STATE AND LOCAL FORECLOSURE MEDIATION PROGRAMS€¦ · they perform a loan modiﬁcation review before a foreclosure sale. HAMP and similar government sponsored initiatives impose

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STATE AND LOCAL FORECLOSURE

MEDIATION PROGRAMS

Can They Save Homes?

September 2009

NATIONAL CONSUMER LAW

CENTER®

State and Local Foreclosure Mediation Programs: Can They Save Homes?

Written By Geoffry Walsh Staff Attorney National Consumer Law Center

ACKNOWLEDGMENTS

The author would like t o thank Caro lyn Carter, Margot Saun ders, a nd John Rao and Arielle Cohen of NCLC for valua ble guidance, feedback, and editorial assistance in the preparation of this report. Particular thanks to Juala Smythe, James Kwok, and Rick Jurgens for research and to Julie Gallagher for graphic design. This report was funded in part by the Open Society Institute. We thank them for their support but acknowledge that the findings and conclusions presented in the r eport are those of the authors alone and do not necessarily reflect the opinions of the Institute.

ABOUT THE AUTHOR

Geoff Walsh has been a legal services attorney for over twenty-five years and is presently a staff attorney with National Consumer Law Center in Bo ston. Before that, he worked with the housing and consumer units of Community Legal Services in Philadelphia and was a staff attorney with Vermont Legal Aid. His practice has fo cused upon housing, foreclosure, and bankruptc y issues. He has served as a panelist and instructor at trainings and legal education seminars on foreclosure prevention and bankru ptcy to pics. He is co-author of NCLC’s recent report, Foreclosing a Dream: State Laws Deprive Homeowners of Basic Protections (2009) an d w rites for NCLC’s legal practice manuals, including Foreclosures, Foreclosure Prevention Counseling, Student Loan Law and Consumer Bankruptcy Law and Practice.

Executive Summary vThe Promise of Foreclosure Mediation Programs vSeparating Facts from Fiction vRecommendations for Improving Foreclosure Mediation Programs viForeclosure Mediations Are Not a Substitute for Effective Federal Legislation to Require Loan Modifications vii

Introduction 1Variation in Foreclosure Mediation Programs and Authority to Set Them Up 1The Goals of Foreclosure Mediation and How They Are Being Achieved 3

Other Federal Loan Modification Efforts 6Preserving Servicer Control at the Federal Level 6Incentives and Standards for Modification—the Making Home Affordable Modification Program (HAMP) 7Foreclosure Mediation Programs Have the Potential to Enable the Making Home Affordable Modification Program to Succeed 10

Bringing Standards to Foreclosure Mediation—Successes and Failures in Recent State Legislation 11

Evaluation and Recommendations for Improving Foreclosure Mediation Programs 12

Views from Advocates 12The Existing Foreclosure Mediation Programs Lack Standards for Servicer Accountability 13Recommendations: Five Necessary Servicer Obligations 14Recommendations: Enforcing Compliance With Servicer Obligations 20Recommendations: Improving Homeowner Participation and Procedural Aspects of Programs 24

Conclusion 29

Appendix: Constitutional Issues Related to State Foreclosure Mediation Laws 31

TABLE OF CONTENTS

The Promise of Foreclosure Mediation ProgramsIn the ongoing struggle to control the ravages ofthe foreclosure crisis, mediation programs haveemerged as an increasingly attractive option.Many consumer advocates and communitygroups have supported the implementation offoreclosure mediation programs and continue todo so. In a little over a year, from mid-2008 tomid-2009, more than 25 distinct foreclosure me-diation programs were launched in fourteen dif-ferent states. State legislatures, state supremecourts, and local courts all played roles in creat-ing these programs.

Foreclosure mediations hold out the hope ofremoving major obstacles that have hindered ef-forts to slow the spread of the foreclosure epi-demic. In particular, the securitization ofmortgage debt has erected significant barriers be-tween homeowners and the owners of their mort-gages. When homeowners want to negotiate overa loan modification or other alternative to fore-closure, they often cannot find a person author-ized to negotiate with them. With homeownerscut off from effective negotiations, foreclosuresmove ahead and losses to investors mount witheach completed foreclosure. Today, the rate atwhich loans are being modified remains ex-tremely low in relation to the high numbers ofongoing foreclosures

Separating Facts from FictionIn preparing this report we interviewed legal ser -vices attorneys, court officials, and other advo-cates who have been working directly with the 25foreclosure mediation programs we considered.

Our review raised concerns about the kind of ex-pectations that these programs may be encourag-ing. For example, there is as yet no data toconfirm that foreclosure mediation programsanywhere have led to a substantial number of af-fordable and sustainable loan modifications.Such data would be very helpful in building sup-port for more mediation programs. However,thus far this information is uniformly lacking.

Foreclosure mediation programs have the po-tential to play an important role in preventingneedless loss of homes. However, we found thatthe existing programs routinely fail to imposesignificant obligations on mortgage servicers.Without the imposition of these obligations, it isunlikely that mediations will lead to fewer fore-closures. The programs we considered often lackmandatory rules and fail to impose sanctions fornon compliance with what minimal rules exist.The programs do not require servicers to provideinformation substantiating a right to foreclose.They do not mandate analyses of loan modifica-tion alternatives. Many set unreasonable proce-dural barriers that restrict large numbers ofhomeowners from participating.

Ultimately, under most of the existing foreclo-sure mediation programs servicer discretion pre-vails. If the programs continue to demand littleor no accountability from servicers, they willlikely go the way of other efforts to control fore-closures that relied on voluntary compliance bythe lending industry. They will become anotherpiece of imagery the industry uses to support itsclaims that voluntary efforts work, that statutoryand other government mandates for loan modifi-cations are unnecessary, and that jargon aboutthe benefits of communication can solve theforeclosure crisis.

v

EXECUTIVE SUMMARY

Servicer Discretion in ForeclosureMediation and Other Efforts to ControlForeclosures through Voluntary Efforts by ServicersThe popularity of foreclosure mediation pro-grams is built upon some major assumptions.The arguments in support of the programs tendto portray the lack of movement on loan modifi-cations primarily as a “communication” prob-lem. The assumption seems to be that servicerswant to modify loans, they want to make pay-ment terms more affordable for homeowners,and they want to avoid foreclosures on a largescale. According to this view, the problem hasbeen that homeowners simply have not been ableto find the right people to talk with and the rightsetting for a talk.

While homeowners have definitely encoun-tered barriers in trying to communicate withtheir mortgage holders, these barriers haveclearly not been the only impediment to moreloan modifications. To begin with, there is theundeniable track record of the lending industryover the past two years. Since the beginning ofthe foreclosure crisis the industry has tried sys-tematically to defeat and evade every enforceableobligation related to implementation of loanmodifications that anyone has attempted to im-pose upon it. The industry has consistently foughtto preserve servicers’ discretion to refuse loanmodifications whenever they wished to do so.

Foreclosure mediation programs must beviewed in the context of other federal and stateactions that were intended to encourage afford-able loan modifications. Early initiatives at thefederal level stressed cooperative efforts amongservicers and federal agencies. These programsinvariably allowed servicers to exercise completediscretion in deciding whether to modify a par-ticular loan. As a result, very few loans were mod-ified under these programs. At the same time, theindustry opposed efforts to make loan modifica-tions mandatory. Earlier this year the mortgagelending industry succeeded in a well-financedcampaign to defeat legislation that would have

required loan modifications in bankruptcy with-out servicers’ consent.

With the industry’s encouragement, crucial el-ements of accountability have been omitted fromthe Treasury Department’s Home AffordableModification Program (“HAMP”). Now, over sixmonths after its inception, this new federal ini-tiative serves only a small percentage of eligiblehomeowners. At the state level the lending andservicing industries have opposed efforts tostrengthen mediation programs by requiringthat servicers document their loan modificationcalculations.

Today most servicers operate under a duty tocomply with federal guidelines requiring thatthey perform a loan modification review before aforeclosure sale. HAMP and similar governmentsponsored initiatives impose loan modificationobligations upon servicers responsible for morethan 80% of all home loans. Mediation programscan play a vital role in ensuring that servicers com-ply with these federal obligations. The data re-leased so far on servicers’ compliance with HAMPguidelines reveals a pressing need for more over-sight. Mediation programs should play an impor-tant role in this review. However, as most fore-closure mediation programs are structured today,few are capable of performing this role. Substantialchanges are needed before they will be effective.

Recommendations for ImprovingForeclosure Mediation ProgramsImposing Necessary Servicer ObligationsCourt-supervised mediation programs will bene-fit homeowners only if they impose meaningfulobligations on servicers. This report reviews anumber of these obligations and recommendsthat programs impose the following require-ments on all servicers:

1. Require that the servicer give the homeowner adocument showing its affordable loan modi-fication calculation and net present value calculation.

vi STATE AND LOCAL FORECLOSURE MEDIATION PROGRAMS

2. Require that the servicer produce specifieddocuments, such as a pooling and servicingagreement, loan origination documents, anappraisal, and loan payment history.

3. Require that servicers comply with all media-tion obligations in good faith—negotiate ingood faith and be subject to sanctions for thefailure to do so.

4. Require that servicers establish proof of themortgage holder’s standing and status as thereal party in interest.

5. Require that the servicer document that it hasconsidered specific alternatives to fore-closure, such as loan modifications, applica-tions for state and federal financial assis-tance programs, workout agreements, shortsales, etc.

Enforcing Servicer ObligationsIn addition, programs should document and en-force compliance with these obligations by:

1. Not permitting a judicial or non-judicial fore-closure to proceed unless a mediator or courthas certified the servicer’s compliance with thefive basic requirements set forth above;

2. Requiring documentation of all outcomes, in-cluding the nature of loan modifications ar-rived at through mediation.

Increasing Homeowner Participationand Improving the ProcessAssuming that there are meaningful servicer ob-ligations in place, then it becomes appropriate toconsider how to structure a program so that itwill bring in as many homeowners as possible.The final part of this report reviews proceduraland structural options for increasing participationin programs. The report recommends several de-vices that can lead to effective participation bythe greatest number of homeowners. These rec-ommendations include:

1. Establish procedures for automatic participa-tion by homeowners subject to foreclosureproceedings;

2. If participation is not automatic, allow re-quests for mediation to be made up to thetime of a foreclosure sale;

3. Stay all foreclosure proceedings until a media-tor or court determines that the servicer hascomplied in good faith with all participationobligations;

4. Provide for direct court supervision over theenforcement of servicer obligations to medi-ate, including the imposition of sanctionswhen necessary. Sanctions must include dis-missal of judicial foreclosure actions and or-ders barring non-judicial proceedings;

5. Provide funding for outreach, housing coun-selors, and qualified counsel for homeowners;

6. Prohibit the servicer from shifting to thehomeowner its attorney’s fees or other costs ofparticipating in the mediation process;

7. Require junior lienholders to be notified ofand allowed to participate in mediations.

State AuthorityStates clearly have the authority to impose theservicer obligations and procedural requirementsoutlined above. Implementing a program withthese features is well within the scope of thestates’ police power, particularly during a periodof economic crisis. Based on this report’s analysisof constitutional issues, it is apparent that thestates have been vastly under-using their author-ity to act in this area.

Foreclosure Mediations Are Not a Substitute for Effective FederalLegislation to Require LoanModificationsFinally we conclude that it would be a mistake topass up any opportunity to regulate servicers and

STATE AND LOCAL FORECLOSURE MEDIATION PROGRAMS vii

lenders at the federal level based on a belief thatstates will somehow deal effectively with theproblem of servicers’ who fail to implement sus-tainable loan modifications. This is particularlytrue with respect to ensuring that servicers complywith their obligations under HAMP and similarfederal programs. Congress and federal agencieshave the primary responsibility for creating andenforcing strong standards for these federal pro-grams. Servicers have already demonstrated theirability to exert substantial control over state

mediation programs. At best, well structuredstate mediation programs can play a limited roleas a check on servicers’ compliance with federalstandards. However, if there are no mandatoryfederal standards requiring truly affordable loanmodifications, it is unlikely that state and localgovernments will create effective enforcementtools. Federal policy makers should not look tostates, and particularly to state and local media-tion programs, as a substitute for strong federalmandates.

viii STATE AND LOCAL FORECLOSURE MEDIATION PROGRAMS

Introduction

As the foreclosure crisis deepened over the pasteighteen months and counter measures at thefederal level proved ineffective, state and localgovernments struggled to come up with re-sponses of their own. Many advocates for home-owners urged the adoption of foreclosuremediation programs as reforms that could be im-plemented promptly, often with considerablecommunity support. As a result of these effortsthere are now at least 25 foreclosure mediationprograms in operation in fourteen states aroundthe country. Programs requiring mediations orconferences before foreclosure sales are under-way in several states with the most severe levels offoreclosure, including California, Florida, Ne-vada, Michigan, and Ohio.

Foreclosure mediation programs are still a rel-atively new phenomenon. The oldest programshave been in effect for just over one year. Mean-while, the implementation of new programs hasbeen accelerating. During the month of July 2009alone, new statewide foreclosure mediation pro-grams began to operate in five states. At the locallevel during the same month new programs wentinto effect in states ranging from Pennsylvania toNew Mexico.

Variation in Foreclosure MediationPrograms and Authority to Set Them UpForeclosure mediation programs have come inmany forms. They have appeared in both judicial

and non-judicial foreclosure states. In some pro-grams courts refer residential foreclosures to thecourt’s existing alternative dispute resolutionsystem where parties follow established media-tion protocols. Other programs provide a specialcourt-supervised settlement conference for partiesto a foreclosure. Some programs do not involveformal mediation or mediators at all. Instead, theymerely direct mortgage servicers to contacthomeowners to discuss settlement options be-fore the servicers proceed with foreclosures.

In states with primarily non judicial foreclo-sures there are invariably judicial foreclosurestatutes still on the books. Although not fre-quently used, these judicial foreclosure statutescan create the basis for a court role in supervisingmediations in non judicial foreclosure states. Forexample, mediation statutes may refer non judi-cial foreclosures to the state judiciary’s alternativedispute resolution system or provide for referral ofdisputes arising during mediation to the courts.Nevada and Michigan are non judicial foreclo-sure states that recently implemented conferenceor mediation legislation that provide for judicialinvolvement under certain circumstances in fore-closures that otherwise would proceed withoutcourt involvement.

Programs Reviewed in this ReportFor purposes of this report we will use the term“mediation” very loosely to mean any programthat requires a mortgage holder or servicer to havesome contact with a homeowner for the purposeof considering alternatives to foreclosure before

1

STATE AND LOCAL FORECLOSURE MEDIATION

PROGRAMS

Can They Save Homes?

September 2009

proceeding to a foreclosure sale. The programsthemselves may use various terms to describethese procedures, including mediation, foreclo-sure diversion, conferences, or simply “meet-ings.” They may or may not require personalappearances by borrowers or lenders in one placeat the same time. Under certain programs a con-ference can take place between a homeowner anda servicer without third party oversight.

We have attempted to review program opera-tions and have conducted personal interviewswith individuals involved in all existing foreclo-sure mediation programs. The 25 state and localprograms we reviewed are listed on pages 4 and 5.An Appendix released simultaneously with thisreport provides a detailed analysis of each of theprograms. We may have omitted some local pro-grams. For example, in Ohio there are a numberof smaller county programs that have adopted

variations on a state model foreclosure media-tion protocol. We have not included all of theOhio counties, focusing instead on four countieswith well established programs. We also do notinclude programs in which the servicer’s partici-pation is voluntary. Thus, we do not include pro-grams in which both the servicer and thehomeowner may elect to opt out entirely. Finally,there are new programs in development in anumber of localities, including in Pennsylvania,and we do not yet have the final details on theseprograms.

The authority to set up foreclosure mediationprograms has come from three basic sources.First, state statutes have created many programs.These include the programs now underway in California, Indiana, Maine, Michigan, Nevada, NewYork, and Oregon. Second, state supreme courtshave taken the lead in developing programs in

2 STATE AND LOCAL FORECLOSURE MEDIATION PROGRAMS

JUDICIAL AND NON JUDICIAL FORECLOSURES

The states are fairly evenly divided in whether theyrequire mortgage holders to go through a formal ju-dicial proceeding in order to foreclose against ahome. About half the states allow lenders to con-duct a foreclosure without direct court supervision.These non-judicial foreclosures are called by variousnames, including foreclosure by “power of sale” or“foreclosure by advertisement.” In non judicial fore-closure jurisdictions a state statute typically sets outthe procedures a lender must follow to conduct anauction sale that leads to transfer of the property toa high bidder. Because a lender does not initiate acourt proceeding to start a non judicial foreclosure,the homeowner must file a lawsuit for an injunctionto stop the sale. Absent such a lawsuit by the home-owner, the courts do not supervise non judicial fore-closures. By contrast, a judicial foreclosure proceedsas a civil lawsuit through the court system, with thecourt entering a judgment for foreclosure, orderinga sale, and typically reviewing a report of the sale.

In the following states judicial foreclosures arethe predominant method of foreclosure.

Colorado, Connecticut, Delaware, Florida,Illinois, Indiana, Iowa, Kansas, Kentucky,Louisiana, Maine, New Jersey, New York, North Dakota, Ohio, Pennsylvania, SouthCarolina, Vermont, Wisconsin

In the following states non judicial foreclosuresare the typical method of foreclosure.

Alabama, Alaska, Arkansas, Arizona, California, District of Columbia, Georgia,Hawaii, Idaho, Maryland, Massachusetts,Michigan, Minnesota, Mississippi, Missouri,Montana, Nebraska, Nevada, New Hampshire,Oklahoma, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wyoming

In a few states, there is a mixed procedure thatcombines elements of both:

Oklahoma, North Carolina, South Dakota

two states, New Jersey and Ohio. Finally, localcourts have acted on their own to create programsin various localities in Pennsylvania, Florida,Kentucky and New Mexico. In the latter type ofprogram the local courts act under a generalstate statute on the judiciary or a state supremecourt rule that delegates substantial authority tolocal courts to manage cases as they see fit.1

The Goals of Foreclosure Mediationand How They Are Being AchievedIt is not surprising that foreclosure mediationprograms have been an attractive option at thestate and local level. Policymakers have empha-sized the need to modify mortgage loans as a wayto reduce the number of foreclosures, particularlywhere loan balances exceed the current marketvalue of homes.2 Given the realities of today’s realestate market, investors lose substantial value withevery foreclosure. For example, a national surveyof mortgages in foreclosure during November2008 indicated that lenders were incurring lossesaveraging $124,000 in each foreclosure.3 With theloans in foreclosure having an average value of$212,000, this meant that the lenders were losing57% of their investment each time they completeda foreclosure. Average losses on second mortgagessubject to foreclosures were nearly 100%.4

A June 2009 update of the same study foundthat investors’ losses from foreclosures of firstmortgages had risen even higher, to 64.65% ofthe value of the loans.5 At the same time servicerswere rarely modifying loans to make paymentsmore affordable to homeowners. According tothe same survey, in the relatively few instanceswhen servicers agreed to write off a portion ofloan principal in order to make payments moreaffordable, the servicers wrote off amounts aver-aging only $14,353. The loss severities from theseloan modifications averaged just 6.4% of the orig-inal loan amounts. In the overwhelming majorityof cases lenders did not modify loans at all. Theypursued foreclosures instead, incurring averagelosses of $143,987, or nearly two thirds of the

value of their investments.6 It would thus appearobvious that if the homeowner and lender couldnegotiate an affordable and sustainable loanmodification in place of a foreclosure, all partieswould almost always be better off.

