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Judges want to force lender-borrower mediation in Florida foreclosure cases

On a typical Tuesday, Pinellas-Pasco Circuit Judge Susan Gardner sees 40 to 50 mortgage foreclosure cases move across her desk in Dade City. The majority of cases end with a judgment, meaning the borrower loses the property and the bank sets it for sale.

Often, the borrower doesn't bother showing up for the hearing. But of those who do, Gardner hears a familiar refrain.

They can't reach anyone at their lender's office. When they do, they never speak to the same person twice.

"It's been horrendous," one man told Gardner about dealing with his bank. Another woman wrote a letter to her lender's attorney because she could find no other contact information.

Such stories have become doleful background noise in the local real estate crisis. And as more foreclosure filings pile up every day, the judges who hear the cases are brainstorming possible fixes from the courts' side.

"The parties have got to talk so we can get some of these people helped out," Gardner said.

• • •

Managed mediation is the latest avenue being explored. Several circuits in Florida have instituted programs that specifically target homesteaded property owners, not the now-notorious house flippers.

The programs require lenders to pay the full mediation fee and send someone to the table with the authority to negotiate with borrowers. Lenders also have to do some hand-holding with borrowers, instructing them to bring documents like tax returns and pay stubs.

"A lot of the burden is put on (the lenders), as it should be," Gardner said. "They know the rules of the game."

A task force convened by the Florida Supreme Court to examine the foreclosure crisis has endorsed that model, likening it to "off-ramps to get traffic off the road."

"In order to cope with the size of the problem, the huge numbers of incoming foreclosure cases, the Task Force concluded that only managed mediation could handle the problem in a consistent manner statewide," said its report, released Aug. 17.

But not all judges are on board.

Thomas McGrady, chief judge for the Sixth Circuit covering Pasco and Pinellas counties, said forcing mediations could be counterproductive and add expense, especially in cases where people have no real hope of keeping their homes.

"We're talking 10 percent maybe that are good candidates for mediation," said McGrady, who heard civil cases in Pinellas before becoming chief judge.

He favors identifying those top candidates and ordering them to the traditional mediation program available for any civil case.

But Gardner worries that unsophisticated borrowers would be at a disadvantage in that setting.

"Chances are, they're not really prepared," she said.

The Task Force report noted that in managed mediation, lenders may pay more up front but come out ahead if people are able to stay in their homes.

"Frankly, these lending institutions don't want the property. They really don't want the property," said Circuit Judge Lowell Bray, who works in New Port Richey. "Who knows what they're going to sell it for and when they're going to sell it?"

But Bray said he refers only a small fraction to mediation simply because most borrowers don't respond at all to the foreclosure suit.

"There is no issue to mediate," he said.

• • •

The current foreclosure wave has already washed out many investors who had taken on "some really bizarre mortgages," as Bray called them — the interest-only loans and ones with shifting interest rates.

Now it's the average homeowner going under.

But the law doesn't give them special consideration. And once a mortgage is in default — the borrower has stopped paying — there's almost no legal defense.

So the judges are doing what they can. Gardner commonly sets sale dates 90 days out to give borrowers time to find a buyer or retool their loan. McGrady said some judges, when they order mediation, require the lender to pay that cost up front even if it is later shared with the borrower in the settlement.

Whatever the talk about the recession ending and the market rebounding, Pasco County alone had 843 new foreclosure filings in July compared with 712 in July 2008, and there are 12,089 pending foreclosure cases.

"We're struggling, all of us are, to try to come up with solutions to this, to try to improve what we're already doing," McGrady said.

"It's still a problem, a large problem," Bray said.

Molly Moorhead can be reached at moorhead@sptimes.com or (727) 869-6245.

Judges want to force lender-borrower mediation in Florida foreclosure cases 08/30/09 [Last modified: Sunday, August 30, 2009 11:57pm]
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