Early mediation between lenders and homeowners shows promise in stemming the foreclosure filings flooding trial courts. Having the two parties discuss loan modification before a judge gets involved saves time, court resources and, ideally, a homeowner's residence. It's encouraging to see Pinellas-Pasco Chief Judge Thomas McGrady join this wave of commonsense policy. The rest of Florida needs to follow.
Under rules McGrady established for homesteaded properties in the 6th Judicial Circuit, lenders will have to notify homeowners of a mediation option. Borrowers will also be told of financial counseling organizations that will help them prepare for mediation without a fee, if they cannot afford to pay.
McGrady's approach substantially tracks the recommendations of the Task Force on Residential Mortgage Foreclosures convened by the Florida Supreme Court to address the backlog of nearly 300,000 foreclosure suits statewide. The court is considering the recommendations.
But McGrady deserves credit for not waiting for a mandate. The current system wastes resources and frustrates judges. Either homeowners don't show up for hearings, resigned to losing their home because they can no longer afford the mortgage, or the homeowner is present, with a despondent tale of how he or she couldn't reach anyone in the lender's office to negotiate with or how financial paperwork was sent multiple times and lost.
McGrady's rule means lenders seeking to foreclose on a primary home will have to directly talk with homeowners with the assistance of a professional mediator — a meeting where borrowers are less likely to be jerked around. Any costs will be paid by lenders, or can be added to the debt if no agreement is reached.
Just as beneficial are the referrals for premediation financial counseling. Homeowners who are unable to keep up with mortgage payments need to understand their realistic options. A financial counselor can educate them on the technicalities and prepare them for mediation.
This financial counseling plus mediation approach has succeeded in a series of pilot projects managed by the Collins Center for Public Policy. For the short time that these programs have been operating in Florida's 1st, 11th and 19th judicial circuits, there has been a 73 percent combined settlement rate.
In a similar Philadelphia project, canvassers make personal contact with delinquent borrowers to encourage them to attend mediation. This step probably helps homeowners feel comfortable about participating. It's something McGrady may want to consider, too.
McGrady's new rule should relieve some of the foreclosure backlog in the 6th Circuit, where Pasco County alone has more than 12,000 cases awaiting action. Now, the rest of the state needs to follow suit.