The potential for incurring these overwhelm-ing losses would appear to give servicers andhomeowners much to talk about. Mediation pro-grams typically require the servicer’s attorney toappear by phone or in person together with a rep-resentative of the current holder of the mortgage.The representative must have authority to mod-ify the loan. To the extent that mediations can fa-cilitate this direct communication, cuttingthrough the barriers created by securitizationand loan servicing bureaucracies, they shouldperform a valuable service.

Because they have such great potential to pro-mote rational conduct as an alternative to mas-sive destruction of value, foreclosure mediationprograms have appeared as one of the fewbright spots in the otherwise gloomy media cov-erage of the foreclosure crisis. The launching ofsome programs has been accompanied by opti-mistic forecasts of thousands of homes to besaved. For example, in announcing the imple-mentation of the New Jersey foreclosure media-tion program in January 2009 the state AttorneyGeneral’s office indicated that “planners antici-pate as many as 16,600 homeowners will partici-pate in the foreclosure mediation program thisyear.”7 As will be discussed later in this report,this estimate turned out to be wildly opti-mistic.8 After Nevada’s assembly passed thestate’s foreclosure mediation bill by a 41–0 votein May 2009, the assembly speaker announcedthat the law could keep 17,700 families fromlosing their homes to foreclosure.9

Lack of Reporting and Evidence of ResultsThe growing popularity of foreclosure mediationprograms cannot be disputed. Yet, despite thispopularity, one fact is common to all the pro-grams. Although the goal of these programs hasbeen to produce long term settlements that will

STATE AND LOCAL FORECLOSURE MEDIATION PROGRAMS 3


SUMMARY OF 25 FORECLOSURE MEDIATION PROGRAMS

CaliforniaAuthority: Cal. Civ. Code §§ 2923.5Structure: Unsupervised conference between servicer

and homeowner before filing notice of default innon judicial foreclosure.

Eligibility: Servicer must attempt to initiateconference in all residential foreclosures

Modification analysis/NPV disclosure: None

ConnecticutAuthority: Conn. Gen. Stat. Ann. § 8-265eeStructure: Court sponsored mediation in judicial

foreclosuresEligibility: Homeowner must file appearance after

receiving summons and complaintModification analysis/NPV disclosure: None

Florida 1st, 11th, and 19th Judicial CircuitsAuthority: Administrative orders by circuit chief

judgesStructure: Judicial foreclosures: formal mediations

managed by private non profit: Collins CenterEligibility: Automatic referral of residential

foreclosures to mediationModification analysis/NPV disclosure: None

Florida 9th Judicial CircuitAuthority: Administrative order by circuit chief judgeStructure: Judicial foreclosure, servicer must schedule

formal mediation with certified mediatorEligibility: Automatic unless servicer asserts

exemptionModification analysis/NPV disclosure: None

Florida 12th Judicial CircuitAuthority: Administrative order by circuit chief judge. Structure: Servicer to attempt phone conference with

homeownerEligibility: Automatic, homeowner need not formally

request.Modification analysis/NPV disclosure: none

Florida 18th Judicial CircuitAuthority: Administrative order by circuit chief judgeStructure: Formal mediation with court or parties

choosing mediatiorEligibility: Residential foreclosures referred

automatically to mediationModification analysis/NPV disclosure: none

IndianaAuthority: Senate Enrolled Act 492 effective July 1, 2009Structure: Homeowner may ask to participate in

conference with servicer after served withsummons and complaint in judicial foreclosure.Mediator optional, not required

Eligibility: Homeowner must notify court of intentionto request conference.


Kentucky (Jefferson County—Louisville)Authority: Local court’s general ADR authorityStructure: Notice of settlement conference with court

issued with each judicial foreclosureEligibility: Applies automatically to residential

foreclosuresModification analysis/NPV disclosure: None

MaineAuthority: 14 Maine Rev. Stat. Ann. § 6321-AStructure: Court sponsored mediations in judicial

foreclosureEligibility: Case referred to mediation upon

homeowner’s requestModification analysis/NPV disclosure: Mediations must

use FDIC loan modification calculation

MichiganAuthority: Mich. Comp. Laws §§ 3205, 3205a-3205eStructure: Opportunity for homeowner to engage in

unmediated conference with servicerEligibility: Borrower can request conference and have

90 day pre foreclosure negotiation period beforenon judicial foreclosure can begin

Modification analysis/NPV disclosure: Servicer mustprovide a loan modification calculation but doesnot include net present value analysis

NevadaAuthority: Assembly Bill 149 effective July 1, 2009Structure: referral of non judicial foreclosures to

court supervised mediationEligibility: Homeowner must elect participationModification analysis/NPV disclosure: Servicer must pro-

vide mediator with “evaluative methodology” usedto determine eligibility for loan modification.

New JerseyAuthority Program of New Jersey Judiciary Jan. 2009Structure: Court supervised mediation in judicial

foreclosuresEligibility: Homeowner must make timely election to

participateModification analysis/NPV disclosure: None


SUMMARY OF 25 FORECLOSURE MEDIATION PROGRAMS (continued)

New MexicoAuthority: Administrative order of county courtStructure: Formal mediation of judicial foreclosures

administered as part of court’s ADR systemEligibility: Homeowner must return a request for

mediation formModification analysis/NPV disclosure: None

New York Authority: N.Y. C.P.L.R. § 3408Structure: Mandatory court supervised settlement

conferences in judicial foreclosuresEligibility: Applicable automatically to foreclosures

involving “high cost,” subprime, and“non-traditional” loans.


Ohio—Cuyahoga County (Cleveland)Authority: County program adopted under state

supreme court guidelinesStructure: Formal ADR type mediation in judicial

foreclosuresEligibility: Homeowner must request mediation and

court must approve requestModification analysis/NPV disclosure: None

Ohio—Franklin County (Columbus)Authority: County program adopted under state

supreme court guidelinesStructure: Court and county organize mediations

with certified mediatorsEligibility: Homeowner must request during limited

time frameModification analysis/NPV disclosure: None

Ohio—Lucas County (Toledo)Authority: County program adopted under state

supreme court guidelinesStructure: Magistrate and court supervised

mediation in judicial foreclosuresEligibility: Homeowner may request mediation after

receiving summons and complaintModification analysis/NPV disclosure: None

Ohio—Summit County (Akron)Authority: County program adopted under state

supreme court guidelinesStructure: Court reviews, refers for ADR process

supervised by magistrateEligibility: Applicable to cases with answers filedModification analysis/NPV disclosure: None

OregonAuthority: Senate Bill 628 effective July 1, 2009Structure: Homeowner may have unsupervised

meeting with lender representative to discuss loanmodification

Eligibility: Homeowner must make timely request formeeting


Pennsylvania—Allegheny CountyAuthority: Administrative order of local court acting

under state statute authorizing local courts tomake administrative rules

Structure: Court supervised conciliation conferencesin judicial foreclosures

Eligibility: Homeowner must make timely request forconference


Pennsylvania—Bucks CountyAuthority: Administrative order of local court acting


Structure: Conciliation conferences before courtappointed mediators

Eligibility: Homeowner must make timely request tofor conference


Pennsylvania—Northampton CountyAuthority: Local court acting under state law

authorizing local courts to make administrativerules

Structure: Court supervised conciliation conferencesEligibility: Case management order set automatically,

homeowner must certify met with housingcounselor


Pennsylvania—Philadelphia CountyAuthority: Administrative order of local court acting


Structure: Court supervised conciliation conferencesin judicial foreclosures

Eligibility: Residential properties automaticallyscheduled for conciliation conference


preserve homeownership for households facingforeclosures, there is no concrete evidence show-ing that any of these programs is truly achievingthis goal. Regardless of their location and struc-ture, none of the 25 existing foreclosure mediationprograms has offered any concrete data on the na-ture of the outcomes it has achieved.

We do not know, for example, whether foreclo-sure mediation programs bring about more loanmodifications than would occur in a given localityif the program did not exist. We also know noth-ing about the quality of loan modifications thatcome about through these programs. In most lo-calities officials do not keep any data on out-comes. Programs that release data on outcomesdo so only under the vaguest categories, typicallydesigned to place the programs in a favorable light.

Data on the manner in which a loan has beenmodified is particularly important in assessingthe success of any foreclosure prevention effort.The tendency of many loan modifications to in-crease the homeowner’s monthly payment has beenwell documented. In 2008, 58% of loan modifica-tions nationally either increased monthly pay-ments or left them unchanged.10 Modificationsthat capitalize arrearages and raise payments re-default quickly. For example, according to the2008 data, about half the modified loans thatraised payments or kept payments the same re-defaulted within nine months of modification.11

More recent surveys of modified loans on a na-tional basis show payment reductions occurringmore frequently, while principal write-offs havebeen almost non existent and declining overall asa form of modification.12 We do not know howmodifications achieved through mediation pro-grams compare with these general national trends.

This lack of data raises a number of questionsabout the role foreclosure mediation programsare playing in the current crisis. Is the hope thepublic has placed in them justified? Do they sig-nificantly alter the balance of power that typicallyallows servicers to dictate the manner in which aforeclosure is resolved? Are the programs a dis-traction from facing the need for substantive

changes to laws that might be truly effective inleveling the playing field and creating sustainablealternatives to foreclosure?

This report will address these questions, andothers. We will look first at mediation programsin the larger context, considering features theyhave in common with plans developed at the na-tional level to prevent foreclosures by encourag-ing loan modifications. We will then look at stateand local foreclosure mediation programs to seewhether these initiatives are likely to bring aboutresults that are fundamentally different fromwhat has occurred so far as a result of the federalefforts. To the extent there are weaknesses in ex-isting foreclosure mediation programs, the re-port will consider how they can be strengthenedin order to play a more effective role in preservinghomeownership.

Other Federal Loan Modification Efforts

Foreclosure mediation programs have not beenthe only effort undertaken to encourage loanmodifications as an alternative to foreclosure. Anumber of initiatives at the federal level werelaunched with a similar objective.

Preserving servicer control at the federal levelVoluntary Modification andRefinancing—Hope Now and Hope for HomeownersOver the past two years policymakers at the fed-eral level promoted several programs designed tocontrol the rising tide of home foreclosures. Forthe most part these efforts stressed voluntary co-operation from loan servicers. The hope was thatservicers and investors would recognize theirown interests in choosing alternatives to valuedestroying foreclosures. Instead, they wouldmake less costly loan modifications.


Two highly publicized initiatives along theselines were the HOPE NOW and Hope for Home-owners programs. A provision to require loanmod ifications regardless of servicers’ consent appeared in proposed amendments to the Bank-ruptcy Code.

HOPE NOW. In late 2007, the Treasury Depart-ment and HUD announced “HOPE NOW,” a vol-untary industry plan to modify home mortgages.Applicable only to a small portion of subprimeborrowers with adjustable rate mortgages whowere current in their loan payments, the programallowed servicers discretion to eliminate borrow-ers even though they otherwise fit the narrow cri-teria. Despite promises of millions of workouts,the program failed. 13

Hope for Homeowners. In July 2008 Congresscreated the “Hope for Homeowners” program,intended to allow large number of homeownersto refinance into FHA conforming fixed rateloans. Publicity surrounding the implementationof the program announced that it would save400,000 homes14 Again, the program relied uponvoluntary efforts by servicers to assist homeown-ers in making applications. In the first half yearof its operation a total of 373 applications wereprocessed and 13 approved.15

Modification of Home Loans in Bankruptcy. Themortgage lending industry ran a well-financedcampaign to defeat legislation which would haveallowed bankruptcy courts to modify home mort-gages without mortgage holders’ consent.16 Theindustry pursued this anti-modification agendadespite the views of many prominent economists,academics, and bankruptcy experts who arguedpersuasively that widespread modifications im-posed through the courts were the only measureslikely to slow down the loss of homes in the fore-closure crisis. Proponents of the legislation madenumerous concessions to the servicing industryin the course of the legislative process. Yet, the in-dustry opposition persisted, leading to defeat ofthe measure on April 30, 2009.

Incentives and Standards forModification—the Making HomeAffordable Modification Program(HAMP)The Adoption of the HAMP ProgramIn February 2009, the Obama Administration an-nounced its own plan to encourage loan modifi-cations.17 The Home Affordable ModificationProgram (HAMP) consists of Treasury Depart-ment guidelines designed to encourage loanmodifications on a large scale. The program allo-cated $75 billion in financial incentives for ser-vicers, investors, and borrowers who modifyloans.18 A separate program announced at thesame time, the Home Affordable Refinance Pro-gram, focuses on incentives for refinancings intoFHA loans.19

On paper the HAMP program mandates cer-tain actions by participating servicers. Servicerswho have signed participation contracts with theTreasury Department must conduct reviews foran affordable loan modification for qualifyinghomeowners who are in foreclosure or at immi-nent risk of foreclosure.20 Significantly, if the re-view shows that the homeowner qualifies for anaffordable loan modification under the pro-gram’s standards, the servicer must modify theloan terms.21 According to the Administration’sestimates, by the end of 2012 the HAMP programwill save three to four million at risk homes fromforeclosure. Over 38 servicers, including the fivelargest, are now signatories to HAMP contractsand obligated to service loans and conduct fore-closures in compliance with the program guide-lines.22 The GSEs and the Federal HousingAgency (FHA) have implemented their ownstreamlined loan modification programs withguidelines similar to those of HAMP.23 Theguidelines for HAMP and the related GSE programs now apply to more than 80 percent ofthe home mortgages in the country.

How HAMP Is Supposed to WorkAt the heart of the HAMP program is a require-ment that servicers conduct a formal “net


present value” calculation for each loan in foreclosure to determine whether a loan modifi-cation is required. The outcome of this net pres-ent value test tells the servicer whether anaffordable loan modification will better serve themortgage holders’ financial interests than a fore-closure.24 The securitization industry has favoredthe use of these net present value models as ameans to arrive at the most informed decisionson how to maximize recoveries for investors inmortgage-backed securities.25 In early 2008 theFDIC announced a model net present value pro-gram and spreadsheet for use in the review ofloan modifications for IndyMac loans that it heldin receivership.26 This FDIC model serves as theprototype for others, including, with certainmodifications, the net present value analysis re-quired under the HAMP program.

Under the HAMP guidelines participating ser-

vicers must evaluate all borrowers in their portfo-lio who are more than 60 days in default to see ifthey are eligible for an affordable loan modifica-tion.29 Servicers must also screen borrowers whoare current or less than 60 days delinquent if theyinquire about a modification and appear to be atrisk for imminent default.30 The guidelines fur-ther require that a foreclosure sale be stayedpending review for a loan modification. The stayof sale must continue during the three-monthtrial payment period before final confirmation ofa HAMP modification.31

A HAMP servicer may properly deny an afford-able modification only in specific circumstancesdefined in the guidelines.32 For example, propertiesthat are not occupied as the owner’s principal resi-dence may be excluded. The property must be asingle family (1-4 units) property with a maximumunpaid principal balance on the first mortgage of


THE HAMP “NET PRESENT VALUE” CALCULATION

The HAMP loan modification analysis uses a calcu-lation made up of two distinct parts.27 The first partof the analysis runs data through a sequence of loanmodification options to arrive at a new affordablemonthly payment for the borrower. As applied in se-quence, these options include the capitalization ofarrears, an interest rate reduction in steps to as lowas 2%, extension of the loan repayment term, andthen forbearance of a portion of the outstandingprincipal.28 Each option is applied in sequence until amonthly payment for principal, interest, taxes and in-surance is reached that takes up no more than 31% ofthe household’s current gross monthly income.

After the program has modified the loan terms asneeded to arrive at an affordable monthly payment,it produces a dollar figure that tells the servicer the“net present value” to investors of the loan as modi-fied. The net present value of the modified loan isfigured using a percentage discount. This discountfactors in the delay in receipt of the reduced sched-uled payments under the modified loan. It also takesinto account the possibility of a cure by the bor-rower and the likelihood and cost of a re-default.

Once it has come up with a figure for the net

present value of the modified loan, the HAMP calcu-lation then compares this value with the estimatedrecovery the investors will obtain if a foreclosure iscompleted. In calculating the value to be receivedfrom a completed foreclosure, the model takes intoaccount the current market value of the propertyand typical foreclosure losses, including the cost ofdelays in re-sale, the distressed REO value, and fore-closure costs.

After completing all entries on the net presentvalue calculation, the servicer has two figures tocompare: the estimated loss investors will incur fromthe loan modification and the estimated loss investorswill incur from a completed foreclosure. The servicer,acting on behalf of investors, must choose the optionproducing the smaller loss. The calculation formatallows for quick, streamlined analysis of the dataneeded to make this decision. From the homeowner itrequires the input of limited information, primarily re-cent income figures. From the servicer it requires somereadily available servicer-specific and industry-widedata on costs and losses associated with loan modifi-cations and foreclosures. The calculation also factorsin data on the current market value for the property.

less than $729,750. The loan must have beenoriginated on or before January 1, 2009. Beforeconsideration for a loan modification the home-owner’s payments toward the first mortgagemust be more than 31 percent of the home-owner’s gross monthly income. A modificationfor an eligible homeowner may not be required ifthe terms of a controlling pooling and servicingagreement between a servicer and an investmenttrust prohibit the modification. However, inorder to claim this exception, the servicer mustfirst negotiate “to remove those obstacles” cre-ated by the pooling and servicing agreement.33

If a foreclosure involves an eligible home-owner, participating servicers must follow theTreasury Department’s HAMP guidelines, in-cluding completion of an approved net presentvalue calculation. Servicers must implement theoutcome of the net present value test. If the fore-closure will produce a greater loss to investorsthan the affordable loan modification, theHAMP contract and guidelines require that theservicer modify the loan.

