The recent foreclosure debacle and the crumbling of the real estate market caused many more people to file Chapter 7 for the purpose of walking away from their homes without facing any liability because these homeowners were unable to get help from their mortgage companies. As a result of the growing number of borrowers anxious to get loan modifications, I got involved in the then newly created New Jersey State Foreclosure Mediation Program, which guarantees a borrower the right to foreclosure mediation and an opportunity to be reviewed by the mortgage company for a loan modification. To be eligible to apply for mediation, the property must be in active foreclosure, which can be initiated by the lender when the homeowner is three months behind on mortgage payments. However, due to the enormous backlog of foreclosure filings, the average homeowner can be anywhere from eighteen to forty months behind on their mortgage before the official foreclosure action is filed.
In foreclosure mediation, the mediator does not represent either side. Rather, the collective goal of the process is to try to help the homeowner obtain a loan modification and save their home. When a homeowner contacts their lender directly to obtain a loan modification, they often find that the process can take upwards of a year without any final decision. The bank will claim that they did not receive certain paperwork or they need it multiple times, and they will never speak to the same person twice even though a single point of contact is required for each homeowner. The banks are not interested in expediting the process because the servicers are making money every month that the homeowner is in default. This was all part of the mortgage-backed securitization scheme.
In the court-supervised foreclosure mediation process the lender cannot claim that they did not receive the information because I personally have provided it to the attorney for the lender. Therefore, although I cannot guarantee the answer my client may want, I can guarantee they will receive an answer from the bank based upon the correct information calculated according to the bank's particular guidelines. In the event that a loan modification is not offered, the parties can develop an exit strategy that is reasonable for both parties, or alternatively, there is now another option in New Jersey for homeowner/borrowers to get another bite at the modification apple – the loss mitigation program in Chapter 13 bankruptcy.