Foreclosure Mediation

Several states, such as New Jersey and Nevada, and local governments (e.g., Washington, DC)  have instituted mandatory mediation prior to the foreclosure on residential properties.  It’s an interesting move that has helped individuals remain in their homes “a little longer,” but it has come nowhere near its intended purpose.

As seen in Nevada’s recent push to revise its foreclosure mediation program and from anecdotal evidence from New Jersey mediators, the creditors (usually banks) have arrived at these forced mediations generally in bad faith.   That is the rub. 

For mediation to work, the parties must be willing to resolve the dispute, but with some meaningful sacrifice in order to reach a compromise.  For an institutional bank, these mediations are simply procedural nuisances.  That line of thinking should be revisited as the ability for individuals to purchase even the most bargain-basement properties is dwindling and economic recovery remains years out.  

For a business-minded bank, these mediations should be viewed as a real opportunity FOR business.  Since banks have essentially become property management companies, why not:

  • convert the home owners into temporary renters? 
  • condition the transition on holding any personal or business accounts with their bank?
  • require the home owner to seek loans from their bank first (nearly a right of first refusal)?
  • require the home owner to “restart” payments on the mortgage, in its current form, on a date certain three years from now (whatever the mortgage rate was is almost certainly more lucrative than any competitive rate offered now)?

The what ifs of locking in future business seem promising enough to “do good” by a bad debtor, particularly when the option to foreclose remains and decreasing property values hurt the bank’s bottom line, too.

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