Congress has specifically approved the use ofthese types of net present value loan modifica-tion models as the industry standard for residen-tial mortgage servicing. Section 129 of theHelping Families Save Their Homes Act of 2009provides that servicers comply with their duty toinvestors by selection of the most reasonable op-tion shown under the HAMP or similar net pres-ent value test.34

HAMP Implementation Problems and Lack of OversightNeither the Treasury Department nor its agentscharged with implementing HAMP (Freddie Maeand Freddie Mac) have provided adequate super-vision of servicers. Yet, it is servicers who play thekey role in admitting homeowners into theHAMP program.35 During the first months of itsoperation the HAMP program has been plaguedby persistent problems. The Treasury’s press re-leases indicate that as of the end of July 2009only 9% of the homeowners eligible for reduc-tions in payments under the HAMP program had

begun trial modifications.36 Although intendedto meet a pressing economic emergency, the fullimplementation of the program has been delayedby ongoing negotiations with servicer representa-tives. Servicers have demanded that the programinclude features that will ensure their controlover significant aspects of the loan modificationprocess. From the homeowners’ perspective theprimary benefit of the program appeared to bethat it obligated servicers to follow an objectiveand transparent standard in evaluating a home-owner’s eligibility for an affordable loan modifi-cation. Unfortunately, servicers have thus farsucceeded in delaying the implementation of anyclear and verifiable standards. Others abuses havebeen common.37

Many aspects of HAMP’s implementationhave been chaotic. Individuals who are eligiblefor the program’s benefits because their servicersigned a HAMP contract may not receive any for-mal notice of this fact. Homeowners are not in-formed of how they can be considered for amodification. HAMP has no clear applicationrules, and as yet there is no structure for effectivereview of eligibility decisions. Government offi-cials have thus far acceded to major servicers’ de-mands that their net present value calculationsbe kept secret as “proprietary” information.“Rules,” as the term is generally understood inthe context of federal agency law and govern-ment benefit programs essentially do not existfor the HAMP program.

Whether through design or as a result of bu-reaucratic inertia, servicers’ practices have led towidespread evasion of their obligations underHAMP contracts.38 These practices have included:

� Soliciting eligible homeowners to waive theirright to be considered for a loan modificationunder the HAMP guidelines;

� Offering homeowners loan modifications thatdo not comply with the HAMP affordabilityguidelines, including modifications with unaf-fordable payments, impermissibly high inter-est rates, and modifications for short timeperiods not authorized by the guidelines;


� Falsely informing eligible homeowners thatthe servicer does not participate in the HAMPprogram;

� Proceeding with sales and commencing fore-closure actions while delaying decisions on re-quests for a loan modification;

� Charging fees to consider or implement loanmodifications despite HAMP guidelines pro-hibiting such charges;

� Refusing to inform homeowners of thegrounds for denial of a HAMP modification,including refusal to disclose how a paymentlevel was calculated, what NPV test was per-formed, and failing to provide any documen-tation related to denial or approval decision;

� Altering terms of trial modifications when it istime to implement the permanent modification;

� Adding improper late fees and other post-de-fault fees;

� Demanding excessive documents from home-owners beyond what HAMP requires, anddenying modifications for lack of documenta-tion;

� Denying any review or appeal from denial deci-sions, and failure to inform the homeowner ofdecisions;

� Extensive delays in deciding modification re-quests or requiring homeowners to sign docu-ments on short notice without a chance forreview;

� Failing to coordinate modification negotia-tions with second lienholders.

Servicer practices like these have been endemicsince the announcement of the HAMP program.If allowed to continue unchecked they may fa-tally undermine HAMP’s most promising ele-ments. These servicer practices pose a significantrisk that HAMP will go the way of the other fed-eral efforts that depended upon servicers’ volun-tary efforts to control foreclosures.

Foreclosure Mediation ProgramsHave the Potential to Enable theMaking Home AffordableModification Program to SucceedForeclosure mediation programs at the state andlocal level can play a critical role in ensuring thatthe HAMP program does not fail. So far the fed-eral government appears to be content withglossing over the program’s chaotic implementa-tion. This chaos benefits servicers. The servicers’goals are simple: they want to move foreclosuresas quickly as possible to sale, just as they alwayshave done. Confused homeowners and lack ofoversight are what servicers need to keep the cur-rent pace of foreclosures going.

Servicers’ business models and staffing deci-sions favor quick foreclosures over the labor in-tensive and less lucrative work involved inmodifying a loan.39 The fee incentives underwhich servicers are paid similarly favor foreclo-sures over modifications.

An effective mediation program could identifyparticipating servicers and ensure that foreclo-sure proceedings are stayed pending a review ofHAMP eligibility. They could require productionof net present value calculations, review data in-cluded in them, and ensure that modificationscomply with HAMP guidelines. Mediation canset the groundwork for a court to deny foreclo-sure when a servicer violated the obligations of aHAMP contract.40 For the overwhelming majorityof homeowners in foreclosure who are not repre-sented by attorneys, these checks on servicer con-duct can be critical. Finally, mediation programscan be another resource for collection of data onservicer practices related to the HAMP program.

On the other hand, if foreclosure mediationprograms cannot deal effectively with the blatanterrors occurring routinely in the implementationof the HAMP program, the mediation pro-grams themselves will go a long way towarddemonstrating their own irrelevance. As will bediscussed in the following sections, many fore-closure mediation programs are simply notstructured in a way that allows them to deal


effectively with uncooperative servicers. Judicialoversight is often weak or simply non-existent.Patterns of servicer control have fallen into placeover time. Still, in many instances the impositionof some basic obligations on servicers and im-provements in structure of the programs couldmake a difference. The next section of this reportwill consider some recent legislative efforts to es-tablish these obligations.

Bringing Standards toForeclosure Mediation—Successes and Failures in Recent State Legislation

In July 2009 statutes creating mediation and con-ference programs for foreclosures went into ef-fect in four states, Oregon, Michigan, Nevada,and Maine. In each of these states the opportunityarose during the legislative process to require thatbefore every foreclosure a servicer produce evi-dence that it had conducted a formal analysis foran affordable loan modification. The outcomesof these efforts say much about the servicing in-dustry’s attitude toward loan modifications, theHAMP program, and mediation systems.

As of March 2009, pending Oregon Senate Bill628 mandated foreclosure mediations and re-quired that in mediations in which the home-owner was not represented by counsel, themediation must produce a formal loan modifica-tion analysis using a net present value spread-sheet, either the FDIC spreadsheet or “a formulathat is consistent with the Making Home Afford-able guidelines issued by the United States De-partment of the Treasury.”41 The Bill would haveeffectively prevented a lender from using thestate’s non judicial foreclosure procedure if ithad rejected a loan modification shown to be fea-sible under HAMP rules or a similar federalguideline. Oregon’s financial lobby mounted avigorous campaign against this proposed legisla-tion.42 In the end, the industry succeeded in re-moving all provisions of the Bill requiring

mediators to review loan modifications underany objective or verifiable standards. The Bill asenacted leaves the servicers with complete discre-tion to apply any standards they wish in evaluat-ing a homeowner for a loan modification.43

The Michigan bill as originally passed by thestate’s House and Senate during the first half of2009 required that the servicer produce a specific,transparent loan modification model wheneverthe parties had not arrived at a settlement. A con-ference committee later amended the bill, strik-ing the requirement that the parties produce aspecific net present value spreadsheet in all cases.Under the version of the bill that eventually be-came law, the homeowner does not receive an as-sessment of the cost of the modificationcompared to the cost of a foreclosure, as the leg-islation in its earlier version required.44

Nevada is another non judicial foreclosurestate that implemented a foreclosure mediationprogram in 2009.45 As part of the implementa-tion of the new law, the State’s Supreme Courtpromulgated a rule stating merely that the ser-vicer must “under confidential cover, provide tothe mediator the evaluative methodology used indetermining the eligibility or noneligibility of the[homeowner] for a loan modification.” 46 It is notclear what the term “evaluative methodology” asused in the Rule means. The requirement for dis-closure only to the mediator is problematic, par-ticularly because mediation rules typicallyrequire that all aspects of the mediation be keptconfidential. Whatever it is that the servicer mustdisclose, the rule effectively keeps the homeownerand the homeowner’s counsel from seeing it.

Unlike the three states described above, Mainerecently enacted a foreclosure mediation statutewith a provision that expressly requires docu-mentation of a complete loan modificationanalysis prior to foreclosure.47 The Maine law requires that parties to a mediation complete theFDIC’s net present value spreadsheet.48

The Maine mediator’s report must show thatthe parties completed the spreadsheet, and thepositive or negative result of the test must be in-cluded in the mediator’s report. 49 The new law


also requires ongoing public reporting of dataabout the program, including the number ofloans restructured in mediation, the number ofprincipal write-downs, and the number of inter-est rate reductions.50

Only one of the four states, Maine, succeededin imposing a requirement that effectively checksa servicers’ compliance with a specific federalmodification program. Whether servicers controlthe Nevada procedures will depend on the courts’and mediators’ willingness to use their power toimpose sanctions. The Michigan program pro-vides only partial transparency and no directcourt supervision. The Oregon law provides notransparency and no direct court supervision.

Evaluation and Recommendationsfor Improving ForeclosureMediation Programs

Views from AdvocatesIn preparing this report we interviewed attorneysand housing counselors who have appeared withhomeowners in nearly all the foreclosure media-tion programs that were in operation as of theend of June 2009. Participants’ observations ob-viously varied from program to program. Nonewere in a position to estimate the number ofhomes that may have been saved from fore-closure through mediations. Housing counselorsgenerally found the programs more helpful thandid attorneys in the same jurisdiction. For hous-ing counselors the programs provided a structurefor negotiations. This structure saved time in establishing lines of communication with ser-vicers. According to the counselors, some ser-vicers were more receptive to loan modificationsthan others. From the housing counselors’ per-spective the degree to which the mediationprocess affected the substantive results in a givencase was unclear.

Legal services attorneys who regularly repre-sented homeowners in foreclosures had mixedviews about the mediation programs. Attorneys

who were litigating substantive consumer claimsagainst lenders did not find the mediations par-ticularly helpful. Most mediation programs aredesigned to focus on financial calculations forworkout agreements and loan modifications. Theprograms are less well suited for the considera-tion of complex consumer claims. Attorneys insome locations found the mediations to be awaste of time and would have preferred not toparticipate in them at all.

Attorneys who found foreclosure mediationprograms helpful almost uniformly consideredtheir major benefit to be in giving the attorneyand the homeowner much-needed time to inves-tigate the facts of a client’s case. This respite ledto more informed decisions about potential legalclaims to assert.

Most foreclosure mediation programs requireservicers to designate an individual authorized tosettle a case and to have that person available fornegotiations. Attorneys and housing counselorsgenerally found this requirements helpful, al-though enforced laxly. Many advocates reportedproblems with servicers backing out of agree-ments made by a person who participated in amediation session claiming to have authority tonegotiate on behalf of the mortgage holder. Inmost mediation systems the person appearingfor the servicer could satisfy the “authorized rep-resentative” requirement with a verbal assuranceof authority.

Advocates for homeowners reported that a“take it or leave it” offer from a servicer satisfiedmediation requirements in most jurisdictions.Occasionally the personal involvement of a judgewith a strong interest in the mediation programcould make a difference. In a few programs indi-vidual judges took an active role in making ser-vicers produce documents such as paymenthistory records and loss mitigation protocols.Judges or mediators sometimes ordered sessionscontinued several times until the servicer pro-duced the requested documents. More often, theprograms did not routinely require servicers toproduce documents, or accepted at face value ser-vicers’ statements that certain documents, such


as detailed payment records or loan originationdocuments, were not available.

In statewide mediation programs advocatesdescribed a significant lack of uniformity in pro-cedures from county to county and court tocourt. In statewide programs some courts freelytolerated token participation by lenders, while inneighboring counties courts adhered to stricterstandards for appearances, production of docu-ments, and good faith participation. Here againthe personalities and interests of individualjudges seemed to play a decisive role in creatingthese differences. Some judges invested enor-mous time and personal energy in their court’sprogram. Many other judges viewed the pro-grams as a docket control matter and took littleinterest in their day to day functioning.

Attorneys and housing counselors working withall programs reported mixed results in obtainingloan modifications through mediations. Virtuallyno one reported agreements to write off any loanprincipal. To the extent servicers agreed to loanmodifications that reduced payments, thesemodifications most often involved interest ratereductions after capitalizing arrears, sometimescombined with a term extension. Forbearance ofprincipal seldom occurred. The systems servicersused to arrive at these loan modifications were ar-bitrary. Few servicers seemed familiar with theHAMP program guidelines. No advocates re-ported seeing any net present value spreadsheets.Few servicers provided any form of detailed ex-planation for a refusal to modify a loan in a par-ticular way. Servicers often claimed that therewere barriers to modification under pooling andservicing agreements. However, these servicersdid not produce the agreements, and mediationsystems were not helpful in making them do so.

The Existing Foreclosure MediationPrograms Lack Standards for Servicer Accountability

Based on the interviews with participants inthe 25 existing foreclosure mediation programs

and review of the procedures in use, it is clearthat most of these programs place few meaning-ful obligations on servicers. Many do little tohold servicers accountable for decisions to fore-close. They do not require that servicers demon-strate that they considered loan modificationsunder a reasonable and objective standard. Ser-vicers effectively control the terms of discussionin most programs.

In this section we will focus on five specific ser-vicer obligations and two basic program require-ments that can bring some accountability to aforeclosure mediation program. We will also lookat how various existing programs are dealingwith these issues and outline measures the pro-grams could take to address them more effec-tively. The criteria we will consider are:

1. The mediation program should require thatthe servicer give the homeowner a documentshowing its affordable loan modification cal-culation and net present value calculationunder one of the recognized federal guidelines.

2. The mediation program should require thatthe servicer produce specified documents,such as a pooling and servicing agreement,loan origination documents, an appraisal, andpayment history.

3. The mediation program should require thatservicers comply with all mediation obligationsin good faith—negotiate in good faith and besubject to sanctions for the failure to do so.

4. The mediation program should require thatservicers establish proof of the mortgageholder’s standing and status as real party in interest.

5. The mediation program should require thatthe servicer document that it has consideredspecific alternatives to foreclosure, such asloan modifications, workout agreements, shortsales, and applications for refinancings andother forms of financial assistance availableunder federal and state programs.


In addition, programs should document andenforce compliance with these obligations by:

1. Forbidding a judicial or non-judicial foreclo-sure to proceed unless a mediator or court hascertified the servicer’s compliance with the fivebasic requirements set forth above, and

2. Documenting all outcomes, including the na-ture of loan modifications arrived at throughmediation.

Recommendations: Five Necessary Servicer ObligationsThe obligations placed on servicers need to beclear and objective. They should not be depend-ent of the predilections of an individual judge ormediator. They should be straightforwardenough so that they can be enforced in cases inwhich the homeowner has no attorney.

1. Does the Program Require That theServicer Give the Homeowner aDocument Showing its Affordable Loan Modification and Net Present Value Calculations?

The obligation to calculate a modified loan withaffordable payments and to offer the modifiedloan to the homeowner now applies to about 85%of the home mortgages in foreclosure today. Asdiscussed above, the HAMP program guidelinesrequire that participating servicers refrain fromforeclosure sales while they calculate the modi-fied loan for each borrower.51 After calculatingthe modified loan, the servicer must determinewhether the modification passes a “net presentvalue” test. This test compares the estimated lossthe investors will incur from the affordable loanmodification with the estimated loss the in-vestors will incur from the completed foreclo-sure. HAMP guidelines require that the servicerimplement the loan modification if it will be lesscostly to investors than a foreclosure.

Under the terms of the HAMP contracts thatmost servicers have signed with the Treasury De-

partment, the servicers receive financial incen-tives to implement loan modifications. At thesame time the servicers are obligated to offer andimplement the loan modifications for all home-owners who qualify under the net present valuetest. An exception applies only when a contrac-tual agreement, a “pooling and servicing agree-ment,” between the servicer and an investmenttrust prohibits the modification. Although thiskind of barrier can exist, true restrictions onmodifications in pooling and servicing agree-ments are fewer than many servicers haveclaimed.52 The obligation to calculate the afford-able loan modification applies not only to ser-vicers who have signed formal HAMP contractswith the Treasury Department; similar manda-tory loan modification requirements apply toloans serviced for Fannie Mae and Freddie Mac,and for federal agencies, including the FDIC,FHA, and the VA.

Existing foreclosure mediation programs havehad ample opportunity to adapt their rules totake into account the obligations that most ser-vicers now have under the new federal loan modifi-cation programs. The mediation programs shouldbe requiring that servicers show how they are ful-filling their obligations to modify loans. Ensuringcompliance with HAMP can give a clear focus tomediations. As discussed above, the federal entitiescharged with implementing the loan modificationprograms have not been providing effective over-sight. Foreclosures are taking place in violationof federal program rules. Without additional andstrict oversight at the state and local levels wherethese improper foreclosures are taking place, theHAMP program will not fulfill its promise of pre-venting millions of foreclosures.

Despite the clear need for a mediation rule re-quiring that servicers show their compliance withHAMP guidelines, surprisingly few programshave actually implemented such a rule. Of the 25existing foreclosure mediation programs, onlythe Maine program obligates a servicer to pro-duce a physical copy of an affordable loan modi-fication calculation and net present value test.


Maine’s statute requires production of a loanmodification and net present value spreadsheetcompleted under the FDIC “loan mod in a box”model. This calculation is similar to and providesmuch of the same data as the requirementsunder the guidelines of HAMP and other GSEs.53

Only the Maine program requires that a lenderconsider a loan modification in a manner that al-lows for objective review by the homeowner and amediator. The servicer must use the calculations,assumptions, and forms that are established bythe FDIC and published in its program guide.54 Themediator’s report at the conclusion of each media-tion must show that the parties completed the netpresent value worksheet under the FDIC loan mod-ification program. If the foreclosure action is notsettled or dismissed, the report must include theoutcome of the net present value worksheet.

While the Maine program focuses on produc-tion of the FDIC loan modification calculation,no foreclosure mediation program specificallymandates production of a HAMP calculation. Asdescribed above, industry lobbyists successfullyopposed the creation of such a requirementwhen it was proposed for statutes in Oregon andMichigan. Except for Maine, servicers under allother foreclosure mediation programs retaincomplete discretion to review loan modificationrequests under any standard they wish, or underno standard at all. 55 An effective mediation pro-gram should mandate the use of a recognizedloan modification model with a net present valuetest for all cases, not just for those involvingHAMP or a related federal program. This willfocus the mediations on the considerations thatare truly relevant to the financial interests of in-vestors and homeowners.

2. Does the Program Require That ServicersProduce Specified Documents, Such asPooling and Servicing Agreements, LoanOrigination Documents, an Appraisal,and Loan Payment History?

An effective negotiation environment requiresthat the parties have access to objective, verifiable

data on all relevant topics. Only with such infor-mation available can there be a record of whatthe parties considered and did not consider.While many programs set out specific documen-tation requirements for homeowners, few imposesimilar obligations upon servicers. Homeownersmust often complete multi-page forms, some-times under oath, documenting their income, lia-bilities, and assets, and list other alternatives forassistance they have considered. When home-owners do not comply with these documentationrequirements, they typically lose the right to par-ticipate in the mediation program.

A common complaint from homeowners par-ticipating in mediation programs is that servicersdo not produce even basic payment historyrecords and other basic loan documents. A typi-cal scenario is for the lender to wait for the bor-rower’s proposal, then verbally reject it. Theservicers often assert that the homeowner cannot“afford” a particular settlement option. Home-owners find themselves disqualified from variousoptions for not meeting some undisclosed andamorphous standard.

Many programs place no obligation on lendersto produce relevant documents before or at aconference. This is true for the statewide confer-ence programs in California, Connecticut, andNew Jersey. Similarly, the programs in theTwelfth and Eighteenth, judicial circuits ofFlorida and local programs in Kentucky, Ohio,and Pennsylvania set no explicit guidelines re-quiring lenders produce any specific documentsfor conferences or sessions. The absence of theserequirements leaves homeowners without a basisfor asserting that a servicer participated in badfaith. Servicers feel no real incentive to partici-pate in good faith.

