Connecticut Mandates Mediation to Prevent Foreclosures
Starting July 1, Connecticut’s voluntary mediation program to prevent foreclosures will become mandatory after the state General Assembly passed a bill making foreclosure mediations mandatory.
According to housing advocates, the voluntary mediation program has been effective because almost 60 percent of borrowers who participated in the program were able to save their homes from foreclosures. They argued that a mandatory mediation program will further increase the success rate of mediation.
Under the legislation, mediation would be mandatory for all residential foreclosures started between July 1 this year and June 30 next year. More foreclosure filings are expected in the next months based on data from the Mortgage Bankers Association.
MBA records show that over 28,000 mortgage loans in Connecticut are either three months past due or already counted as foreclosures as of the end of March.
Additionally, the state Judicial Branch expects more mediation cases because only around 34 percent of mortgage borrowers qualified for the voluntary mediation scheme have taken advantage of the program.
Deborah Fuller, legislative head of the state Judicial Branch, said her office supported the expansion of the foreclosure mediation program despite the expected increase in work load. The program has been funded with $5 million, but an increase will surely be needed for the expanded implementation of the program.
Meanwhile, banks are expected to increase their resources allotted to the mandatory mediation program, including representatives and lawyers who will attend mandatory mediations and work out repayment schemes to prevent foreclosures.
Connecticut Bankers Association’s vice president Tom Mongellow said the state banking sector initially fought the mandatory mediation program because of lack of details. But he expressed the willingness of banks to cooperate and help prevent more foreclosures.
On the other hand, Christopher Brown, credit chief at Westport-based law firm Begos Horgan & Brown LLP, expressed reservations about the mandatory program. He cited borrowers in pre-foreclosure who were rejected for loan modifications. He however hoped that the mediation scheme would reduce the number of foreclosure cases in courts.
Senator Robert Duff, co-chairman of the legislature’s banking committee, declared the passage of the bill as a huge victory for homeowners.
The other banking committee co-chairman, Representative Ryan Barry, explained that the mandatory mediation scheme was much better than other foreclosure prevention options, such as foreclosure moratoriums and bankruptcy-linked loan modifications.
Barry explained that the mediation program is acceptable to both lenders and borrowers. He said that banks prefer mediation over other options because they do not like moratoriums on foreclosures and do not like to own and maintain foreclosure properties.
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