Foreclosure Mediation Program: What is it & How does it Work
Owning a home is a large part of the American dream, but what happens when one can no longer afford to make timely payments on their mortgage? No one plans to miss mortgage payments, but unforeseen circumstances, like job loss or health issues can often put ordinary people at risk of foreclosure. Luckily, there are multiple resources for people facing this hardship. One of these resources is a Foreclosure Mediation Program.
What is a Foreclosure Mediation Program?
Most states, as well as some counties and cities offer mediation programs for homeowners who are facing foreclosure. These programs serve as the neutral intermediary between the borrower and the mortgage-owning bank, whose intention is to help the two parties communicate and negotiate, and hopefully get to the best solution possible. Foreclosure Mediation Programs are not always a quick or easy solution, as mortgage default is a serious situation that carries a lot of implications. Still, taking advantage of such programs can give homeowners some options for navigating their situations. This could result in the bank modifying the terms of the loan or agreeing to a short sale option. In some cases, homeowners can obtain more time to live in the home prior to foreclosure proceedings, and having that time can make a big difference in figuring out what’s next.
Foreclosure Mediation Programs
Foreclosure Mediation Programs are offered by public state and city offices, and are available to residents of the state, county, or city from which they hail. They differ from state to state, as different states have their own laws relating to foreclosure. If you live in one of the states, counties, or cities that offers a foreclosure mediation program, your bank is required to adhere to the program guidelines. The process and specifics can vary from program to program, but the process is typically triggered by a bank initiating a foreclosure, in accordance with state law.
Along with the notice of foreclosure, homeowners often get the following:
- Information about their local mediation program
- US Department of Housing and Urban Development (HUD) - approved housing counselors contact information
- Information about how to initiate the mediation program (assuming enrolling is not automatic)
- Low-cost legal services available in the state or county
This information is often provided because the state laws require lenders to provide helpful resources to borrowers at risk of foreclosure.
Foreclosure Mediation Procedures
Participating in foreclosure mediation is usually initiated by the homeowner contacting a HUD-approved counseling agency. He or she is then scheduled for an interview. These interviews can usually be conducted by phone or in person.
Counseling sessions typically include:
- Answering questions about the homeowner’s financial situation
- Assessing the homeowner’s monthly spending patterns
- Budgeting education and strategies, based on the required mortgage payment and other expenses
- Discussing why the homeowner missed payments
- This information is needed for the hardship affidavit, which is required if the homeowner applies for a foreclosure avoidance option with the mortgage servicer
- The discussion of all available options, with the assessment of pros and cons, and a final recommendation for the best next steps the homeowner can take
- Pay stubs from recent work, and documentation of any additional income from other sources
- Benefit statements from Social Security, disability, unemployment, retirement, or public assistance
- Child support and / or alimony documentation
- Second mortgage or home equity line of credit statements
- Bank statements and recent tax returns
- Detailed information about monthly expenses, including bills and invoices
- Balances of the homeowner’s savings and other assets
Cost of Foreclosure Mediation
Perhaps the best news is that in the cost of participating in a foreclosure mediation program is minimal to the homeowner. Most states recognize that borrowers facing foreclosure have already fallen upon hard times. In some states, the state budget covers these costs. Other states make the banks and lenders cover the costs. In these cases, states collect supplemental charges that are added to the foreclosure filing fee that banks pay when initiating a foreclosure. In the few mediation programs where the homeowners are expected to pay part of the mediation cost, there is normally a free or low-cost option available for borrowers who can’t afford the program. In short, cost of foreclosure mediation will not be an obstacle to most homeowners facing foreclosure.
Foreclosure is a scary and emotional process, and one that will affect your credit history and financial situation for years to come. Utilizing every available resource can help greatly. Be sure to explore foreclosure mediation in your state, city, or county. It can help you feel better about the situation, and see that there are options to how you proceed.