Several programs take a more balanced ap-proach, although their requirements are far fromcomprehensive. The recent administrative ordersfor several judicial circuits in Florida require thatservicers bring a copy of the applicable poolingand servicing agreement to mediation if the ser-vicer contends that the agreement affects its abil-


ity to implement any settlement option. A courtrule for the mediation program in Santa Fe, NewMexico requires the servicer to complete an infor-mation form ten days before the mediation. Theform requires a listing of loan data, including thedates of all loan assignments, whether recordedor not, and a statement of options for settlementthe lender will consider.

The new Indiana statute requires that thelender bring to the settlement conference a copyof the original note and mortgage, a paymentrecord substantiating the default, an itemizationof all amounts claimed due, and any other docu-ments the court determines are needed. The Ne-vada rules for foreclosure mediations requirethat the servicer provide a current appraisal. Asdiscussed above, the Maine and Michiganstatutes require production of documentationrelated to the calculation of the homeowner’s eli-gibility for a loan modification. The Mainestatute requires the disclosure of a complete netpresent value analysis, while the Michigan law al-lows a more general partial disclosure. The Cuya-hoga County, Ohio mediation program providesa “lender form” for servicers to complete. Thisform includes payment history and other lenderdata, but allows the lender to substitute an infor-mation form of its own.

Foreclosure mediation programs cannot de-pend on a few servicers who may voluntarily dis-close necessary documents. Nor can they rely onthe occasional judge who has a penchant for en-forcing standards. Most homeowners will be ap-pearing for mediations without counsel of theirown. Therefore, mediation programs need topublish clear checklists of documents that ser-vicers must produce. The list must include thecomplete net present value spreadsheet or dataentry field, and any loan modification eligibilitycalculation for a government program related tothe loan. The list must include the note and mort-gage, the complete payment history, any applica-ble loss mitigation guidelines, the HUD 1 andTruth in Lending disclosures from the originaltransaction, and a current appraisal. As discussed

below, the servicer must also produce documentsestablishing the standing and real party in inter-est status of any foreclosing entity, as well as doc-umentation of the designated representative’sauthority to settle for a trust owning the underly-ing obligation. There are already mediation pro-grams that require servicers to produce one ormore of these documents. An effective programshould mandate a comprehensive list and en-force production of all the listed items.

3. Does the Program Require That Servicers Negotiate in Good Faith andMandate Sanctions for the Failure to Do So?

Any effective foreclosure mediation programmust apply a requirement for good faith partici-pation to all servicers. The consequences for notcomplying with program obligations must bemeaningful. Dismissal of judicial foreclosure ac-tions should follow when servicers show badfaith by not complying with program rules.Statutes governing non-judicial foreclosuresshould bar transfer of title without a mediator’scertification of the servicer’s good faith compli-ance with mediation obligations.

Requiring lenders to show good faith in fore-closure proceedings is not a novel idea. A goodfaith standard has always applied to mortgageholders who seek to foreclose. For centuries thecourts have exercised their authority to apply a“clean hands” standard and other equitable con-siderations in determining whether a mortgageholder could foreclose.56 Similarly, courts havepower to enforce standards for good faith partici-pation in settlement conferences and in any alter-native dispute resolution proceeding. Rule 16 ofthe Federal Rules of Civil Procedure embodiesthis requirement for federal courts, and all ormost state courts have similar rules.57

Most existing foreclosure mediation programsdo not incorporate an express requirement forgood faith participation into their rules. Pro-grams without a good faith requirement includethose for California, Connecticut, New Jersey,


New York, and Indiana. Similarly, the local pro-grams in New Mexico, Kentucky, Ohio and Penn-sylvania have no such requirement. At most,these programs provide for the possibility that aservicer’s judicial foreclosure action may be dis-missed if the servicer fails to appear or send anauthorized representative to a mediation session.Even upon the servicer’s failure to appear, mostprograms provide only that dismissal of the fore-closure is an option that may be considered atthat point. For example, several Florida pro-grams,58 the local programs for Cuyahoga andFranklin counties of Ohio, and the programs inAllegheny and Northampton counties in Penn-sylvania provide for optional consequences at thecourt’s discretion if the servicer does not appear.

The recently implemented Maine and Nevadaforeclosure mediation programs are the onlyones that expressly impose a good faith require-ment on lenders. The Maine statute provides thatthe parties and attorneys in a mediation must“make a good faith effort to mediate all issues.”59

A Maine court may impose “appropriate sanc-tions” if a party or attorney fails to attend or tomake a good faith effort to mediate all issues.The mediator’s report to the court must indicatewhether a party failed to negotiate in good faith.Given that the Maine statute mandates use of aspecific loan modification model and requiresthat the session address reinstatement of themortgage, modification of the loan, and restruc-turing of the debt, the statute facilitates the de-velopment of a record that can lead to theimposition of sanctions in appropriate cases. Themediation record could also support the home-owner’s equitable defense to foreclosure in an on-going judicial proceeding.60

The Nevada mediation statute requires that aservicer file a certification of completion of medi-ation before it may proceed with a non-judicialforeclosure.61 The certificate must include themediator’s finding that the parties acted in goodfaith and that the mediation was properly termi-nated. Without this certification, the trustee maynot proceed with a non-judicial foreclosure sale.

The Nevada statute also provides that the mediatormust prepare and submit to the court’s mediationadministrator a petition and recommendationfor the imposition of sanctions if the lender doesnot participate in the mediation in good faith.The mediator must seek sanctions if the servicerdoes not bring required documents to establishstanding, or does not have a representative au-thorized to modify the loan available at all timesduring a session. The Nevada statute specificallygrants the court reviewing a motion for sanctionsthe authority to grant appropriate orders, “in-cluding, without limitation, requiring a loanmodification in the manner determined properby the court.”

State courts act well within their authority inimposing sanctions against servicers who ob-struct court-sponsored proceedings. Taken to-gether, the Maine and Nevada statutes show aneffective way to structure the imposition of sanc-tions. The Maine statute defines good faith to in-clude compliance with the requirement todemonstrate completion of an appropriate af-fordable loan modification analysis. A servicerthat has not produced physical evidence of thisanalysis will have participated in mediation inbad faith. Under the Nevada statute, instances ofservicer bad faith in mediation must be referredto the court for sanctions. As a sanction the courtcan modify the loan in an appropriate way. Thiscombination of substantive standards and reme-dies for enforcement can be an effective counter-balance to servicer evasion of obligations underHAMP and other federal modification programs.

4. Does the Program Require That ServicersEstablish Proof of the Mortgage Holder’sStanding and Status as Real Party inInterest?

An attractive feature of foreclosure mediationprograms has been the expectation that they willhelp homeowners cut through the barriers createdby securitization of home mortgage obligations.Mediation programs typically require that ser-vicers appear in person or by phone, through a


person “with authority” to negotiate a settle-ment. While this requirement has a definite ap-peal, in practice the obligation is often satisfiedby mere verbal assurances that an individual isauthorized to negotiate a settlement on behalf ofthe owners of the obligation. Beyond these verbalassurances, most programs require little in theway of documentation to substantiate the claim.As a result, complications may arise when it istime to finalize or enforce agreements reachedthrough mediation. Other programs simply donot enforce the appearance requirement at all.

Mediation programs often fail to address amore significant issue than the question ofwhether a designated person has authority to ne-gotiate. This is the question of whether the entitythat claims to own the obligation actually doesown it. If the entity that authorizes a representa-tive to negotiate on its behalf is not in fact theowner of the obligation, the authorization ismeaningless. For many unrepresented homeown-ers proceeding through mediation, issues of thestanding and real party in interest status of theforeclosing party are never considered.

In judicial foreclosures the courts have inher-ent authority to review questions of standing andreal party in interest pertaining to the partieswho appear before them. This authority clearly ex-tends to alternative dispute resolution and otherproceedings that take place under the courts’ su-pervision. Similarly, state legislatures and stateagencies have ample authority to define who mayuse the state’s non-judicial foreclosure mechanism.Today, with multiple assignments of mortgage ob-ligations and multiple securitizations often re-lated to the same debt, the legislatures and courtsare scrutinizing the status of parties who claimthe right to enforce mortgage obligations.62 Ques-tions of standing often go to the court’s jurisdic-tion. If the entity bringing the foreclosure doesnot in fact own the obligation, the court may re-quire the true owner to be joined as a party.63

Without standards and requirements to estab-lish that the proper party is pursuing the foreclo-sure, there is a risk that mediations will give the

judicial seal of approval to foreclosures againstunrepresented homeowners who have little un-derstanding of these issues. This is unfortunatebecause mediations could serve the opposite pur-pose. They could set clear requirements to estab-lish the standing of all parties seeking to foreclose.

A few existing mediation programs haveadopted procedures to address potential standingquestions. Under the Nevada law the beneficiaryof a deed of trust must bring to the mediationthe original or a certified copy of the deed oftrust, the mortgage note and each assignment ofthe deed of trust or mortgage note.64 The NevadaSupreme court’s rules implementing the media-tion statute set out further requirements for thecertification of loan documents and verificationof lost notes in connection with mediation.65

Two local court mediation programs have in-stituted detailed requirements to show standing.These are the programs in Santa Fe, New Mexicoand Summit County (Akron) Ohio. The Santa Feprogram rules require servicers to provide copiesof all filed and unfiled assignments in connectionwith the mediation.66 A court-created SummitCounty Ohio foreclosure mediation program re-quires that plaintiffs file a “certificate of readi-ness” with the court.67 This certificate requiresproduction of copies of all assignments madesince origination, with a declaration of custodyand control of the original note and mortgageand the availability of documents for inspectionupon order of the court. All assignments andname changes must bear a date prior to the filingdate of the complaint.

Requirements under other programs, if anyexist at all, are much more limited. Courts inSeminole county in Florida’s Eighteenth JudicialCircuit require lenders to file the original notewith the clerk before any hearings or else satisfylost note requirements under state law.68 Whilethe Cuyahoga County rules require the lender tofill out a form disclosing all assignments and explaining why any documents are missing, therule allows lenders to substitute forms of theirown. Under the Indiana statute the plaintiff


lender must bring to the settlement conference acopy of the original note and mortgage.

Maine and New York recently enacted statutesthat amend their foreclosure laws to require thatpleadings or documents filed in land recordscontain some general information related to thelender’s standing to foreclose. These laws wereenacted simultaneously with the mediation stat-utes in each state and apply to all foreclosures.The New York law applicable to high cost loans,requires that the plaintiff aver in the complaintthat it owns and holds the note and mortgage,or has been delegated authority by the owner toforeclose.69 The Maine statute requires that theplaintiff commencing a foreclosure action “shallcertify proof of ownership of the mortgage andnote and produce evidence of the mortgage note,mortgage and all assignments and endorse-ments of the note and mortgage.”70 A require-ment similar to this Maine provision shouldapply to all servicers in foreclosure mediationprograms. 71

5. Does the Program Require That theServicer Document its Consideration ofSpecific Alternatives to Foreclosure, Such as Loan Modifications, WorkoutAgreements, Short Sales, andApplications for Refinancings and OtherForms of Financial Assistance AvailableUnder Federal and State Programs?

As discussed above, the HAMP program createsobligations, not just to consider loan modifica-tions, but to implement them. For homeownerswho do not meet the program’s eligibility re-quirements for a loan modification, the HAMPguidelines still direct the servicer to “exploreother foreclosure prevention alternatives prior toresuming or initiating foreclosure.”72

In addition to mandating consideration ofHAMP eligibility, mediations can set agendas.They can require that lenders review all optionsto avoid foreclosures and document that theyconsidered these options in each case. Undertheir police power states have inherent authority

to set these requirements, particularly whenforeclosures are undermining state and localeconomies.73 While states may not postpone fore-closures arbitrarily or indefinitely, their authorityto regulate foreclosure procedures certainly en-compasses mandating serious, not token, consid-eration of alternatives to foreclosure.74

Serious consideration of alternatives does notoccur when a homeowner is required to make aproposal, which a lender can simply reject with-out explanation before it proceeds with a foreclo-sure. Many existing foreclosure mediationprograms operate on essentially this model. Forexample, the statewide programs in New Jerseyand New York do not mandate that parties con-sider specific alternatives to foreclosure. Localcourt-operated programs in Ohio,75 Florida,76

Pennsylvania,77 New Mexico, and Kentucky haveno such requirement. In some programs the ser-vicer may be required to respond to a proposal ofthe homeowner. In rare instances the servicermust make a proposal of its own, but most pro-gram guidelines do not mandate that the ser-vicer’s proposal address any specific options. Theprograms fail to place the servicer’s exercise ofdiscretion within any objective framework.

A few foreclosure mediation statutes describea very general purpose for the program. For ex-ample, the New York statute requiring settlementconferences for cases involving high cost loansstates that the purpose of the conferences is toconsider “whether the parties can reach a mutu-ally agreeable resolution to help the defendantavoid losing his or her home, and evaluating thepotential for a resolution in which paymentschedules or amounts may be modified or otherworkout options may be agreed to, and for what-ever other purposes the court deems appropri-ate.” 78 The Indiana law states that the purpose ofconferences is to “attempt to negotiate a foreclosureprevention agreement.” A servicer who adamantlyrefuses to consider any options to avoid foreclosurewould arguably fail to comply with the spirit ofthese statutes. Otherwise, these general state-ments of purpose have limited usefulness.


The guidelines published by the CuyahogaCounty, Ohio program state that lenders shouldconsider loss mitigation options listed on a formprovided by the court, but lenders are free to usetheir own model forms and standards, and there isno requirement for disclosure of how those optionswere considered. The Brevard County Florida Ad-ministrative Order provides a model foreclosuremediation agenda. The agenda lists options thatparties may consider at a session. However, theonly requirement is that the servicer consider oneoption from the list, which includes repaymentforbearance, loan modification, short sale, deedin lieu of foreclosure, or consent to judgment.

A few foreclosure mediation programs have setout more specific guidance for options the par-ties must consider. Connecticut’s statute pro-vides that “[M]ediation shall . . . address all issuesof foreclosure, including, but not limited to, rein-statement of the mortgage, assignment of lawdays, assignment of sale date, restructuring ofthe mortgage debt and foreclosure by decree ofsale.” Under the Florida Eighteenth Judicial Cir-cuit program the servicer’s representative mustbe authorized to make agreements on “alterna-tives to litigation, including refinancing, partialforgiveness of debts, approving sale to third par-ties, clarifying amounts owed, requirements toreinstate or discharge the loan, requesting a deedin lieu of foreclosure, procedures for protectingpremises and establishing mutually agreeabledate for relinquishing possession.”

The Maine statute provides more specific di-rection for the conduct of foreclosure media-tions. The law mandates the use of a well-established loan modification and net presentvalue model. In addition, according to thestatute, the mediation “must address all issues offoreclosure, including but not limited to rein-statement of the mortgage, modification of theloan and restructuring of the mortgage debt.”Coupled with the law’s express requirement forthe servicer’s participation in good faith, theMaine law creates a basic framework for seriousconsideration of issues.

State laws can go further than the Mainestatute and mandate that servicers produce doc-umentation of consideration of a series of op-tions to avoid foreclosure. The programs shouldimpose sanctions for failure to produce this doc-umentation. The documentation should show,for example, the data the parties considered inevaluating potential workout and forbearanceagreements and what factors were evaluated inlooking at a short sale or deed in lieu of foreclo-sure. Programs can require that the servicer doc-ument efforts to assist the homeowner throughvarious federal, state, and local programs de-signed to assist homeowners with refinancingand other financial assistance. An appropriatecheck list would show a triage of the optionsranging from those most likely to preserve home-ownership to those that allow for minimizinglong term financial consequences for borrowerswho are not keeping their homes. Requiring thatlenders clearly document the reasonable consid-eration of all loss mitigation options before theyare allowed to proceed with a foreclosure is avalid and necessary exercise of a state’s policepower.

Recommendations: EnforcingCompliance with Servicer Obligations

1. Does the program forbid a judicial ornon-judicial foreclosure from proceedingunless a mediator has certified theservicer’s compliance with therequirements listed as 1–5, above?

A final requirement should tie together the list ofobligations discussed above. Compliance withthe servicer obligations in mediation should be acondition to allowing a foreclosure to proceed.This requirement can be enforced in both judicialand non judicial foreclosure states. In judicialforeclosures the mediation is often characterizedas a referral from the regular trial docketing sys-tem to an alternative dispute resolution pro-gram. This referral should not terminate until


the mediator or other presiding official certifiesthat the parties have complied in good faith withtheir duties under the mediation rules. Similarly,in non judicial foreclosure states, the mediatorshould be authorized to issue a certificate indi-cating that the mediation has terminated withgood faith participation by the parties and com-pliance with all mediation rules. The servicershould be required to file such a certificate beforeproceeding with a non judicial foreclosure sale.A non judicial foreclosure sale conducted with-out such a certification would not convey validtitle to a purchaser at the sale.

2. Does the program document outcomes,including the nature of loan modifica-tions arrived at through mediation?

a. The Need for Data on OutcomesNone of the existing foreclosure mediation

programs has kept reliable and complete data onthe outcomes of participating cases. This lack ofdata can be problematic for several reasons. First,it impedes self correction. Without accurate dataon outcomes, those responsible for the programscan not know what works and what does notwork, and make adjustments accordingly. For example does making homeowner participa-tion automatic as opposed to requiring home-owners to opt in to mediation producesignificantly more affordable loan modifica-tions? Does mandating that servicers producevarious documents make a difference? A numberof programs, such as those in New York, NewJersey, and Connecticut, have received funds foroutreach and other aspects of their mediationsystems. If this funding is justified by verifiedpositive results, these outcomes should informdecisions of other states that are consideringfunding similar programs.

Foreclosure mediation programs can also playan important role in providing a needed checkon data about servicers’ compliance with theHAMP program. Over the coming months wewill likely see inconsistent data offered by gov-ernment officials and servicers describing how

the federal programs are being implemented,whether they are successful, and how manyhomeowners they helped. The mediation pro-grams will be in a unique position to provide afurther control on this data based on actualmodification results.

