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Spilka’s Bill Supports Mediation in Forclosure Process

October 23, 2009
By David Riley/Daily News staff
Milford Daily News

When homeowners who face foreclosure turn to MetroWest Legal Services for help, many face a simple barrier – getting their mortgage company on the phone to talk about a compromise.

“Communication with a lender – that’s half the battle right there,” said Megan Christopher, a supervising attorney with the legal services group, which provides free civil legal representation to low-income people.

Senator Spilka said she aims to change that and slow the pace of people losing homes with a proposal to start a foreclosure mediation program for residential property owners in Massachusetts.

Lenders would be required to sit down at least once with a trained mediator and homeowners who opt into the program and try to reach a settlement.

“It’s a low-cost way to get the parties to sit down and talk,” Spilka said yesterday.

The lawmaker testified in favor of her bill during a hearing yesterday on Beacon Hill on several foreclosure-related proposals. Spilka said her bill is the only one of its kind, but it would blend well with others, including a broader package introduced by Attorney General Martha Coakley.

The basic idea was well-received yesterday by legal services attorneys and municipal officials dealing with public safety problems that stem from vacant foreclosed homes.

“Anything that could be done to help a homeowner get through the process would be welcome relief,” said Pam Wilderman, Marlborough’s code enforcement officer, who has been tracking foreclosed homes.

But a representative for Massachusetts mortgage lenders said Spilka’s proposal and others could make the foreclosure process more difficult.

The state would do better to let new foreclosure protection rules adopted just two years ago – including a 90-day period allowing homeowners to try to remedy delinquent payments – to work, said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association.

“No lender wants to foreclose on anyone,” Cuff said. “I’m just not quite sure from the lending community what a mediation process is going to do that’s above the 90-day right to cure or other foreclosure prevention processes that are already available.”

Spilka’s proposal would require lenders to notify homeowners of the option for mediation at the beginning of that 90-day period. Homeowners could opt in within 15 days and a mediation session would be required within five days of both parties being notified the homeowner had been accepted.

Settlements might include a change in sale date, changes in payment terms, modification of the mortgage or an agreement to restructure mortgage debt, Spilka’s office said.

“If the homeowner opts in, the lender has to come to the table,” Spilka said. “Once they’re there and start working through the terms, I think the chances of some kind of renegotiation increases dramatically.”

Homeowners could only use the program once every five years.

The program would rely on existing community mediation programs administered through local courts, Spilka said. Those programs generally rely on private attorneys who work either for a fee per session or as volunteers, she said.

The attorney general’s office would oversee the mediation program.

“We want to keep people in their homes, certainly within reason,” Spilka said. “If people have really gone way out there on a limb, maybe it’s not going to work.”

Massachusetts foreclosures spiked 128 percent in January 2008 over January 2007, according to Spilka’s office.

There are some signs the pace is slowing. The Warren Group, publisher of Banker and Tradesman, said 34.5 percent fewer properties were foreclosed on in Massachusetts in August this year, compared to August 2008.

But as of September, lenders had filed 19,108 petitions to foreclose so far this year, up 31.6 percent from 14,521 last year, the Warren Group said.

Spilka compared her legislation to a mediation program that kicked off in Connecticut last year. As of August, 62 percent of people who participated in that state’s program reached settlements that allowed them to stay in their homes, according to a state official who oversees the program.

Roberta Palmer, program manager for Connecticut’s Court Operations Unit, said as of this summer, her state’s program became mandatory for homeowners in foreclosure proceedings in court. Spilka said she prefers an opt-in model.

Palmer said Connecticut’s program has been successful.

“The ability for a homeowner on their own … to be able to contact the servicer and get a legitimate response on that proposal is slim to none,” Palmer said.

At MetroWest Legal Services in Framingham, Christopher and attorney Steve Matthews said they like the basic premise, although they have some questions about how Spilka’s program would operate.

“We’re very happy that legislators are looking at foreclosure and being concerned about the impact of foreclosure on both consumers and communities,” Christopher said.

David Riley can be reached at 508-626-3919 or driley@cnc.com.

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