Justices debate mandatory mediation to ease crisis

November 5, 2009
Daily Business Review
Authored by : Vanessa Blum

The Florida Supreme Court was asked Wednesday to adopt statewide mandatory mediation for residential foreclosures to help judges manage the flood of filings clogging courthouses.

The high court heard arguments on a task force report recommending mandatory mediation as part of a streamlined and uniform approach to the foreclosure crisis.

While questioning some specifics of the plan, justices seemed eager to help circuit courts deal with an onslaught of foreclosure cases — many involving unrepresented homeowners with a limited understanding of the legal process.

“What is the solution to what this court system has — a tsunami of these filings?” Justice Barbara Pariente asked a banking industry lawyer.

Lenders oppose some aspects of the plan, which they say would place an unfair financial burden on them.

“The goal is taking the burden off the court,” Pariente said in response to that concern. “We’re not just trying to, quote, help the borrower.”

Miami-Dade civil administrative judge Jennifer Bailey, who chaired the statewide task force, said mediation was not recommended to favor the interests of either borrowers or lenders, but to help courthouses manage an overload of cases.

“We are imposing structure on an extremely chaotic situation,” she said.

Through September, more than 291,200 foreclosure actions were filed statewide this year, Bailey said.

In Miami-Dade County, the court experienced a 474 percent increase in foreclosure filings from 2006 to 2008. The caseload has climbed 516 percent in Broward County and 496 percent in Palm Beach County.

The filings are swamping the courts and taking judicial energy away from other cases, said former Florida Bar president Alan Bookman of Pensacola, who served on the task force.

“We’re not trying to favor the homeowner over the lender. We’re trying to create a level playing field,” he said.

During the 90-minute hearing, lawyers discussed one example of how cases get dragged out and tie up court resources — the canceled foreclosure sale.

In Miami-Dade County, 65 percent of scheduled foreclosure sales each month are canceled. One reason is borrowers and loan servicers are working toward an agreement, lawyers said.

Justice R. Fred Lewis called that 11th hour approach “nonsensical.”

“Wouldn’t it be a better policy for a trial court to make sure that process is completed before the final judgment?” he asked.

Lewis said it would be essential for each circuit to ensure the independence of mediation agencies, saying a bias toward either side would be “devastating to the process.”

He also wanted to know when results from each program should be expected.

“Will the crisis be passed before we have them in place?” Lewis asked.

Justice Charles Canady suggested financial interests, not negotiation, might delay some foreclosure sales.

“Lenders are making a business decision that they don’t want the sale to go forward,” he said. “They would rather inventory these houses and wait for a better time in the market.”

Fort Lauderdale attorney Marc Ben-Ezra, whose law firm, Ben-Ezra & Katz, has represented lenders in about 30,000 foreclosures in two years, said Canady’s concern is an “urban myth.” Lenders want foreclosures resolved as quickly as possible, he said.

“We’re generally graded by our clients on how efficiently we can complete the process,” Ben-Ezra said.

A more significant reason for delay is borrowers who don’t appreciate the seriousness of their situation until “a final judgment is bearing down on them,” he said.

Improving early communication between borrowers and lenders is a major goal of the task force. The plan calls for mediation on homestead property at the lender’s expense unless the lender and borrower agree otherwise.

In addition, the task force recommended a central foreclosure Web site to provide information on foreclosure counseling, access to court dockets and resources for borrowers.

Under the proposals, lenders would be required to verify the contents of their complaint at the time of filing, and parties wishing to cancel or reschedule foreclosure sales would have to file a motion listing their reasons.

In cases where borrowers have not been located, the task force recommends a new form for process servers to fill out to demonstrate the steps they took before abandoning a search.

Three circuits including Miami-Dade already have adopted mediation programs administered by the Collins Center, a nonprofit Tallahassee think tank. The service costs $750 per case.

Chief Justice Peggy Quince said embracing mandatory mediation could create a monopoly for the center, and she called that prospect “disturbing.”

Critics of the task force plan mainly object to the financial burden and legal hurdles placed on lenders, which already lose money on most foreclosure actions.

Mediation fees alone could cost banks more than $20 million a year, said task force member Lee Haworth, chief circuit judge in Sarasota County. He wrote a dissenting report suggesting borrowers and lenders should split the cost of mediation when possible.

“People who have the ability to contribute toward the mediation process should step up and do it,” Haworth told the court. “Both sides need skin in the game.”

He said a determination could be built into the mediation process itself so it would not burden judges. Without such protection, he said, the “Donald Trumps of the world” could get a free mediation.

But most homeowners who default on their loans are not sophisticated investors and are overwhelmed and confused by the foreclosure process, Bailey told the panel.

“Most of the people we’re talking about, this is the most complex transaction they have ever dealt with in their entire life.”

re-posted by : Joseph Sloboda