Deficiencies in the data about loan modifica-tions and other loss mitigation actions have notbeen limited to foreclosure mediation programs.For example in its recent report on foreclosure re-lief actions, the Congressional Oversight Panelreviewed the state of data on loan modificationsand found the lack of reliable information na-tionwide to be “distressing.”79 In the Panel’s view,this lack of data has been a significant barrier toformulating sound policy responses to the fore-closure crisis. The Congressional panel summa-rized its review of existing data as follows:

The result is that no comprehensive private or govern-ment source exists for accurately tracking loan delin-quencies and loss mitigation efforts, includingforeclosures and modifications on a complete, na-tional scale. No federal agency has the ability to accu-rately track delinquencies and loss mitigation effortsfor anything more than 60% of the market. The exist-ing data are plagued by inconsistencies in data collec-tion methodologies and reporting and are often simplyunverifiable. Worse still, the data being collected areoften not what is needed for answering key questions,namely what are causing mortgage defaults and whyloan modifications have not been working.80

Following the Congressional Oversight Panel’surging, the Office of the Comptroller of the Cur-rency (OCC) and the Office of Thrift Supervision(OTS) developed tracking systems for loan modifi-cations. These agencies review data for institutionsresponsible for about 60% of home mortgage loansnationally. The data from these surveys will be re-leased in quarterly reports, the first having ap-peared in April 2009.81 These reports track loanmodification numbers and record general factsabout the nature of modifications. The surveysrecord loan modification data focusing on sev-eral categories of changed terms, including the


percentage interest rate reduction, the extent towhich a loan repayment period was extended, theamount of principal forborne, and the degree towhich the arrearages were capitalized.

The HAMP program has its own reporting re-quirements that apply to servicers.82 These re-ports require servicers to provide extensiveinformation about loan modification activities.Since most servicers are already under an obliga-tion to prepare this type of data, mediation pro-grams would not be requiring any additionalwork from servicers if they require that they pro-vide similar data in connection with mediations.

The minority of servicers who do not partici-pate in HAMP or similar federal programs cantrack data from cases in their systems using cate-gories similar to those used by the OCC andOTS. This would require little more than a sim-ple checklist about characteristics of loan modifi-cations that would take a few minutes tocomplete for each case. The OCC and OTS alsocollect follow-up data on redefaults at quarterlyintervals after the modification. A foreclosuremediation program that wished to demonstrateits beneficial impact could record and publicizefollow-up data along these lines as well.

Data under the HAMP guidelines and OCS/OTS metrics can be recorded in general categories.Therefore, there cannot be any significant objec-tions raised on confidentiality grounds if foreclo-sure mediation programs require that participantsrecord basic loan modification data in accordancewith these systems that are already being imple-mented nationally to record the same data.

b. The data collection on outcomes byexisting programs is inadequate.

Statewide programs in California, Indiana,Michigan, and Nevada have no formal systemsfor tracking even the most basic data on the outcomes of mediations or conferences. Mostlocal programs in Florida, Ohio, and Pennsylva-nia similarly use only the most general systemsfor tracking numbers of cases and outcomes. TheConnecticut statewide program and a few localprograms, such as those in Cuyahoga County,

Ohio, Brevard County, Florida, and Philadelphia,Pennsylvania have kept some statistics on num-bers of cases mediated and outcomes. Howeverthe categories under which they record outcomesare so broad as to provide no concrete informa-tion about the nature of settlements.

The Connecticut Supreme Court has releasedfigures covering the ten- month period from July1, 2008 to April 30, 2009.83 According to its re-port, during this time 21,251 foreclosures caseswere filed in the state. Of these, 16,851 involvedowner occupied properties eligible for mediation.During the time in question, 5778 eligible home-owners requested mediation. Mediations werecompleted in 2545 cases. Of the completed medi-ations, the report indicates that 1065, or 41% re-sulted in loan modifications. Put another way,loan modifications resulted in 6.3% of the fore-closure cases eligible for mediation.

The Connecticut data does not define how theterms of the 1065 modified loans were changed.We do not know the degree to which these modi-fications increased or decreased payments or in-creased or decreased principal indebtedness. Thenature of loan modification needs to be definedclearly so that comparisons will make sense. Forexample, the Office of the Comptroller of theCurrency (OCC) and the Office of Thrift Supervi-sion (OTS) Mortgage Metrics Report for the firstquarter of 2009 indicated that in its national sur-vey of mortgages there were 844,389 mortgagesin foreclosure in the quarter. According to theReport, lenders modified mortgages in 185,156of those cases during the quarter.84 This wouldrepresent loan modifications in about 22% of thecases in foreclosure. As noted above, Connecticutwas reporting a rate of 6.3% of the loans in fore-closure modified in mediations completed over aten month period. This is a level significantly lessthan the national average for cases in foreclosureas reported by the OCC/OTS data.

There can be several possible explanations forthis divergence. Due to conditions of its housingmarket, it may have been harder to obtain a loanmodification in Connecticut than elsewhere in thecountry. The systems may define the pool of


eligible mortgages differently. It is also likely thatOCC/OTS and the State of Connecticut courtsdefine loan modifications in different ways. TheOCC and OTS appear to be using a broad defini-tion of modification, which may include temporaryinterest rate reductions. As indicated above, theOCC/OTS database represents approximately60% of residential loans nationwide and does notpurport to be an accurate statistical sample of allmortgages. On the other hand, the Connecticutdata appears to represent all residential foreclo-sures in the state. Ultimately, these data dispari-ties highlight the inconsistencies of much of thenational and local data on loan modifications.

During the first year of its operation Philadel-phia’s foreclosure diversion program did notkept track of loan modifications, either by num-bers or by type. Residential foreclosures have beenfiled recently in Philadelphia at the rate of about6000 a year. In a June 30, 2009 press release thePhiladelphia court indicated that over the previ-ous year 4690 homeowners participated in itsforeclosure diversion program.85 According to thepress release, a sheriff sale was averted or the casewas removed from the sheriff sale list in 1400 ofthose cases. These 1400 cases are considered suc-cessful outcomes. However, the reported cate-gory of cases with a sheriff sale averted or inwhich the case was removed from the sheriff salelist encompasses cases in which the underlyingforeclosure lawsuit was not dismissed. The figureincludes cases considered settled, including thosewith agreements other than loan modifications.For example a settlement may involve allowing aforeclosure judgment entered in the case to remainwhile the homeowner attempts to comply with a re-payment agreement. Under such an agreement thelender may retain the right to enforce the judg-ment by re-listing the property for sale in the sameforeclosure case upon a future default. Under thecategories used by the Philadelphia court, it isnot possible to tell loan modifications from re-payment agreements in the 1400 cases reportedas settled favorably for the homeowner. Nor is itpossible to know anything about the nature ofany loan modifications included in the group.

The Cuyahoga County Ohio foreclosure me-diation program has likewise provided limiteddata for cases it handled during its initial year ofoperation. Lenders filed approximately 14,000foreclosure cases in Cuyahoga County duringeach of the past two years.86 Under the CuyahogaCounty foreclosure mediation program home-owners must request mediation. The court reviewsinitial requests, and based on consideration of fi-nancial and other data, may or may not refer acase to mediation. Cases referred to mediation arescheduled for a pre-mediation session and thena formal session. The data for July 2008 to June25, 2009 for Cuyahoga County were as follows:87

Requests for mediation 2914Found unsuitable for mediation 441Found suitable for mediation 2473Had pre-mediation session 1575Had full mediation 484Settled 240Dismissed for lender non appearance 58Returned to foreclosure becausehomeowner did not comply with mediation rules 380

The figure for cases settled under the Cuya-hoga County program does not provide any in-formation on the nature of settlements.

Franklin County (Columbus), Ohio has a wellestablished foreclosure mediation program thatbegan to operate at the end of 2008. Approxi-mately 9,000 foreclosure cases were filed annuallyin the county over each of the past two years.88

The Franklin County program recently releaseddata for cases handled over the first half of 2009.During this period there were 870 cases referredto mediation, of which 863 were found suitablefor mediation. As of the end of June 2009, 566 ofthese referrals were listed as pending, scheduled,or rescheduled. In terms of outcomes, the reportlists 44 cases as having settled with a “loan modifi-cation/loan workout.” The report lists many othercategories of outcomes, including “loan reinstate-ment or full agreement” (19 cases), “forbearanceagreement” (24), and “partial agreement” (4).


Overall, this data is not clear on the number ofloan modifications reached or on the content ofthe modifications.

New York has not been keeping statewide dataon its statutory mandatory conferences for fore-closures involving subprime and other high costmortgages. Some limited data covers the NewYork City boroughs, Nassau and Suffolk coun-ties, and the Buffalo and Syracuse areas for theperiod from late January 2009 to mid June2009.89 This data indicated that over this periodand in these courts there were conferences sched-uled for 2890 cases. Homeowners did not appearin 1182 of these conferences. A total of 173 casessettled at the conferences.90 Here, again, the datadoes not track anything specific about outcomes.

New Jersey has averaged approximately 60,000foreclosures in each of the past two years. TheNew Jersey foreclosure mediation program released data on numbers and outcomes of medi-ations for the period from January 13, 2009through June 30, 2009.91 Mediations (includingpre-mediations) were completed in 854 casesstatewide during this period. Of those 854 cases,no settlements were reached in 390. Of the 445cases described as settled in mediation, the reportlists 281 as allowing the homeowner to avoidforeclosure and remain in the home. Of the rest,35 involved settlements with agreements tomove, and 129 were settlement of unknown con-tent. The designation for settled cases involvingretention of the home likely includes loan modi-fications, but the precise numbers and type ofmodifications were not described in the data re-leased. A number of cases (1342) remain pendingwith housing counselors and some of these mayeventually be subject to mediation.

Aside from Connecticut, New York, New Jer-sey, Philadelphia, Cleveland, and Columbus,other foreclosure mediation programs have notreleased even partial data on outcomes. Severalstatewide and local programs are still new at thistime, and some of these may still decide to imple-ment systems for tracking outcomes. Other exist-ing programs may in the future develop moredetailed tracking systems.

The Maine foreclosure mediation statute con-tains a requirement that data be submitted to thestate legislature on a regular basis so that theprogram can be evaluated and modified asneeded. The information to be reported includes:“The results of the mediation process, includingthe number of loans restructured, number ofprincipal write-downs, interest rate reductionsand number of homeowners who default onmortgages within a year after restructuring, tothe extent the court has information available.” 92

While the Maine statute directs that data onnumbers and types of modifications be tracked,it does not on its face require data on the degreeof reduction occurring for each category. For ex-ample, the statute seeks data on numbers of loanmodifications with interest rate and principal re-ductions. It does not require data on the percent-age reduction in interest rates or the amount ofprincipal forborne or written off. The HAMP andOCC/OTS metrics described above do require re-porting of this additional data. All of this infor-mation can be recorded by foreclosure mediationprograms in order to evaluate their performance.

Recommendations: ImprovingHomeowner Participation andProcedural Aspects of ProgramsIt is certainly possible to design a foreclosure me-diation program so that it will encourage asmany homeowners as possible to participate in it.High participation rates may lead to better out-comes for more homeowners. However, this maynot always be true. If the procedures styled as“mediation” leave servicers in substantial controlof the process, then sending large numbers ofhomeowners, particularly unrepresented ones,through these procedures may not preservehomeownership for more individuals over thelong term. For example, an unsupervised confer-ence mechanism could easily become a systemfor servicers to obtain waivers of rights from prose homeowners. If homeowners end up losingstatutory redemption rights or rights to fair mar-ket appraisals when they participate in confer-


ences with servicers, these homeowners may bebetter off in the long run not participating.

To the extent that mediations apply manda-tory standards and can protect homeowners fromoverreaching by servicers, then procedures de-signed to increase participation by homeownerswill likely keep more families in their homes. Thissection will look at procedural aspects of foreclo-sure mediation programs and consider whichfeatures are likely to increase homeowner partici-pation. Again, reaching these considerations as-sumes that there is some positive value to thehomeowner’s participation in the program at all.

The existing foreclosure mediation programscome with a wide variety of structures. For exam-ple, some programs apply automatically to allowner-occupied homes in foreclosure. In otherprograms the homeowner must take some for-mal action to “opt in” to the mediation program.For programs which require the homeowner totake some affirmative step to opt in, the length oftime a homeowner has to exercise the optionvaries. Once a homeowner is participating in aprogram, the question of a stay of foreclosureprocedures becomes crucial. In some programs astay is automatic, while in others the homeownermust actively seek out a stay from the courtpending mediation. These procedures are dis-cussed in more detail below.

1. Does the Program Establish Proceduresfor Automatic Participation byHomeowners Subject to ForeclosureProceedings?

a. Programs in which homeowner participation is automatic.Several mediation programs refer foreclosure

cases to an alternative dispute resolution systemautomatically upon the filing of a complaint. Inthese programs the servicers must certify in theinitial filing whether the case involves an owner-occupied property. Certification that the prop-erty is owner occupied triggers the application ofthe foreclosure mediation rules. A number oflocal court-initiated programs follow this gen-

eral practice. These include the programs inLouisville, Kentucky, in four Florida judicial cir-cuits (the First, Eleventh, Eighteenth, and Nine-teenth), in Santa Fe, New Mexico, and inNorthampton and Philadelphia counties in Penn-sylvania. The New York State conference proce-dure for high cost loans employs a similar system.

The automatic inclusion of residential foreclo-sures in some type of conference system canoccur in non judicial foreclosures as well as in ju-dicial foreclosures. For example, while the phoneconference obligation under the Californiastatute has no meaningful substantive compo-nent, the requirement applies across the board toall residential foreclosures.

b. Programs which exclude homeowners who do not opt in.

At the other end of the spectrum are programsthat set up certain procedural requirements forhomeowners to follow if they wish to participatein a conference or mediation. Compliance withthese procedural thresholds is often mandatory.If homeowners do not follow the procedures, theydo not participate. The statewide programs estab-lished in Connecticut, Indiana, Maine, Michigan,Nevada, New Jersey, and Oregon employ this de-vice. The local programs in most Ohio countiesand in Allegheny and Bucks counties in Pennsyl-vania set similar requirements.

The rules for these programs in which home-owners must “opt in” typically include a require-ment that the court, a clerk, a housing agency,the lender, or a trustee serve the homeowner witha notice at the commencement of the foreclosure.The notice describes the nature of the mediationor conference opportunity that is available. Thenotice may direct the homeowner to housingcounselors, a hotline, or a pro bono legal office. It may include information on how to exercisethe option to have a conference with a lender representative. The homeowner must completeand send in the form as directed by a certain date.In some programs the filing of an answer or a ver-bal request is enough to secure the homeowner’sright to participate. Under other systems, such as


the one for Bucks County, Pennsylvania, thehomeowner must contact a housing counselor,who in turn submits the request.

2. Can Requests for Mediation Be Made Upto the Time of a Foreclosure Sale?

Setting a time limit for submitting the request toparticipate in a mediation may significantly limitthe number of participants. When programs settime limits, the deadlines vary widely from pro-gram to program. The range includes: BucksCounty, Pennsylvania (ten days from service ofsummons and complaint), Michigan (14 daysafter date notice sent), Allegheny County, Penn-sylvania (20 days from when notice received),Connecticut (fifteen days after return date ofsummons and complaint), Oregon (30 days fromdate of notice), Indiana (30 days from date ofservice), Nevada (30 days from date of service).The Ohio counties generally require some actionby the borrower within a set time period, such asbefore an answer is due.

Restrictions on participation in mediationscan take forms other than time limits. For exam-ple, in several Ohio programs a judge or othercourt official may conduct an initial review of arequest before making a referral for mediation.Under the Maine and New Jersey guidelines theprocedures for opting in are more flexible. InMaine the homeowner must file an answer, ap-pear, or otherwise request to participate in medi-ation. In New Jersey there is not a fixed time limitfor making a written request for mediation.However, under the New Jersey law foreclosureproceedings are not stayed automatically by themediation request.

Creating these types of opt-in hurdles mayproduce a set of homeowners who are stronglymotivated. These may be homeowners with thefinancial resources to benefit the most from medi-ation options. At the same time, these limitationson access may unreasonably exclude homeownerswho simply misunderstand court procedures orirrationally fear them. With some encourage-ment, these homeowners might choose at somepoint to participate. At a minimum, it is safe to

say that automatic inclusion of homeowners ismore likely to produce a greater number ofhomeowners who will be in a position to learn oftheir legal rights in the foreclosure and make in-formed decisions about whether to follow upwith appearances and calls.

3. Are All Foreclosure Proceedings StayedUntil a Mediator Or Court DeterminesThat the Servicer Has Complied in GoodFaith With All Participation Obligations?

A stay of entry of judgment and a stay of the fore-closure sale are essential if servicers are to takeforeclosure mediations seriously. Without a stay,foreclosure mills will proceed along at their auto-mated pace and sell the home. Mediation pro-grams implement stays of proceedings in variousways. In some programs the homeowner’s eligi-bility for mediation triggers a stay. In other pro-grams the homeowner must make a formalrequest for a stay. In the latter type of program,absent such an order, foreclosure proceedingsmay go ahead. Programs also vary in the durationof a stay. Some programs stay proceedings for theduration of mediation or until a homeowner failsto appear for a scheduled session, while othersset a fixed time by which mediation must be com-pleted and the stay will terminate. Occasionally,if there are multiple sessions, a continuanceorder must be entered at the end of each sessionin order to clarify that the stay is continuinguntil the next scheduled meeting.

Programs that refer foreclosures to alternativedispute resolution upon the filing of a complainttypically stay proceedings as long as there is a rea-sonable basis for continuing the mediationprocess. Under the Maine statute the court willnot enter judgment until mediation has con-cluded. In Connecticut proceedings are stayedpending mediation, although the defendant’stime to file an answer is not stayed. The Indianastatute provides for a stay of proceedings for 90days to allow for conferences to take place. At thelocal level, most court-initiated foreclosure medi-ation programs provide for some form of auto-matic stay of proceedings.93


The statewide programs in New Jersey andNew York and the local programs in Santa Fe,New Mexico and Louisville, Kentucky, do notprovide for an automatic stay or delay of pro-ceedings. In these jurisdictions borrowers mustapply to the courts or a sheriff for a stay if media-tion is not completed by a pleading deadline orthe sale date.

In programs in non-judicial foreclosure states,such as those in Oregon, Michigan, and California,there is no court imposed stay of a legal proceed-ing. Instead, the statutes require a delay of a fixedperiod—thirty, sixty, or ninety days—before theservicer may proceed with the next step in a non-judicial foreclosure. In Nevada, the trustee maynot proceed with a non judicial foreclosure saleuntil the mediator certifies that the parties actedin good faith and could not reach an agreement.94

4. Does the Court Have Direct SupervisonOver the Enforecement of ServicerObligations, Including the Power toImpose Sanctions?

A number of programs styled as mediation orconference programs do not involve any directcourt supervision over the interactions betweenservicers and homeowners. These include theprograms in California, Michigan, Indiana, andFlorida’s Twelfth Judicial Circuit. These pro-grams do little more than require a servicer toprovide a statement that it attempted to contactthe homeowner to work out a settlement. Ser-vicers and their attorneys have unfettered controlover any procedures mandated by these pro-grams. For this reason the programs do not pro-vide any meaningful structure for seriousconsideration of alternatives to foreclosure.

To be minimally effective a mediation pro-gram must authorize some neutral official to im-pose sanctions upon servicers who do notcomply with specific obligations under the pro-gram. For example, someone acting in an officialcapacity must have authority to require servicersto comply with their obligations. A judge, courtofficial, or mediator must be able, consistentwith due process, to impose sanctions that in-

clude dismissal of a judicial foreclosure action,an injunction against non-judicial foreclosure,and monetary sanctions. There is ample prece-dent under F.R. Civ. P. 16 and similar alternativedispute resolution rules for courts to imposesanctions for a party’s non-compliance with me-diation rules.95

A common complaint of advocates workingwith mediation programs is that servicers delayresponses and do not turn over documents, some-times proceeding with sales during these extendeddelays. In addition to making stays of foreclosureautomatic, mediation programs must set cleardeadlines for servicers to respond to proposalsand produce documents. Cases must be dismissedupon non-compliance with deadlines.

