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Connecticut's Mandatory Mediation Process Slows The State's Foreclosure Rate — Is That Too Good To Be True?

It's rough out there.

By John F. Hoctor

December 14, 2010

Connecticut’s mandatory foreclosure mediation program is keeping homeowners facing foreclosure safe from being turned out into the cold this winter — or at least safer than they would be elsewhere.

Vince Marino, a foreclosure litigator with the law firm Cohen and Wolf, tells the Advocate, “Connecticut has been lucky and immune from many of the super-high-speed housing-court processes largely popping up in the Sun Belt states.” Mediation has made the foreclosure process in the state “much more civil overall,” he adds.

Connecticut is one of 23 states that require judicial intervention before a foreclosure can take place. The mandatory mediation law, signed on July 1, 2009, requires the homeowner and representatives from the bank to meet with a court-appointed mediator to try to hammer out another option, such as modifying mortgage terms, or a “short sale,” where the bank sells the home to another buyer with the current owner’s permission, bypassing the nerve-racking, embarrassing, credit-destroying process of foreclosure. It’s been used by Washington, D.C. and other municipalities as a benchmark.

According to the state judicial branch’s latest statistics, a total of 8,266 cases have gone through mediation since the program began, as a voluntary part of the process, in July 2008. Seventy-eight percent of the participants have avoided foreclosure and 63 percent remained in their homes.

Connecticut foreclosures soared by 185 percent from January 2007 to January 2008, according to the CT Foreclosure News blog. Connecticut ranked eighth nationally for foreclosures per total number of houses at the start of its mandatory foreclosure mediation program. Today, Connecticut ranks 26th in foreclosure rates. One of every 695 houses in Connecticut is in foreclosure compared to one in 389 nationally, according to RealtyTrac, a real estate foreclosure database.

The Connecticut program is not without its detractors. Boston banking blogger Matt Silverman told the Hartford Courant that the success rate touted by officials is too good to be true, “especially when compared to about a 5 percent success rate everywhere else.” Silverman called on the program to change its criteria so that successful mediation is defined as homeowners staying in their homes, not just avoidance of a foreclosure.

Outgoing Attorney General Richard Blumenthal attempted to further inhibit banks from foreclosing on homes. Blumenthal asked state courts for a 60-day freeze on foreclosures while his office conducts an investigation of charges that mega-lenders rushed through foreclosures. But Superior Court Judge Barbara Quinn rejected the request, ruling that the case-by-case approach should be continued. A freeze, she said, would be “overly broad.”

But the courts did step in, last September, making a standing order that also prevents banks and other lenders from foreclosing until eligible homeowners have applied for assistance through the Obama administration’s Making Home Affordable program, which provides a $1,000 incentive to lenders willing to renegotiate mortgages with borrowers who are unemployed or facing other financial hardships.

Deborah J. Fuller, director of external affairs for the state judicial branch, said in an e-mail to the Advocate that banks are not always trying to gobble up properties. “When we were working on the mandatory mediation [legislation], we were getting direct feedback from the banks and even the lobbyists that they had no real vested interest in taking more properties more quickly,” she says.

A mandatory mediation program doesn’t necessarily protect citizens of a state from rough, fast-paced foreclosure proceedings. Like Connecticut, Florida — which is second to only Nevada in foreclosure rates, with one in 155 homes — requires judicial intervention before foreclosure.

Michael Redman, who runs Foreclosure Hamlet, an influential anti-foreclosure blog in Flordia, claims that his state’s mandatory mediation has resulted in a “rocket docket” program that actually helps banks and other lenders seize property more quickly. “Rocket docket” programs expedite legal proceedings to unclog constipated court systems.

Redman said in an interview, “The ‘rocket docket’ program that was jump-started down here lately exists not to investigate ‘robo-signings’ or other related mortgage fraud.… It exists to launder the crime and bury the evidence by speeding thousands of fraudulent and predatory loans to the end of [their] life cycles, so that the house attached to them can be sold again with clean paperwork. It’s about speed, not justice.”

Connecticut foreclosure attorney Marino has represented both sides, lenders and borrowers. “So-called expedited dockets are not necessarily a bad thing.” he says. “But here in Connecticut, we are doing things in a more cooperative way, procedurally.”