Mediation offer now required before D.C. foreclosures
If you are a District homeowner facing foreclosure, there may be some good news. Last month, Mayor Adrian Fenty signed into law emergency legislation intended to help struggling homeowners.
Under the new law, effective Nov. 17, before a lender can foreclose on a residential property, the borrower must be given the opportunity to enter into mediation with the lender in an attempt to prevent the loss of the family home.
The question now is straightforward: Will mediation work?
Experience elsewhere may offer some insight. Currently, 23 states - including Maryland but not Virginia - have enacted some form of mediation legislation.
The Maryland program is under the auspices of the Office of Administrative Hearings. Chief Judge Thomas Dewberry said, "Our research with other mediation states indicated that only 12 percent of pending foreclosures would be resolved through mediation. Our law just started this year on July 1. We had 96 homeowners request mediation, and 43 cases successfully avoided mediation. We are pleased with that number."
However, that's a small share of Marylanders facing foreclosure. In October alone, lenders filed 3,169 notices of foreclosure throughout the state, according to RealtyTrac, a company that tracks foreclosure statistics.
How consumer protections are changing
Mediation is a process in which two or more people or organizations with differing opinions sit down before a neutral person in an effort to reach a satisfactory compromise. Unlike arbitration - or litigation - mediation is absolutely nonbinding.
Before the new law was enacted, to initiate foreclosure in the District, a lender had only to send the borrower, by certified mail, a formal notice of foreclosure sale. A copy of that notice had to be sent to the District government. The lender could not foreclose until 30 days elapsed from the date the notice was delivered to the District.
The only consumer protection available to a borrower was the right to stop the foreclosure by bringing the loan up to date and paying such foreclosure costs as advertising, trustee and attorney's fees. This right of redemption was only available once every two years.
In the District, there is absolutely no judicial review of foreclosure actions. The burden is on the homeowner to file a lawsuit seeking to prohibit the sale. In Maryland, the foreclosure sale does not have to be conducted by a judge (and so it is called a nonjudicial sale). But the court must audit the sale before it becomes final, and homeowners have the right to file objections to the sale with the court.
In Virginia, the only court involvement is to audit how the sale's proceeds were distributed.
When the D.C. Council was considering foreclosure legislation, it wrestled with the fact that in many states - including New York, New Jersey, Florida and Illinois - judicial foreclosure is the predominant method. The council wasn't ready to go that far. As the Committee on Public Service and Consumer Affairs explained in its report: The committee "is continuing to study the appropriateness of requiring the District to adopt judicial foreclosure in lieu of current practice. In the committee's view, until such studies are completed, it would be premature to recommend the adoption of judicial foreclosure. . . . However, in light of current developments, the committee believes requiring foreclosure mediation is a step in the right direction."