5. Is There Funding for Outreach, HousingCounselors and Qualifed Counsel forHomeowners?

Some states, including New York and New Jersey,have authorized considerable financial supportfor foreclosure mediations. This includes fund-ing for housing counselors, outreach, and in thecase of New Jersey, to pay for attorneys to repre-sent homeowners in foreclosure cases. Yet, boththe New York and New Jersey programs have gar-nered relatively low levels of homeowner partici-pation so far. The low turnout may be due to a number of factors, including some structuralrestrictions on homeowners’ access to both programs. For example, the New Jersey programlacks an automatic stay of foreclosure proceed-ings and requires that homeowners affirmativelyopt in to the program. The New York programdoes not apply to all residential mortgage fore-closures.

On the other hand, public funding for counselorsand outreach, when combined with structural de-vices that encourage homeowner participation, willlikely produce better participation rates. For ex-ample, the local government funding for out-reach and counseling under the Philadelphiaprogram, combined with automatic participa-tion and stays of foreclosure sales, has likely con-tributed to the high rate of participation there.


Where there is a strong commitment to ex-panding eligibility and bringing in as manyhomeowners as possible, it is likely that expendi-tures for outreach and counseling will produce ahigher turnout. However, if the programs placeno obligations on servicers, funding designed tobring more homeowners into mediation mayproduce few long term benefits for homeowners.

The Availability of Counsel for HomeownersHaving attorneys represent homeowners in fore-closure mediations can help in a number of ways.The presence of an attorney for the homeownercan deter overreaching by servicers’ attorneys andensure that homeowners do not waive importantlegal rights. Court directives to waive conflictrules and allow limited attorney appearances inmediations can increase the numbers of volun-teer attorneys available to assist homeowners.However, limited appearances by inexperiencedattorneys may not provide substantial assistancefor homeowners in the long run. The best optionis obviously to have available free or low costcounsel who are experienced in representinghomeowners in foreclosures and who can remainas counsel for the homeowner throughout theproceeding.

In most jurisdictions there are few attorneyswith the experience necessary to provide full rep-resentation to homeowners in foreclosure, andthis situation is not likely to change during thecurrent foreclosure crisis. Housing counselorsand relatively inexperienced pro bono attorneyswill be appearing with homeowners in the vastmajority of mediations. Given this fact, havingstrict standards for the conduct of the mediationsessions, including procedures that can be re-duced to unambiguous checklists, forms, andspreadsheets, will be helpful.

6. Are Servicers Prohibited from Shifting tothe Homeowner Attorneys’ Fees OrOther Costs of Participating in theMediation Process?

Most foreclosure mediation programs do notcharge a fee to homeowners for participating in

the procedures. This is true for the statewide pro-grams in California, Connecticut, New Jersey, NewYork, Maine, and Michigan, as well as for the localcourt programs in New Mexico, Kentucky, Ohio,and Pennsylvania. However, a few programs haveset payment requirements for homeowners. InNevada the borrower and the lender must eachpay $200 toward a total mediation fee of $400.No mediation will be initiated if the borrowerdoes not pay his or her share of the costs on time.Some programs, such as those in Maine and Ne-vada, have added surcharges to the fees for filingforeclosure complaints or notices of default as ameans to finance the mediation programs.96

Two Florida mediation programs are managedby the Collins Center, a non-profit organization.These programs require that the lender make anup-front payment of $750 to be applied to medi-ation expenses upon the filing of the complaint.97

Two other Florida programs set advance pay-ment fees for lenders of $250 and $350.98 The ad-ministrative orders in these Florida districtsspecifically allow the costs to be taxed as part of ajudgment against the homeowner should theforeclosure proceed to a judgment.

The charges for mediation costs can be a deter-rent to participation for low income homeowners.However, a related cost issue raises more seriousconcerns. In almost all foreclosure mediationprograms servicers can shift their own attorney’sfees incurred in mediation to the homeowner.Servicers and their attorneys often treat the ex-penses of mediation as simply another collectioncost to be charged to the borrower. None of theprograms appear to place a limitation on thispractice. Advocates report that servicers oftenmake express references to fee shifting liability inthe course of mediations. This has a clear impacton homeowners’ willingness to stick with media-tions, particularly when repeated continuancesare needed due to servicers’ delays in producingdocuments or responding to proposals.

States clearly have the authority to limit theattorney’s fees shifting terms of consumer con-tracts.99 State common law and statutory provi-sions have placed limits on amounts and timing


of attorney’s fees shifting in connection withmortgage foreclosures.100 All states should pro-hibit fees shifting in connection with the foreclo-sure mediation programs. Homeowners shouldnot have to fear that each continuance for thelender to comply with its obligations will addhundreds of dollars to their mortgage debt.

HAMP guidelines prohibit servicers charginghomeowners for any costs of implementing aloan modification under the program.101 If themediation focuses upon implementing a loanmodification through a participating servicer,the HAMP rule should be an additional basis forprohibiting fees shifting.

7. Is There a Requirement That JuniorLienholders Be Notified of and Allowedto Participate in Mediations?

The presence of junior mortgages has been acommon obstacle encountered in modifying firstmortgages and in negotiating other settlements.A second mortgage holder may be the same en-tity that holds the first mortgage, or it may be acompletely separate entity. For some types ofmortgages, such as Alt -A loans, as many as halfthe loans in this category included a secondmortgage at the time of origination.102

First lienholders may be reluctant to agree tomodifications that involve concessions fromthem while second lienholders are unaffected.From the homeowner’s perspective, the continu-ing financial burdens from a second mortgagemay make re-default on a modified first mort-gage more likely.

The Treasury Department, through its HAMPprogram, has announced a program for secondmortgages that allows either modification or “ex-tinguishment” of the second lien.103 The HAMPsecond mortgage modification standards followa waterfall similar to the first lien modificationprogram. The Treasury Department providessubsidies to servicers, investors, and homeownersin connection with modifications of second liens.The program also authorizes payments of a smallportion of the underlying debt in return for a sec-ond lienholder’s agreement to extinguish its lien.

Most existing foreclosure mediation programshave not established procedures for routine in-clusion of second lienholders in sessions andconferences. A few programs have establishedsome minimal procedures for notification to sec-ond mortgagees. The administrative orders fortwo Florida circuit court programs provide thatjunior lienholders who have not been defaultedin the judicial foreclosure proceeding will be no-tified of mediation hearings.104 The Louisville,Kentucky administrative order expressly permitsjunior lienholders to participate. Under theMaine statute, the mediator may include any en-tity deemed necessary for effective mediation.The Nevada statute requires that the trustee no-tify anyone with an interest in the property of thehomeowner’s election to mediate

Mediation rules should establish a clear re-quirement that holders of second mortgages benotified of all proceedings involving the prop-erty. Second mortgage holders should be permit-ted to participate in mediations. When a firstmortgage loan is modified can be the ideal time totry to get rid of the second mortgage. The secondlien holder might be willing to accept pennies onthe dollar now when the likely alternative is tolose everything if a foreclosure proceeds.

Conclusion

Our review of the status of foreclosure mediationprograms has shown that there can be a danger inviewing them as an alternative to legislation thatdirects servicers and mortgage holders to makeaffordable loan modifications. For example,bankruptcy code amendments allowing courts tomodify mortgages through reduction of principalwould markedly increase the numbers of afford-able modifications. Federal legislation setting outclear directives for enforcement of the HAMP pro-gram would be far more effective that expectingstate and local mediation systems to oversee en-forcement of this federal program.


In the absence of strong federal legislation,state foreclosure mediation programs could playa role in enforcement of guidelines under the var-ious federal loan modification programs, includ-ing the HAMP program. They can provide aframework for more effective implementation ofthese federal programs. In the overwhelming ma-jority of cases homeowners facing foreclosurewill not have attorneys who can assist them inprotecting their rights under the HAMP pro-gram. Mediations using simple and quick netpresent value calculations should be able to iden-tify cases that are clearly inappropriate for fore-closure. Mandating mediation for all residentialforeclosures and scrutinizing all cases underthese tests can help to minimize unnecessaryforeclosures. Mediations have the added benefitof requiring the appearance of a party responsi-

ble for securitized loans. If there is a clear expec-tation that courts will enforce sound equitable standards, this should deter the responsible par-ties from moving forward before a court with bla-tantly wasteful cases.

Despite the potential to do so, the existingforeclosure mediation programs have yet to es-tablish that they can exert any significant controlover servicer conduct. The performance of theseprograms does not support hopes that voluntaryefforts by servicers will somehow slow the surgein foreclosures. Thousands of preventable, irra-tional, and highly destructive foreclosures arebeing completed every week in the United States.Continuing to treat this epidemic as primarily acommunication problem will ensure that it con-tinues unabated.


Recent state regulation offoreclosures has not approachedits full constitutional potential

Foreclosures have traditionally been the sub-ject of state regulation. There is little likelihoodthat in the near future some new federal foreclo-sure law will come to the rescue of distressedhomeowners and supplant the state laws thatnow regulate foreclosures. Unfortunately, sincethe onset of the current foreclosure crisis statelegislatures have done little to revise archaic fore-closure procedures in ways that would reduce theloss of homes. The nine foreclosure diversionstatutes enacted during 2008 and 2009 weresome of the few new state laws enacted in re-sponse to the foreclosure crisis that were ostensi-bly directed at modifying foreclosure proceduresfor the benefit of homeowners. State courts andlegislatures have much greater power than theyhave chosen to assert in this field.

No one would dispute that the current level ofhome foreclosures has created a severe economiccrisis. Faced with this emergency, states have sub-stantial authority to enact remedial legislation toprotect the vital interests of their citizens and ofthe state itself. State regulation can take theforms of both modification of foreclosure proce-dures and the creation of new substantive rightsfor homeowners facing unreasonable and unfairforeclosures. As will be discussed below, appro-priate foreclosure mediation laws can incorpo-rate many of these needed reforms, bothprocedural and substantive.

States’ Police Power and MediationProcedures—Stay of Foreclosures

In the exercise of the state’s police power thelegislatures and courts of a state have the author-ity to stay foreclosures for substantial periods oftime. The law on this point has been well settledfor more than half a century. For example, De-pression era statutes typically authorized stays offoreclosure sales and extensions of post-sale re-demption periods for several years.105 Most statesenacted some form of moratorium legislationduring the early years of the Depression. Few ofthese statutes were ever challenged on constitu-tional grounds. When challenged, nearly all wereupheld as valid exercises of the states’ policepower in the prevailing economic crisis.

In a landmark decision Home Building & LoanAssociation v. Blaisdell106 the United States SupremeCourt rejected a challenge to a Minnesota foreclo-sure moratorium law brought under the ContractsClause of the U.S. Constitution.107 The Min-nesota statute allowed homeowners to petition acourt for a stay of foreclosure for up to two years.Under the same law courts could also toll therunning of the post sale redemption period forup to two years. According to the Blaisdell Court,the state had authority to modify contract rightsin this manner under its police power. The poten-tial for states to act in this capacity had to be rec-ognized as an implied condition to any contract:“[T]the reservation of the reasonable exercise ofthe protective power of the State is read into all contracts.”108 Protecting all citizens from an

31

APPENDIX

Constitutional Issues Related to State Foreclosure Mediation Laws

economic emergency was thus a permissible basisfor limited impairment of private parties’ con-tract obligations. Under the Blaisdell court’s test,the pertinent question in assessing the validity ofan exercise of the police power became “whetherthe legislation is addressed to a legitimate endand the measures taken are reasonable and ap-propriate to that end.” 109

The Supreme Court revised its formulation ofthe applicable Contracts Clause test in a 1983 de-cision, Energy Reserves Group, Inc., v. Kansas Power& Light Co.110 Here the Court rejected a ContractsClause challenge to a Kansas statute that setprice caps on intrastate natural gas sales. As artic-ulated in this decision, the Court’s current for-mulation has three steps:

1. Is there in fact a substantial impairment of thecreditor’s contractual rights?

2. If yes, the state must have a significant and le-gitimate public purpose behind the regula-tion, such as remedying of a broad and generalsocial or economic problem.

3. If this is a significant and legitimate publicpurpose, the adjustment of the rights and re-sponsibilities of the contracting parties mustbe based upon reasonable conditions and of acharacter appropriate to the public purposesupporting the legislation.111

Under this standard, if a state law satisfies thesecond and third prongs of the above test, a courtwill uphold the law despite a substantial impair-ment of contractual rights under the first prong.The Energy Reserves test thus acknowledges thatstate laws may impair substantive contract obli-gations in a proper exercise of the police power.Prior decisions had characterized state laws as ac-ceptable only when they regulated procedural“remedies,” while unacceptable state laws im-paired substantive contact obligations. The pricecontrols imposed by the Kansas statute at issuein Energy Reserves clearly regulated substantivecontract terms and did not merely alter enforce-ment procedures. Thus the courts have retreatedfrom the strict remedy/obligation dichotomy.

The standards defined by the Blaisdell and En-ergy Reserves rulings allow states to fashion lawsthat stay foreclosures for extended periods oftime. For example, in 1945 the Supreme Courtupheld the constitutionality of a New York fore-closure moratorium law that had been in effectsince 1933.112 The New York law effectively stayedforeclosures based on non payment of loan prin-cipal. The law provided for some form of court-supervised payments by the homeowner duringthe pendency of the stay. Typically the paymentwould consist of some combination of interest,taxes and insurance. Otherwise, for an extendedperiod of time the law substantially altered thelender’s rights to collect regular contractual pay-ments and to foreclose.

Foreclosure moratorium laws enacted duringthe nineteen-thirties typically required some pay-ment, such as a fair rental value, taxes and insur-ance, or interest. These payment amounts weregenerally subject to court review, with the stayconditioned on the homeowner’s continuing tomake the payments. The court-ordered paymentswere invariably less than the contractual amountthat the homeowner would otherwise be obli-gated to pay.

In a time of economic crisis, states clearly havethe authority to set conditions on foreclosures,including authorizing the delays necessary for ef-fective mediation. The stays of foreclosures thatextended over many years during the 1930s wereintended to delay foreclosures until the real es-tate market improved. Foreclosure sales wereproducing scandalously low prices. It was hopedthat an improved market would bring higherprices or allow borrowers to refinance to avoidforeclosure.

A stay of foreclosures pending court-super-vised mediations adds another strong rationalefor a delay of foreclosure sales—the role of themediation itself as an effort to arrive at a benefi-cial outcome for all parties. Minnesota’sSupreme Court, for example, flatly rejected aContracts Clause challenge to a mandatory fore-closure mediation statute applicable to farmproperties during the 1980s.113 The court found


the impairment of contracts to be no more sig-nificant than the extensive limitations imposedby the 1930s Minnesota moratorium law upheldin the Blaisdell decision.

As discussed elsewhere in this Report, many ofthe current foreclosure mediation programsdefer significantly to servicers’ and mortgageholders’ interests in the way they limit stays offoreclosure pending a mediation. If there is nostay or a very limited delay pending a mediation,a servicer has little incentive to take the processseriously. Setting fixed time limits, such as sixtyor ninety days has a similar effect. Servicers canfocus on the clock rather than on any obligationimposed by a mediation rule.

The creditors’ demands for short time limitsfor homeowners to request mediation seems tobe motivated by a fear that homeowners mightrequest mediation at a late stage in the foreclo-sure proceeding, and this would encourage delay.Given that legislation staying foreclosures forseveral years has been held constitutional, the in-cidental delays caused by a mediation at any timebefore a foreclosure sale do not seem substantial.When stays until the end of mediation are auto-matic, servicers who comply promptly with theirobligations under the mediation law will not faceany unreasonable delay.

States’ Police Power andMediation—mandating considerationof specific options and requiringdocumentation State legislatures and state courts not only havebroad authority to stay foreclosures. They canalso compel effective mediation under standardsthat promote accountability. These standardsmust require that the parties consider distinctoptions and document that they have done so.States have a legitimate interest in minimizingthe number of home foreclosures. They can setstandards to ensure that foreclosure is an optionof last resort. Mediation programs can be effec-tive tools for enforcing compliance with these re-quirements. Unfortunately, most foreclosure

mediation programs do not obligate the partiesto consider anything.114 Many set standards thatare so general that they invite servicers to maketoken “take it or leave it” efforts. Legislation orcourt rules can require procedures that are muchmore meaningful and require proof of considera-tion of specific options.

Most servicers are now obligated by federal lawto perform a net present value analysis beforethey proceed with a foreclosure. It is appropriatefor a mediation program to give teeth to this re-quirement by requiring that a servicer explainwhy it will not implement an affordable loanmodification that protects investors better than aforeclosure. This is particularly true when theservicer has signed a contract with the federalgovernment obligating it to implement the mod-ification. Further, there is no reason why a media-tion program cannot mandate this type ofanalysis for all cases, regardless of whether theservicer is signatory to a HAMP contract.

To be effective, a mediation program mustalso require that the servicer produce documen-tation showing the net present value calculationrelated to the proposed foreclosure. Typicallythis will require a disclosure of data submittedfor the calculation, often a spreadsheet or otherdata entry record. Recent initiatives in Maine,Nevada, and Michigan have set requirements forsome form of disclosure along these lines. How-ever, to date only the Maine program requirescomplete disclosure of a specific net presentvalue test. The other programs allow servicers toevade disclosure of this analysis with impunity.Servicing guidelines for various government in-sured and direct loan programs also set precondi-tions to foreclosure. To the extent that servicersand mortgage holders must comply with obliga-tions under any government program, includingcompliance with FHA, RHS, and VA rules, media-tion programs can require that servicers docu-ment compliance with those duties as well.

There are other documents that can be essen-tial to an effective mediation, and programsmust require that servicers produce them. As dis-cussed in section II, supra, these documents can


include appraisals, pooling and servicing agree-ments, and documents necessary to establishthat that the foreclosing entity has standing toforeclose. Requiring that servicers produce thesedocuments does not impair any contract rights.The requirement comports with the state’s inter-est in minimizing the numbers of foreclosures. Itis thus well within the state’s constitutional au-thority to establish requirements to consider op-tions and produce documents.

States’ Police Power andMediation—mediation’s role inenforcing bars on foreclosureMediation rules can set clear, mandatory stan-dards that a servicer must comply with as a con-dition to the exercise of a right to foreclose.Mediations can play a critical role in enforcingthe federal program guidelines that precludeforeclosures by non complying servicers. In addi-tion, mediation programs can set the stage forthe application of courts’ inherent equitablepowers to limit foreclosures that are unfair andunreasonable. Analytical tools such as net pres-ent value tests can be produced through media-tion. These will highlight the cases in whichcourts need to exercise their equitable powers tobar a foreclosure. The following sections will con-sider in more detail the impact foreclosure medi-ations can have in preventing foreclosures thatviolate equitable standards, both in relation togovernment programs and as a matter of tradi-tional state law.

