure process in court, and will likely be allowed to continue living in the home for about one year until the process is completed. However, having been through mediation, Bashaw said, “I think she’s savvy and disciplined now. She’ll get herself in a situation, financially, so that she can restart her life. During that time, she’ll eventually recover because she understands now.”

– Maria Kantzavelos

Supreme court hearing seeks input on foreclosure mediation

In a public hearing scheduled for June 8, the Illinois Supreme Court Mortgage Foreclosure Committee will seek input on what elements of foreclosure mediation programs should be recommended for use statewide. The committee will also review recommendations for improving the loss mitigation process for mortgage foreclosure proceedings in the state.

The public hearing in Chicago is to begin at 9:30 a.m. at 160 N. LaSalle St., Room C-500.

The 14-member committee is composed of judges, bankers, lawyers, a law professor, and an official from the Illinois Attorney General’s office. The group formed subcommittees, including a Practice and Procedures Subcommittee and a Loss Mitigation and Mediation Subcommittee.

Members have been charged with the task of investigating the procedures currently used throughout Illinois in mortgage foreclosure proceedings; studying relevant supreme court rules and local rules that directly or indirectly affect such proceedings; analyzing procedures adopted in other states in response to the unprecedented number of foreclosure filings nationwide; reviewing legislative proposals pending in the Illinois General Assembly that may impact the present statutory scheme for mortgage foreclosures; and ultimately recommending to the supreme court mortgage foreclosure rules for statewide.

A public hearing held in April focused on potential changes to mortgage foreclosure rules in Illinois.

For more information, including proposed recommendations under review, visit http://www.state.il.us/court/SupremeCourt/Public_Hearings/Mortgage_Foreclosure/Practice_Procedures/default.asp.

– Maria Kantzavelos

Foreclosure mediation not “a panacea”

Courts have long seen successful mediation programs in other areas of law, particularly family and tort, but ISBA Real Estate Section Council member Erica Crohn Minchella has some reservations about mediation as helpful in the mortgage foreclosure context.

“In a divorce proceeding, the parties are on a little bit more equal footing than they are in the foreclosure process,” Minchella said.

Minchella has been through the foreclosure mediation program in Cook County on behalf of defendant-borrowers. While it’s “better than nothing,” she said, she is “disappointed in the program, and it’s because the balance in the mediation isn’t level footing. It’s the same begging and pleading the defendant has been doing before the mediation.”

The program could use some tweaking — and some teeth, she said.

“There needs to be some teeth when lenders are not showing any signs of giving the homeowner a modification that they fully qualify for and they’re just stonewalling instead. [Teeth] for the mediator to say: Stop stalling,” Minchella said. [The mediators are] there to make sure the sides are talking to each other —that’s about it.

“I’ve talked to mediators and they, too, feel that what is going on with the program is that it’s got no teeth,” she said.

“The bank proceeds on exactly the same terms it did previously. The mediators can’t say to the bank: ‘They’ve provided every document you asked for. What’s the problem here?’” Minchella said. “If the mediators are actually able to help get to a solution, that’s fine. I just haven’t seen that the mediators have anything they can do, other than make both sides talk to each other.”

Minchella’s misgivings about mediation are in large part attributable to her belief that loan modifications simply delay the inevitable in most cases.

“Modification is just a reduction of the payment amount. It’s an interest adjustment, and it extends the payment over a longer period of time,” Minchella said. “It will take so many years before you will ever be able to see any equity in the property. Unless you can see a principal reduction, then all you’re doing is renting from the bank.”

Even so, mediation is an option worth considering for the client who has been trying unsuccessfully to work out a modification on his own and then comes to her for help, Minchella said. For example, she said, mediation can be the right move for a client like the woman in her late 60s or early 70s who came to her for help with a modification. “She’s never going to pay off that loan anyway. Why not keep her in that house?” Minchella said.

Minchella offered some advice for attorneys considering mediation in a foreclosure case.

“They shouldn’t go into them thinking that they’re a panacea. And they need to make sure they understand the program they’re trying to go through so they’re representing their client properly,” Minchella said.

In foreclosure mediation, there can be successful outcomes other than a loan modification, including arrangements for a homeowner to sign over a deed in lieu of foreclosure, a consent foreclosure, or a short sale.

“You have to know what the end game is when you start the case — what you’re trying to do for the client,” Minchella said. “As long as you can get to that end game, then you’ve succeeded for the client.”

– Maria Kantzavelos

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