Mediators trained in foreclosure issues were supposed to be a key element in a solution to help struggling Hawaii homeowners avoid foreclosure through a program state lawmakers created last year via a new law.
The plan, however, had flaws, and to date no one has been able to seek mediation under the law enacted eight months ago.
But two initiatives being advanced outside the Legislature could help accomplish the goal of resolving significant numbers of foreclosures through mediation in Hawaii.
The initiatives also stand to ease a swelling caseload of foreclosures in state court, which was generated by adverse reaction to the new law and threatens to bog down the judicial system.
“I’m real hopeful,” said George Zweibel, a former legal aid consumer lawyer now representing borrowers in foreclosure. “If (mediation) gets adopted it’ll do real good.”
Mediation by a trained neutral third party is viewed as a less divisive way to resolve the problem of foreclosure in many cases. It is also less expensive and time-consuming compared with foreclosure litigation, and gives borrowers more involvement in an outcome compared with Hawaii’s out-of-court foreclosure process, which critics say steamrolls homeowners.
Results of mediation can include loan modifications that allow borrowers to remain in their homes, but also agreements for lenders to sell a home for less than a borrower owes or take back a home in lieu of foreclosure.
Of the two attempts to establish statewide foreclosure mediation programs, one is being crafted by the Hawaii Access to Justice Commission, a group primarily comprising judges, attorneys and nonprofit legal service providers. A committee is drafting a proposal that could promote or require mediation for foreclosures filed in court.
It’s possible the setup could be based on the existing but idle program created by the troubled law and administered by the state Department of Commerce and Consumer Affairs. The DCCA program allows borrowers who reside in a home under foreclosure to initiate mediation with a lender’s representative holding decision-making authority.
Or the setup could be modeled more on a roughly 2-year-old pilot program on Hawaii island that allows owner-occupants to request mediation but lets judges decide whether mediation is appropriate.
Both the DCCA and Hawaii island programs involve fees for borrowers and lenders to participate.
Daniel Foley, commission chairman and an Intermediate Court of Appeals associate judge, said the committee is pursuing a foreclosure mediation program to address the spike in judicial foreclosures triggered by the law, Act 48.
“I think something will come from it,” he said of the effort.
Foley anticipates the committee will present a detailed proposal to the full commission in the next month or two. If adopted, the plan would need approval by the chief justice of the Hawaii Supreme Court for implementation.
A separate initiative is being proposed by The Mediation Center of the Pacific, which was involved in recruiting and training people with knowledge in real estate and finance issues to be mediators for the DCCA program.
Tracy Wiltgen, the center’s executive director, said 26 mediators are ready to work but have no cases because of the trouble with Act 48. So Wiltgen recently informed the Judiciary that the pool of mediators will handle cases if judges want to order mediation under their discretion.
“We’re in a situation now where we can start offering it,” she said. “We have the capacity. There is a need. We are expecting to get referrals soon.”
The two initiatives, if they succeed, could achieve a main goal of Act 48 and provide an overloaded court system with relief without altering the law.
Act 48 overhauled rules for nonjudicial, or out-of-court, foreclosures — the way lenders handled the vast majority of foreclosures in Hawaii because it was quicker and cheaper than going through court.
Under the law, qualified owner-occupants of homes can elect to have a dispute resolution professional assist with foreclosure mitigation in front of a lender representative before a foreclosure sale can proceed.
The mediation was supposed to curb what consumer advocates said were lender abuses, while allowing foreclosures to proceed in cases where homeowners had no realistic prospect of paying their mortgage.
But lenders balked at a provision that could render a nonjudicial foreclosure sale void if they violated even the most trivial part of the 101-page law. So lenders switched to filing nearly all foreclosures in court after the law took effect in May.
The number of judicial foreclosure cases between June and November exceeded the number filed in all of 2010 — 1,756 compared with 1,331. Figures for last month aren’t available yet.
Lender attorneys expect the volume of judicial foreclosures to grow, which could lead to a backlog at the Judiciary.
The Legislature is expected to make an effort to amend the law this year. But a fix may be challenging, given that lenders oppose any harsh penalties for violating various provisions of Act 48, while consumer advocates want to hold lenders accountable for following the law.
A couple of issues that may influence the usefulness of any judicial foreclosure mediation program are who decides to engage a mediator and how the program is managed.
For instance, when Hawaii island’s pilot project began in November 2009, attorneys for lenders were instructed to provide homeowners with information about the mediation program, but they didn’t in about half of all cases, according to a November 2010 report by the chief judge and court administrator of the Third Circuit.
In addition, judges determined whether mediation was appropriate, and the lender’s representative didn’t always appear in person or have the power to make decisions.
The overall result was that mediations were ordered in 10 of 200 cases during the program’s first year, and only one foreclosure case was dismissed after reaching an agreement. Two mediated cases ended in foreclosure, and the rest were unresolved.
The pilot project was modified and extended, and now prevents filing a foreclosure case unless notice about the mediation option is included. Third Circuit officials did not provide results of the program last year. The program is scheduled to end March 31.
By comparison, a mediation program in Nevada claims to have allowed homeowners to keep their homes in 29 percent of foreclosure mediation cases between September 2009 and June 2011.
A foreclosure mediation in Connecticut reported keeping 65 percent of homeowners in their homes,
and settlements for another 15 percent that involved a homeowner losing their home but avoiding foreclosure.
Given the existence of other programs that have shown positive results, there is a general hope that Hawaii can ultimately launch a mediation program that achieves significant success that benefits borrowers and lenders.