1. Barring foreclosure upon non-compliance with rules of governmentprograms—the role for mediation

Federal agencies insure or originate home loansthrough a number of programs. These includeprograms under the Federal Housing Agency(“FHA”), the Rural Housing Service (“RHS”—asubdivision of the U.S.D.A.), and the VeteransAdministration (“VA”). In these programs thefederal agencies may hold the loans themselves,

as in the case of many RHS loans, or they may su-pervise the activities of private mortgage holderswho own the insured loans. Federal agenciessuch as FHA promulgate regulations that directactivities of the insured private mortgage holdersand their servicers. The regulations often requireservicers to engage in specific loss mitigation ac-tivities before they foreclose on a government in-sured mortgage. For example, under the FHAprogram servicers must provide written noticesto homeowners of certain options for avoidingforeclosure. Under the RHS program the mort-gage holder may not foreclose without offeringthe homeowner the opportunity to apply for amoratorium, which is a temporary suspension ofthe obligation to make payments.

Over the past 35 years there have been manycourt rulings on the question of whether courtsmay bar foreclosures when a government agencyor private mortgage holder owning one of thesegovernment related loans seeks to foreclose with-out complying with the federal agency’s loss mitiga-tion rules. Most courts have barred foreclosureswhen mortgage holders have not complied withthese servicing regulations.115

In the recent decision in Wells Fargo Home LoanMortgage v. Neal, the Maryland Supreme Court af-firmed the continuing validity of this analysis.116

The homeowner in Neal contended that his ser-vicer had not performed certain loss mitigationactions before accelerating his loan. These ac-tions included setting up a face-to-face meetingbetween the borrower and lender before acceler-ating the loan. The court agreed with the home-owner that, under the doctrine of clean hands,the servicer could not declare a default or acceler-ate the loan until it “complies with the statutoryand regulatory imperative to pursue loss mitiga-tion prior to foreclosure.”117

As in many similar decisions involving allega-tions of servicers not following FHA loss mitiga-tion rules, the Neal court applied general principlesof equity to bar the foreclosure. In upholding an in-junction to stay the non-judicial sale, the Neal courtstated:


A mortgagor seeking to raise a violation of the HUDloss mitigation regulations as a defense to foreclosure. . . is not required to pay his or her debt in full inorder to be granted an injunction. This is because,under the principles of equity, a mortgagee’s com-mencement of a foreclosure proceeding on an FHA-insured mortgage, without first having adhered to themandatory HUD loss mitigation regulations, mayinvalidate the mortgagee’s declaration of default.118

The HAMP program guidelines announced bythe Treasury Department in March 2009 placedsignificant obligations upon servicers. These ob-ligations are at least as pervasive as those thatapply to servicers of FHA insured and similargovernment- related loans.119 A servicer who hassigned a HAMP participation agreement mustcomply with program guidelines and reviewhomeowners’ circumstances to see if they qualifyfor affordable loan modifications. Participatingservicers must evaluate borrowers who are morethan 60 days in default for an affordable loanmodification.120 They must use an approved netpresent value test. Servicers must also screen bor-rowers who are current or less than 60 days delin-quent if they inquire about a modification andappear to be at risk for imminent default. Whileevaluating a homeowner for a HAMP modifica-tion, the servicer must refrain from proceedingto a foreclosure sale.121 A sale must not take placeduring the three-month trial payment periodunder the program.

Foreclosure mediation programs clearly couldassist in implementing the HAMP program effec-tively. To do this, the programs must set certainrequirements. For example, servicers must be re-quired to disclose their roles as participants inHAMP. Meaningful sanctions must be imposedon servicers who misrepresent their status underthe servicer contracts. The mediation rules mustmandate that participating servicers produce thenet present value calculation required under theHAMP guidelines. The mediator must refuse toconclude the mediation for servicers who are par-ticipating in HAMP but cannot document the re-

quired affordable loan modification calculationand net present value analysis. Either directlythrough its scheduling powers or by referral to acourt, a mediator must have oversight powersthat can lead to a bar on foreclosing against ahomeowners who is eligible for a HAMP modifi-cation or whose eligibility is under review.

2. Barring foreclosure on general equitablegrounds—loans outside the governmenthousing programs

As discussed above, courts have frequently barredforeclosures when lenders did not comply withloss mitigation rules established by governmenthousing programs. For loans that are not directlysubject to any governmental loss mitigation rules,mediation can still play an important role in deter-ring unfair foreclosures. There is a long traditionof courts exercising a supervisory role over fore-closures of property interests. When they deemedit appropriate, courts have denied the harsh rem-edy of forfeiture in order to prevent unfairnessand overreaching by lenders.122 The U.S. SupremeCourt’s decisions upholding state laws that limitedforeclosing lenders’ remedies emphasized repeat-edly that the state legislatures did nothing morethan formalize a centuries- old practice of review ofthe fairness of foreclosures by state courts.123

The tools for calculating the relative values offoreclosures and loan modifications are newmechanisms that add some precision to a reviewof the fairness of foreclosures. When servicerspursue foreclosures that are not in the best inter-ests of investors based on the net present valueanalysis, courts should step in to prevent theforeclosures. This may raise a potential constitu-tional question: Does a servicer’s pursuit of ademonstrably unwise and destructive financialoption implicate a contract right protected underthe Contracts Clause? This question moves intouncharted territory of constitutional law.

Prior Supreme Court decisions upholding statelaws that limited mortgage holders’ deficiencyclaims suggest that actions by state courts andlegislatures to bar blatantly unfair foreclosures


may not conflict with the Contracts Clause.124

Many state statutes limit or prohibit deficiencyclaims after a foreclosure sale. These statutes ef-fectively limited lenders’ recovery to the value ofthe security property. However, according to sev-eral decisions of the Supreme Court, statestatutes that limited lenders’ deficiency claimsdid not impair any significant constitutionallyprotected property interests of lenders. Ratherthe statutes merely placed reasonable limits onthe recovery of speculative monetary gains.125

In enacting anti-deficiency statutes the statesbalanced the borrowers’ interest in being freefrom burdensome debt repayment obligationsagainst the claims of lenders to a full monetaryrecovery under their notes and mortgages. In theSupreme Court’s view, the state law’s impositionon lenders was a reasonable exercise of the policepower during an economic crisis. Whether imple-mented by courts using their inherent equitablepowers or by state legislatures, limits on wealthdestroying foreclosures should be seen as aproper exercise of states’ police power during thecurrent foreclosure crisis.

It may also be argued that barring foreclosureswhen an affordable loan modification is a betteroption for investors implicates the TakingsClause of the Fourteenth amendment.126 TheTakings Clause jurisprudence recognizes twotypes of “taking” by governmental action. Oneform of taking occurs when the governmentphysically takes over property. The other involvesa “regulatory” taking.127 Control over foreclo-sures potentially implicates a regulatory takingof property rights.

In assessing the propriety of a regulatory im-pairment under the Takings Clause, the courtslook at two factors: (1) the degree to which the

governmental action interferes with distinct “in-vestment backed expectations” of the owner, and(2) the character of the government action, in-cluding the purpose served128 Like the rule ap-plied for the Contracts Clause, the TakingsClause analysis relies upon a standard of reason-ableness: is the goal of the state regulation rea-sonable and are the regulatory burdens imposedto meet that goal reasonable?

State action barring lenders from foreclosingwhen the results of a net present value test showthat the monetary harm to investors from fore-closure will exceed the cost of an affordable loanmodification should not violate the TakingsClause. Many of the modification programs, suchas those used under the HAMP program and bythe FDIC, do not force lenders to write off any se-cured debt. At most, under these programs a partof the secured debt will be set aside and securedby a separate non-interest bearing lien. Under aTakings Clause analysis, preserving the lender’s lienand allowing foreclosure upon a future default inpayments should be adequate safeguards to pro-tect the secured lender’s property interest.129

By way of analogy, in decisions dating back tothe World War I era, courts have rejected chal-lenges to rent control laws brought under theTakings Clause.130 Rent control laws impose sub-stantial restrictions on property owners’ rights.For example, the laws may bar owners from ter-minating leases, recovering possession of theirproperties, and collecting the full market rentthey would otherwise obtain. Nevertheless, inmost cases the courts have rejected TakingsClause challenges to rent control laws and simi-lar types of property regulation so long as thelaws included reasonable protections to deter-mine the fair return on investment.131


Notes

1 See e.g. 42 Pa. C.S.A. § 325(e); Florida Rule of JudicialAdmin. No. 2215(b)(2). The Florida Supreme Court com-missioned a task force to evaluate restructuring its decen-tralized system of circuit court foreclosure mediationprograms. The Florida Supreme Court Task Force’s Final Re-port and Recommendations on Residential Mortgage ForeclosureCases (August 17, 2009), recommends moving toward a moreuniform statewide system.2 e.g., Cheyenne Hopkins, Modification: Tentative Steps Towarda Regulatory Consensus, American Banker (Nov. 27, 2007); TheSubprime Lending Crisis: The Economic Impact on Wealth, Prop-erty Values and Tax Revenues, and How We Got Here, Report andRecommendations by the Majority Staff of the Joint Eco-nomic Committee (October 2007); Remarks of FDIC Chair-man Sheila C. Bair, American Securitization Form (ASF)Annual Meeting (June 6, 2007). Statement on Loss Mitiga-tion Strategies for Servicers of Residential Mortgages (Sept.2007), available at http://www.occ.treas.gov/ftp/bulletin/2007-38a.pdf; Associated Press, Paulson to Mortgage Industry:Help Curb Defaults (Oct. 31, 2007), available at http://money.cnn.com/2007/10/31/real_estate/paulson_housing.ap/; American Securitization Forum, Streamlined Foreclosure andLoss Avoidance Framework for Securitized Subprime AdjustableRate Mortgage Loans, Executive Summary (Dec. 6, 2007),available at http://www.treas.gov/press/releases/hp706.htm. 3 Alan M. White, Deleveraging the American Homeowner:The Failure of 2008 Voluntary Mortgage Contract Modifica-tion, 41 Connecticut Law Rev. 1107 (2009). Electronic copyavailable at: http://ssrn.com/abstract=1325534 at 144 Id.5 Alan M. White, June 25, 2009 Columbia Collateral FileSummary, Valparaiso University Law School, available alongwith other monthly updates at http://www.valpo.edu/law/faculty/awhite/data/index.php . 6 Id.7 Statewide Mortgage Foreclosure Mediation Program LaunchedPress Release Office of the Attorney General of New Jer-sey, Jan. 6, 2009 http://www.nj.gov/oag/newsreleases09/pr20090109a.html8 From January 2009 through June 2009 the program com-pleted 854 mediations. See p. 23, supra.9 Las Vegas Review-Journal May 6, 2009 Mortgage Mediation:Bill Shifts to Senate http://www.lvrj.com/news/44445017.html10 Office of the Comptroller of the Currency and Office ofThrift Supervision, OCC and OTS Mortgage Metrics ReportFourth Quarter 2008 (April 2009) p. 7.11 Id at p. 8.12 Office of the Comptroller of the Currency and Office ofThrift Supervision, OCC and OTS Mortgage Metrics ReportFirst Quarter 2009 (June 2009) p. 25 (54.10% of modifica-tions during first quarter 2009 reduced payments; less than2% of modifications wrote off any principal); Alan M. White,July 27, 209 Columbia Collateral File Summary Statistics,Valparaiso U. School of Law (data covering period June 25,2009 to July 27, 2009) http://www.valpo.edu/law/faculty/

awhite/data/jul_09_summary.pdf ( 65% of loan modifica-tions reduced payments, frequency of principal write-offsdeclined from previous survey periods).13 HOPE NOW press releases claimed servicers made2,911,609 “workouts” between July 2007 and November2008. Congressional Oversight Panel, Foreclosure Crisis: Work-ing Toward a Solution: March Oversight Report, March 6, 2009,pp. 38 (available at http://cop.senate.gov/documents/cop-030609-report.pdf). The majority of these “workouts” wererepayment agreements that increased homeowners’monthly payments. Id. No hard data was ever provided onthe loan modifications under the program, and other datahave shown that most of the modifications during this pe-riod increased payments for borrowers, which led to sub-stantial redefaults. 14 Congressional Oversight Panel, Foreclosure Crisis: WorkingToward a Solution: March Oversight Report, March 6, 2009, pp.43 (available at http://cop.senate.gov/documents/cop-030609-report.pdf).15 Id. 16 See generally Stephen Labaton, Ailing, Banks Still Field StrongLobby at Capitol, New York Times, June 4, 2009.17 U. S. Department of Treasury, Making Home Affordable FactSheet, March 4, 2009 (available at http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf); see generallyReport to Congressional Committees, Troubled Asset ReliefProgram: Treasury Actions Needed to Make the Home AffordableModification Program More Transparent and Accountable, U.S.Government Accountability Office No. GAO-09-837 (July2009). 18 U. S. Department of Treasury, Making Home Affordable FactSheet, March 4, 2009 (available at http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf).; Report toCongressional Committees, Troubled Asset Relief Program:Treasury Actions Needed to Make the Home Affordable Modifica-tion Program More Transparent and Accountable, U.S. Govern-ment Accountability Office No. GAO-09-837, July 2009 p. 9.19 See HAMP refinance program description: http://www.makinghomeaffordable.gov/refinance_eligibility.html.20 HAMP program guidelines and directives, Servicer Partici-pation Agreement, and FAQ available at https://www.hm-padmin.com/portal/programs/hamp_servicer.html.21 See Home Affordable Modification Program SupplementalDirective 09-01 April 6, 2009. p. 14 https://www.hmpadmin.com/portal/docs/sd0901.pdf22 HAMP Servicer Performance Report Through July 2009(August 4, 2009) at http://www.financialstability.gov/latest/tg252.html; Testimony of Herbert M. Allison, Assistant Sec-retary for Financial Stability before the U.S. Senate Commit-tee on Banking, Housing and Urban Affairs, July 16, 2009.23 Fannie Mae guidelines at https://www.efanniemae.com/sf/mha/mhamod/ ; Freddie Mac guidelines at http://www.freddiemac.com/singlefamily/service/mha_modification.html;FHA/HUD guidelines at www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09.23ml.doc.24 See HAMP NPV Model Overview at https://www.hmpadmin.com/portal/docs/hamp_servicer/npvoverview.pdf; HAMPReviewing and Interpreting NPV Test results at https://


www.hmpadmin.com/portal/support/training.htm25 American Securitization Forum, Statement of Principles,Recommendations, and Guidelines For the Modification ofSecuritized Subprime Residential Mortgages June 2007. p. 6(“In evaluating whether a proposed loan modification willmaximize recoveries to the investors, the servicer shouldcompare the anticipated recovery under the loan modifica-tion to the anticipated recovery through foreclosure on anet present value basis. Whichever action is determined bythe servicer to maximize recovery should be deemed to be inthe best interests of the investors.”26 FDIC Loan Modification in Box overview and guidelinesat http://www.fdic.gov/consumers/loans/loanmod/loanmodguide.html 27 https://www.hmpadmin.com/portal/docs/npvoverview.pdf28 In a major concession to servicers, the HAMP programdoes not require reduction of principal or a write-down ofany part of the debt. The program may require forbearanceof a portion of the amortizing principal—allowing lendersto retain a non interest bearing lien for any forborne princi-pal. This forbearance creates a future balloon payment dueat the end of the loan term or upon sale or refinancing. 29 HAMP Supplemental Directive 09-01, supra at p.4.30 HAMP Supplemental Directive 09-01, supra p. 5–6.31 HAMP Supplemental Directive 09-01, supra. p. 14 https://www.hmpadmin.com/portal/docs/sd0901.pdf32 Id at p. 2–3.33 Id. at p. 4.34 Helping Families Save Their Homes Act of 2009, Pub. L.No. 111-22, 123 Stat. 1632 (2009). The Act provides: Notwith-standing any other provision of law, whenever a servicer of resi-dential mortgages agrees to enter into a qualified lossmitigation plan with respect to one or more residential mort-gages originated before the date of enactment of [the Act],including mortgages held in a securitization or other invest-ment vehicle—

(1) to the extent that the servicer owes a duty to investorsor other parties to maximize the net present value of suchmortgages, the duty shall be construed to apply to all suchinvestors and parties, and not to any particular party orgroup of parties; and

(2) the servicer shall be deemed to have satisfied the dutyset forth in paragraph (1) if, before December 31, 2012, theservicer implements a qualified loss mitigation plan thatmeets the following criteria:

(A) Default on the payment of such mortgage has oc-curred, is imminent, or is reasonably foreseeable, assuch terms are defined by guidelines issued by theSecretary of the Treasury or his designee under theEmergency Economic Stabilization Act of 2008.

(B) The mortgagor occupies the property securing themortgage as his or her principal residence.

(C) The servicer reasonably determined, consistent withthe guidelines issued by the secretary of the Treasuryor his designee, that the application of such qualifiedloss mitigation plan to a mortgage or class of mort-gages will likely provide an anticipated recovery on

the outstanding principal mortgage debt that will ex-ceed the anticipated recovery through foreclosures.

(b) NO LIABILITY—A servicer that is deemed to be act-ing in the best interest of all investors or other parties underthis section shall not be liable to any party who is owed aduty under subsection (a)(1), and shall not be subject to anyinjunction, stay, or other equitable relief to such party,based solely upon the implementation by the servicer of aqualified loss mitigation plan.

(c) STANDARD INDUSTRY PRACTICE.—The qualifiedloss mitigation plan guidelines issued by the Secretary ofthe Treasury under the Emergency Economic StabilizationAct of 2008 shall constitute standard industry practice forpurposes of all Federal and State law.

