Arizona Foreclosure Mediation Considered

Jul 1, 2012

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Editor’s Notes:

Mediation dropped Nevada foreclosures to much lower levels. That was especially true when the lawmakers put in provisions that made clear that this wasn’t a game. In order to foreclose you had to mediate first. And in order to mediate you had to have a decision maker present. AND if you are saying that the party showing up is a decision maker, you better have proof — which just another way of saying “standing.”

In the article below, it is clear that progress is slow but the proponents of mediation in Arizona are moving forward with a small pilot. Mediation is, after all, what nearly all the distressed homeowners want — a fair chance after some correction for the excesses of inflated appriasals and unaffordable loans foisted on the American public. Most homeowners are actually willing to accept mortgages where the principal due is still higher than the value of the property just so they can stay in the property. It is an unprecedented opportunity for the lender to get out of the mess they are finding themselves with all their REO proeprty subject to title challenges.

But the REAL problem is that strangers to the loan transaction are going to lose money unless the foreclosure goes through. So they are posing as lenders (pretender lenders) and pushing hard on fraudulent foreclosures because that results in a judicial or legal event in which the property was deemed to be in the REMIC pool (even if it wasn’t) and the loss falls on the investors instead of these strangers. These strangers are well known to us — BofA, Citi, JPM, Wells Fargo etc. They are fighting mediation because it threatens to expose the farce — that none of the foreclosures before were real and that the current ones are no more valid, legal or just than the old ones.

Homeowners simply do not owe money to these people posing as foreclosers, and they never did. There is no basis for foreclosure because the money came from investor lenders with whom the borrower never had the opportunity to make a deal because the real facts were withheld from both the investor lenders and the homeowner borrowers. That leaves the banks holding the bag, legally, if the law is applied and that is exactly what should happen. The obligations arising from the funding by pension funds should be settled through mediation and modification. Foreclosures would and should end, and our national nightmare would be over.

Hat tip to DR Blog

Arizona Foreclosure Mediation – Part 1

Last week at the Arizona Bar meeting my colleague Timothy Burr presented a progress report for the Foreclosure Mediation Unit of ASU’s Lodestar Dispute Resolution Program. The program was well attended and has generated some buzz in the legal community. In some sense this was the FMU’s coming out party as we’ve been keeping a low profile because we’re in its pilot program phase. In my mind there’s nothing worse than rolling out a new program and touting it as a big deal before actually doing anything and then watching it die a humiliatingly public death.

Before talking about the program, a little background. Arizona is a state where almost every foreclosure is a non-judicial foreclosure, although judicial foreclosure is an option it is very rarely used. Non-judicial foreclosures tend to be short and sweet (or bittersweet as the case may be) because they are purely contractual as noted in the deed to the property. Here’s a link to the best online primer on trustee’s sales I’ve found, and here’s the shorthand version. If you fall behind in your payments and the creditor decides to go forward with a trustee’s sale, a notice is placed on the house’s door announcing a trustee’s sale will occur 90 days from the posting, and the sale occurs on that day unless there’s a serious problem (like fraud or other similarly egregious claims brought in court) or there’s a last minute agreement between the creditor and debtor(s).

In 2009 I worked with others to create an Arizona Foreclosure Mediation Task force, and after several meetings it was clear that we didn’t have the clout to get anything off the ground so we disbanded. However, in late 2010/early 2011 the state was part of a nationwide settlemen with some of the big banks related to mortgage issues, and the Attorney General’s Office set aside part of those settlement monies for grants to assist with the state’s mortgage crisis. Through this granting source the law school was able to obtain the funds to get foreclosure mediation off the ground. And, once the funds came in we hired Tim to direct and build the program.

Our initial question was – how do we even get into the game? In judicial foreclosure states it’s pretty easy to know how to do this. Other non-judicial foreclosure states such as Nevada, Washington, Oregon, and Hawaii have created statutory schemes requiring mediation before the trustee’s sale. Such legislation has been proposed in Arizona since 2008 or so, but it hasn’t gone anywhere. Thinking that the only sure fire mediation referral source would be a court, I spoke with the Pro-Se Clerk at the Bankruptcy Court and asked if a foreclosure mediation program might benefit the court. To my surprise he happened to be looking into ways to deal with pro-se bankruptcy filers who were filing for bankruptcy simply to hold up trustee’s sales. While bankruptcy can slow down the trustee’s sale process, the creditors typically are allowed to go forward with the sale when the court finds there’s no legal reason to keep it from going forward (again, the handy primer). So far that’s been the vast majority of cases in the bankruptcy court. At the end of last summer we presented a foreclosure mediation proposal to the court. In this meeting the judges talked about the numerous cases where there clearly was a communication problem between the debtor and the mortgage servicers and/or holders, and they liked the idea. So, we entered into an agreement to report back after 25 referrals, at which time the court and the FMU would decide whether we should go forward with another 75 referrals.

My next post will present data about our first 25 referrals, which formed the basis of Tim’s presentation last week. And just so you know, we are going forward with the next 75 referrals.