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Bill Seeks To Extend Connecticut Foreclosure Mediation

Kenneth R. Gosselin

March 22, 2011

Legislation that would extend the state's foreclosure mediation program through 2014 and prohibit lenders and servicers from pushing forward with litigation until after mediation is complete has cleared the state legislature's banks committee.

But the wrangling has only just started.

Although bankers have supported the mediation program since it was created in 2008, the bill faces an uphill battle because bankers oppose dismantling how foreclosures now proceed in Connecticut. Their objection: Under the bill, foreclosure cases in court would be delayed while delinquent borrowers are trying to work out loan modifications or other deals with lenders and servicers.

Bankers say that waiting for mediation to be completed could stretch out the foreclosure process for as much as two years in Connecticut. Right now, it can take at least a year, they say.

Housing advocates say the changes would eliminate confusion for borrowers who are in mediation but are simultaneously being forced to either represent themselves or hire a lawyer to mount a defense in a court case.

Rep. William Tong, D-Stamford, co-chairman of the legislature's banks committee, said Monday that he was "brokering a discussion among the banks and housing advocates to see if we can find some common ground."

One area of discussion is likely to be making mediation a shorter, more efficient process, Tong said. Right now, a case can stretch out six to eight months and include an average of five mediation sessions. Some of the delay is caused by both borrowers and lenders not being prepared, Tong said.

It's unclear what the source of the funding for the mediation program would be for the additional years. Last year, the General Assembly extended the program, run through the state's court system, until 2012. But the legislature funded only the current fiscal year, using $3.3 million from the state Department of Banking.

Costs could rise because the legislation also proposes expanding mediation to churches and nonprofit groups.

RealtyTrac, the firm that tracks and markets foreclosures, has reported as of February seven months in a row of year-over-year decreases in foreclosure activity in Connecticut.

But RealtyTrac has said that the declines in foreclosure activity are likely to be more closely related to the fallout from last fall's "robo-signing" scandal than a major improvement in borrower ability to make mortgage payments. The scandal touched off an industry overhaul that has restricted how quickly foreclosures can be processed.

As of Jan. 31, the mediation program has kept 6,086 borrowers in their homes, the majority with loan modifications. Another 1,392 reached agreements to move from their homes through a short sale or other means.

Not all cases reached a mutually agreeable resolution, however: 1,994 cases couldn't be settled and borrowers were forced from their homes.

One criticism of the mediation program is that there has not been tracking to determine how many loan modifications slipped back into foreclosure.