(d) SCOPE OF SAFE HARBOR—Any person, including atrustee, issuer, and loan originator, shall not be liable formonetary damages or be subject to an injunction, stay, orother equitable relief, based solely upon the cooperation ofsuch person with a servicer when such cooperation is neces-sary for the servicer to implement a qualified loss mitigationplan that meets the requirements of subsection (a).35 Troubled Asset Relief Program: Treasury Action Neededto Make the Home Affordable Modification Program MoreTransparent and Accountable, U.S. Government Accounta-bility Office Report to Congressional Committees GAO-09837 July 2009.36 Making Home Affordable Program Report August 4, 2009http://www.treas.gov/press/releases/docs/MHA_public_re-port.pdf. See also Andrea Fuller, U.S. Effort Aids Only 9% of Eli-gible Homeowners, New York Times August 4, 2009; 37 See generally Testimony of Diane E. Thompson, NationalConsumer Law Center, U.S. Senate Committee on Banking,Housing, & Urban Affairs July 16, 2009.38 Id.39 See generally Congressional Oversight Panel, March 6, 2009Report supra, pp. 44-55.40 See e.g. cases recognizing affirmative defense to foreclosurein lender’s failure to comply with FHA loss mitigationguidelines: Ghervescu v. Wells Fargo Home Mortgage, 2008WL 660248 (Cal. Ct. App. Mar. 13, 2008); Wells Fargo HomeLoan Mortgage v. Neal, 922 A.2d 538 (Md. 2007); Fleet RealEstate Funding Corp. v. Smith, 530 A.2d 919 (Pa. Super.1987); FNMA v. Moore, 609 F. Supp. 194 (D.C. Ill. 1985); As-sociated East Mortgage Co. v. Young, 394 A.2d 899 (N.J.Super. 1978); FNMA v. Ricks, 372 N.Y.S. 2d 485 (1975).41 Senate Bill 628 Engrossed Version—A, § 6.42 Ryan Frank, Foreclosure Relief Bill Stalls in Oregon Senate, TheOregonian, June 18, 2009 (http://www.oregonlive.com/busi-ness/oregonian/index.ssf?/base/business/1245297321249740.xml&coll=7); Oregon Legislation: Mandatory Mediation Com-promise to Emerge, United Trustee Association eNews June 5,2009 (http://www.unitedtrustees.com/enews/461.php).43 Oregon Enrolled Senate Bill 628.44 Enrolled bills 4453, 4454, 4455 as signed by GovernorMay 20, 2009, effective July 5, 2009.45 Nevada Assembly Bill No. 149, effective July 1, 2009.46 Nevada Supreme Court Rule 7(3), effective July 1, 2009. 47 LD 1418 §§ 3, 13, amending 14 Maine Rev. Stat. Ann. §


6231-A).48 The FDIC loan modification model is similar, but notidentical to the standard HAMP spreadsheet calculation. Seehttp://www.fdic.gov/consumers/loans/loanmod/loanmod-guide.html.49 LD 1418 §§ 3, 13, amending 14 Maine Rev. Stat. Ann. §6231-A50 Id. at § 7.51 Home Affordable Modification Program SupplementalDirective 09-01 April 6, 2009. p. 14 https://www.hmpadmin.com/portal/docs/sd0901.pdf52 Congressional Oversight Panel, Foreclosure Crisis: WorkingToward a Solution: March Oversight Report, March 6, 2009, pp.49–52. (available at http://cop.senate.gov/documents/cop-030609-report.pdf).53 Information on the FDIC loan modification “loan mod ina box” spreadsheet can be found at http://www.fdic.gov/consumers/loans/loanmod/loanmodguide.html.54 14 Me. Rev. Stat. § 6321-A.55 The Michigan and California conference statutes set outsome very broad standards for loan modification guidelinesthat are deemed acceptable. However, homeowners do notreceive the actual net present value calculation for theirloan. The standards themselves allow servicers considerablediscretion in considering a modification.56 See, Note 122, infra.57 See Nick. v. Morgan’s Foods, Inc.., 99 F. Supp. 2d 1056(E.D. Mo. 2000), affirmed 270 F.3d 590 (8th Cir. 2000) (sanc-tions imposed for bad faith participation in ADR session);43 A.L.R. 5th 545 (1996).58 Under the administrative orders for the First, Eleventh,and Nineteenth circuits the court may impose sanctions ifthe lender breaches a settlement agreement.59 Maine LD 1418,amending Maine Rev. Stat. § 6231-A.60 See, Note 122, infra.61 Nevada Assembly Bill No. 149, effective July 1, 2009.62 See e.g., Landmark National Bank v. Kesler, (— P.3d —, 2009WL 2633640 (Kan. Aug. 28, 2009) (MERS cannot make itselfa necessary party to a foreclosure action by labeling itself a“mortgagee” in boilerplate language). See also MortgageElectronic Registration System, Inc. v. Southwest Homes ofArkansas, — S.W.3d —, 2009 WL 723182 ( Ark., March 19,2009) In re Jacobson, — B.R. —, 2009 WL 567188 * 5 (Bankr.W.D. Wash. Mar. 10, 2009)Wells Fargo Bank, N.A. v. Jordan,2009 WL 625560 (Ohio App. Mar. 12, 2009) In re Kang JinHwang, 396 B.R. 757, 770-71 ( Bankr. C.D. Cal. 2008) In reVargas, 396 B.R. 511, 516-17 (Bankr. C.D. Cal. 2008) HSBCBank USA, NA v. Yeasmin, 19 Misc.3d 1127(A), 866 N.Y.S.2d 92 (Table) (N.Y. Sup. 2008) In re Nosek, 386 B.R. 374(Bankr. D. Mass. 2008) (imposing sanctions of $250,000 oncreditor for misrepresenting status of holder of note duringprotracted litigation) In re Foreclosure Cases, 521 F. Supp.2d 650 (S.D. Ohio 2007); In re Parsley, 384 B.R. 138 (Bankr.S.D. Tex. 2008); In re Maisel, 378 B.R. 19 (Bankr. D. Mass.2007); Everhome Mortgage Co. v. Rowland, 2008 WL747698 (Ohio Ct. App. Mar. 20, 2008); DJL Mortgage Capi-tal, Inc. v. Parsons, 2008 WL 697400 (Ohio Ct. App. Mar. 13,2008).

63 See e.g. F.R. Civ. P. Nos. 17, 19. 64 Nevada Assembly Bill No. 149, effective July 1, 2009.65 Nevada Supreme Court Rule 7(3).66 Alternative Dispute Resolution Rules New Mexico FirstJudicial District,http://firstdistrictcourt.com/Forms/doc/Plaintiff ’s%20info%20response.doc67 Summit County Ohio Court of Common Pleas Rules:http://www.summitcpcourt.net/ 68 Seminole County Procedure for Mortgage ForeclosureHearings at http://www.flcourts18.org/PDF/Foreclosures/Simmons_Foreclosure_Procedure.pdf.69 N.Y. RPAPL § 130270 14 Maine Rev. Stat. § 6321 [check]71 Mich. Comp. Laws Ann. § 600.3204.72 Home Affordable Modification Program, SupplementalDirective 09-01 April 6, 2009 p. 18.73 See e.g. Staff of Joint Economics Committee, 110th Cong.,1st Sess., The Subprime Lending Crisis: The Economic Impacton Wealth, Property Values and Tax Revenues, and How WeGot There (2007) http://jec.senate.gov/index.cfm?FuseAction=Reports.Reports&ContentRecord_id=c6627bb27e9c-9af9-7ac7-32b94d398d27&Region_id=&Issue_id= _____, infra.(projecting foreclosed home owners will lose $71 billion dueto foreclosure crisis, neighbors will lose $32 billion, andstate and local governments will lose $917 million in prop-erty tax revenue).74 See Appendix on Constitutional Issues, supra.75 Franklin, Lucas, and Summit counties.76 First, Eleventh, and Nineteenth judicial circuits.77 Allegheny, Bucks, Northampton and Philadelphia counties. 78 N.Y. C.P.L.R. Rule 3408. 79 Congressional Oversight Panel, The Foreclosure Crisis: Work-ing Toward a Solution (March Oversight Report) March 6,2009 at p. 15.80 Id. at p. 18.81 OCC and OTS Mortgage Metrics Report, Disclosure ofNational Bank and Federal Thrift Mortgage Loan Data,April 2009.82 Home Affordable Modification Program (HAMP) ServicerReporting Requirements at https://www.hmpadmin.com/portal/docs/hamp_servicer/hampreportingrequirements.pdf83 State of Connecticut Judicial Branch Data Report July 1,2008 though April 30, 2009..84 Id.85 First Judicial District of Pennsylvania Press Release June30, 2009 (“First Judicial District Marks One-Year Anniver-sary of Residential Mortgage Foreclosure Diversion Pro-gram as Approximately 1400 Philadelphia Homes AvertedFrom Sheriff Sale”).86 David Rothstein and Sapna Mehta, Foreclosure Growth inOhio 2009 Policy Matters Ohio, March 2009 p. 2 (available atwww.policymattersohio.org).87 Data provided by Cuyahoga County Court of CommonPleas June 26, 2009.88 Data provided by “Franklin County Foreclosure Media-tion Project (FCFMP) Memorandum” dated August 10,2009.


89 Data provided by New York Office of Court Administra-tion July 13, 2009.90 The New York data records strictly settlements reached atconferences. it excludes settlements reached before and afterthe settlement conferences even though the case was techni-cally involved in a conference proceeding at the time of set-tlement. The data was provided with the further caveat thatnot all courts within the designated counties were reportingdata in consistent or systematic ways. 91 Office of New Jersey Attorney General, New Jersey Foreclo-sure Mediation Program Data Through June 30, 2009 (pro-vided August 26, 2009).92 Maine Public law LD 1418 § 7 B.93 The programs in the First, Eleventh, and Eighteenth judi-cial circuits in Florida stay proceedings automatically whilea foreclosure is referred to mediation. The programs inBucks, Northampton and Philadelphia counties similarlystay proceedings automatically while mediation is pending.The automatic stays in Allegheny County Pennsylvania in-corporate a fixed time of 90 days to conclude mediation.The Ohio county programs generally limit mediation tocases in which the homeowner has filed an answer, ap-peared, or made some formal request for mediation. Underthe Cuyahoga County program the stay is for 60 days, withthe court able to extend the time by separate order. TheFranklin County, Ohio program extends the time to answerthe complaint for 60 days in cases referred to mediation. Re-questing mediation under the Lucas and Summit countiesprogram in Ohio extends the time to file an answer, and pro-ceedings for entry of judgment are stayed until mediationhas been concluded. 94 Nevada 2009 A.B. 149 § 7.95 See e.g. Nick. v. Morgan’s Foods, Inc.., 99 F. Supp. 2d 1056(E.D. Mo. 2000), affirmed 270 F.3d 590 (8th Cir. 2000) (sanc-tions imposed for bad faith participation in ADR session);43 A.L.R. 5th 545 (1996).96 Court rules implementing Maine foreclosure diversionstatute add a $200.00 administrative fee to all foreclosureactions filed on or after June 15, 2009. This fee is imposed inaddition to the filing fee upon all foreclosure action filingsin the state. The revenue generated by the fee will be used tofund the diversion program. http://www.courts.state.me.us/court_info/rules/fees.shtml#6 2009 Nevada Assembly BillNo. 65 added a $50 new fee for recording a Notice of Defaultand Election to Sell effective July 1, 2009., to be paid over to account for foreclosure mediation http://www.nevadajudiciary.us/images/foreclosure/trusteebrocure.pdf97 First and Nineteenth judicial circuits.98 The Eleventh and Eighteenth judicial circuits.99 See e.g. Ala. Code § 5-19-10; Iowa Code Ann. § 537.2507;S.D. Codified Laws § 15-17-39.100 See e.g. In re Lake, 245 B.R. 282 (Bankr. N.D. Ohio 2000)(Ohio common law prohibits enforcement of fees shiftingprovision of notes and mortgages that were not fairly bar-gained for); Spencer Savings Bank, SLA v. Shaw, 401 N.J.Super. 1, 949 A.2d 218 (2008) (New Jersey Fair Foreclosurestatute prohibits claims for fees incurred prior to filing of

foreclosure complaint); In re Hatala, 295 B.R. 62 (Bankr. D.N.J. 2003) (provisions of New Jersey court rule, not terms ofmortgage and note or lender’s actual expenditures deter-mine homeowner’s liability for fees); In re Schwartz, 68 B.R.376 (Bankr. E.D. Pa. 1986) (terms of Pennsylvania Act No. 6,41 P.S. § 406 limit pre filing attorney’s fees related to mort-gage foreclosure to $50.00) 101 Home Affordable Modification Program SupplementalDirective 09-01, April 6, 2009 p. 22 ( https://www.hmpad-min.com/portal/docs/sd0901.pdf)102 Congressional Oversight Panel, Foreclosure Crisis: Workingtoward a Solution (March 6, 2009) p. 47.103 Making Home Affordable: Introduction of the SecondLien Modification Program (2MP), Supplemental Directive9-05 (August 13, 2009). https://www.hmpadmin.com/por-tal/docs/second_lien/sd0905.pdf .104 These are the Ninth and Eighteenth judicial circuits.105 Osborne on Mortgages § 331 (2d ed. 1979). See generallyPoteat, State Legislative Relief for the Mortgage Debtor during theDepression, 5 Law and Contemporary Problems, 517 (1938);Feller, Moratory Legislation: A Comparative Study, 46 Harvard L.Rev. 1061 (1933); G. Glenn, Mortgages, Vol. II §§ 150 to 167(1943); Powell on Real Property § 37.49 (1968 ed.). 106 290 U.S. 398 (1934).107 The “Contracts Clause,” Article 1, Section 10 of theUnited States Constitution provides that “No state shall . . .pass any Law . . . impairing the Obligation of Contracts.”The Constitutional Convention added this provision in re-action to a spate of debtor relief laws recently enacted by thestates. The founders of the new national government per-ceived these state laws as a threat to the country’s ability tobuild credit and compete as a growing commercial nation.See generally Samuel L. Olken, Charles Evans Hughes and theBlaisdell Decision: a Historical Study of Contracts Clause Jurispru-dence, 72 Or. L. Rev. 513, 517-518 (1993).108 Id. 290 U.S. at 443-44.109 Id. 290 U.S. at 438.110 459 U.S. 400 (1983).111 Energy Reserves, supra 456 U.S. at 411-412.112 East New York Savings Bank v. Hahn, 326 U.S. 230 (1945).113 Laue v. Proctorville Credit, 390 N.W. 2d 823 (1986). See gen-erally Robert M. Lawless, The American Response to FarmCrises: Procedural Debtor Relief, 1988 Univ. of Ill. L. Rev.1037 (1988); Roland C. Amundson and Lewis J. Rotman, De-pression Jurisprudence Revisited: Minnesota’s Moratorium on Mort-gage Foreclosure, 10 Wm. Mitchell L. Rev. 805 (1984);Timothy D. Benton, Iowa’s Mortgage Moratorium Statute: AConstitutional Analysis, 33 Drake L. Rev. 303 (1983-84); Note,12 Real Estate Law Journal 366 (1984). 114 See Part I, supra.115 See Note 40, supra. CAL.116 922 A.2d 538 (Md. 2007).117 Id. 922 A.2d at 553.118 Id. 922 A.2d at 551119 Treasury’s guidelines for the HAMP program, includingguidelines for its net present value test can be found athttps://www.hmpadmin.com/portal/index.html.


120 See Note 29, supra.121 See Note 29, 30–31, supra.122 See e.g. Hebert T. Tiffany & Basil Jones 5 Tiffany Real Prop-erty § 1556 (2008); 55 Am Jur. 2d Mortgages § 676; MiltonR. Friedman & James Charles Smith, Friedman on Contracts &Conveyance of Real Property § 3:6.5 (2008) 59 C.J.S. Mortgages§ 512 (2009); Northeast Savings v. Hintlian, 696 A.2d 315(Conn. 1997); Sovereign Bank, FSB v. Kuelzow, 687 A.2d1039 (N.J. Super. Ct. 1997); Rosselot v. Heimbrock, 561 N.E.2d 555 (Ohio Ap.. 1988); Woods v. Monticello Dev. Co., 687P.2d 1324 (Colo. Ct. App. 1982). See also Lo v. Jensen, 88 Cal.App. 4th 1093, 106 Cal. Rptr. 2d 443 (2001) (applying equi-table principles in non judicial foreclosure context); Gilroyv. Ryberg, 266 Neb. 617, 667 N.W. 2d 544 (2003) (same).123 See Home Building & Loan Ass’n v. Blaisdell, 290 U.S.398, 446-47 (1934); Richmond Mortgage Corporation v.Wachovia Bank, 300 U.S. 124, 129-130 (1937) Honeyman v.Jacobs, 306 U.S. 539, 543-44 (1939); Gelfert v. National CityBank of New York, 313 U.S. 221, 231-33 (1941). The Gelfertcourt, which upheld a New York statute barring post fore-closure deficiency claims, summed up this tradition as fol-lows: “We mention these matters here because they indicatethat for about two centuries there has been a rather continu-ous effort through general rule or by appeal to the chancel-lor in specific cases to prevent the machinery of judicial salesfrom becoming an instrument of oppression. And so far asmortgage foreclosures are concerned, numerous deviceshave been employed to safeguard mortgagors from saleswhich will or may result in mortgagees collecting more thantheir due.” 313 U.S. at 232-33. 124 Gelfert v. National City Bank of New York, 313 U.S. 221,233-234 (1941); Honeyman v. Jacobs, 306 U.S. 124, 543-44(1937).125 Id.126 [N]or shall private property be taken for public use, with-out just compensation.” U.S. Const. Amdt. 5, made applica-ble to the states by the Fourteenth Amendment. See e.g. Kelov. City of New London, 546 U.S. 469 (2005) (municipality’saction to acquire private property for transfer to private en-tities as part of planned community redevelopment pro-

gram was for a public use and permissible under takingsclause). Lucas v. South Carolina Coastal Council, 505 U.S.1003 (1992) (environmental regulation that essentially de-prives real property owner of all economically viable use ofland can amount to the same as a physical appropriation ofthe land under takings clause).127 See e.g Brown v. Legal Foundation of Washington, 538U.S. 216, 233 (2003) (noting distinction between analyticalstandards for regulatory as opposed to physical takings);Palazzolo v. Rhode Island, 533 U.S. 606, 617-18 (2001)(same).128 Penn Central Transportation Co. v. City of New York, 438U.S. 104, 130-134 (1978); see generally Palazzolo v. Rhode Is-land, supra, 533 U.S. at 633-34 (O’Connor concurring). 129 Wright v. Vinton Branch of Mountain Trust Bank ofRoanoke, Virginia, 304 U.S. 502 (1938). 130 Block v. Hirsh, 256 U.S. 135 (1921); Marcus Brown Hold-ing Co. v. Feldman, 256 U.S. 170 (1921); Edgar A. Levy Leas-ing Co. v. Siegel, 258 U.S. 342 (1922).131 Yee v. City of Escondido, 503 U.S. 519 (1992); Pennell v.City of San Jose, 485 U.S. 1 (1988). See also Chicago Board ofRealtors v. City of Chicago, 819 F.2d 732 (7th Cir. 1987)(or-dinance regulating charges and other obligations imposedon landlords did not violate contracts clause and other con-stitutional provisions); Troy Ltd. v. Renna, 727 F.2d 287 (3dCir. 1984) (rent control limits on lease termination can beenforced as reasonable standard); Help Hoboken Housing v.City of Hoboken, 650 F. Supp. (D.N.J. 1986) (sustaining or-dinance which imposed penalties for not renting proper-ties); Griffin Development Co. v. City of Oxnard, 39 Cal. 3d256, 703 P.3d 339 (1985) (sustaining ordinance restrictingconversion of rental units to condominiums). San MarcosMobilehome Park Owners’ Assn. v. City of San Marcos, 192Cal App. 3d 1492, 238 Cal. Rptr. 290 (1987) (reasonable rentcontrol procedures for fair return); Hutton Park gardens v.Town Council of Town of West Orange, 68 N.J. 543, 350A.2d 1 (1975) (same); Hall v. City of Santa Barbara, 797 F.2d1493 (9th Cir. 1986) (rent control procedures unreasonableand overly confiscatory); Ross v. City of Berkeley, 655 F.Supp. 820 (N.D. Cal. 1987) (same).
