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State foreclosure mediation program sputters

A mediation program ordered by the Florida Supreme Court to prevent foreclosures has helped only 2,162 homeowners keep their homes.

That's just 3.7 percent of 57,909 foreclosure cases sent to mediation statewide between March and November 2010. Pinellas and Pasco counties recorded 143 settlements between lenders and borrowers, 3.5 percent of those submitted. Hillsborough recorded 30 settlements, just 1.5 percent of total cases.

The figures disappoint Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. He said lenders don't have many options unless borrowers have some ability to pay the loan.

"There's a lot of economic decisions that mitigate against settling," McGrady said.

A successful mediation could lead to a modification of the mortgage loan, such as a lower interest rate or a time extension for the borrower. The mediation applies to owner-occupied, residential properties and aims for a quick resolution. Lenders pay a $750 fee for each case.

The high court ordered mediation in late 2009 in order to aid borrowers and to help a court system clogged with foreclosure cases. The Office of the State Courts Administrator released the first statewide figures on mediation last week.

The program has lowered the backlog, and McGrady hopes the program continues for another year. As for the 143 settlements in his circuit, he said: "It was a beneficial thing. It was worth the effort for them."

Lenders and borrowers reached another 102 settlements in the judicial circuit that covers Citrus and Hernando counties, but specific numbers for just those two counties were unavailable since the circuit includes five counties.

The low rate of settlements looks better when they are calculated against the number of mediations actually held, as opposed to total cases. By this measure, the settlement rate jumps to about 23 percent in Pinellas, Pasco and Hillsborough counties and 27 percent statewide.

The biggest hurdle to reaching more settlements has been contacting borrowers, said Dick Rahter, president of Clearwater-based Mediation Managers. He thinks borrowers are either paranoid of the court system or are inundated with mail about foreclosure help and are ignoring the six attempts to contact them.

Rahter stressed that the recent collapse of several large law firms in Florida, which has stalled hundreds of foreclosure cases in Pinellas and Pasco counties, is keeping the numbers down.

"We'd all like it to be much higher," Rahter said. "It's not as negative as everybody is saying. This is pretty new."

Still, the low number of settlements proves the program needs to be modified or eliminated, defense attorneys said. They said lenders have no incentive to reach settlements.

Another problem: The Supreme Court requires that bank representatives have full authority to approve mortgage workouts with homeowners. But in thousands of cases, banks just service loans owned by distant investors and lack the final authority to sign off on an agreement.

"It's the wizard behind the curtains," said lawyer Matt Weidner. "No one can make a decision. This report is a clear indication that we can't solve this problem. There should be outrage."

Anthony DiMarco, executive vice president at the Florida Bankers Association, said lenders are not discounting the mediation and are bargaining in good faith. The settlement rates would be higher if more borrowers participated, he said.

"The banks are trying to work these out," he said. "If they can, they will."

The process has worked for some.

Attorney Jon Coats has reached settlements in about 15 cases but faults banks for not working more with borrowers who have income. The mediation, he said, should be delayed until later in the foreclosure process so borrowers overcome the obstacles that caused the defaults.

He described the mediation process as a meeting where borrowers are told "yes or no or that they need more paperwork" by an attorney or bank employee in another state.

Coats credits his successful settlements to clients having income and submitting the required paperwork to lenders at least two weeks before hearing.

"There is success there," Coats said. "It's still evolving, and there's a learning curve."

Mark Puente can be reached at mpuente@sptimes.com or (727) 893-8459. Follow him at Twitter at twitter.com/markapuente.

.Fast facts

Foreclosure mediations between March and November 2010

Referrals Mediations conducted Agreements % settle of mediations conducted % settle of total referrals
Pinellas-Pasco counties 4,031 617 143 23.2 3.5
Hillsborough County 2,360 132 30 22.8 1.3
Statewide 57,909 7,941 2,162 27 3.7

State foreclosure mediation program sputters 05/03/11 [Last modified: Wednesday, May 4, 2011 1:50pm]
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