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FAQ'S

Thursday, January 13th, 2011

by Theodore Sliwinski, Esq.

1. What is the New Jersey Foreclosure mediation program all about?

In January of 2009, the New Jersey Judiciary started a statewide multi-agency mortgage foreclosure mediation program because there was a massive number of foreclosure cases filed.  The high property taxes and the massive loss of jobs in the Garden State has caused an avalanche of foreclosures. New Jersey has the highest property taxes in the United States. Many strapped homeowners simply can’t keep up with their mortgage payments and the high property taxes. Consequently, today foreclosure mediations are routinely held in all of the county court houses. In many respects a homeowner has a better chance to save his home through a foreclosure mediation than in a bankruptcy. In a chapter 13 bankruptcy there is a 80% failure rate. Moreover, mortgage arrears are not reduced or forgiven in a chapter 13 case.  I have seen some very desperate homeowners obtain substantial arrears reductions and/or debt forgiveness via a loan modification obtained in the foreclosure mediation process. Meanwhile, in my experience the filing of a chapter 13 only really buys a homeowner some more time to catch their breath. If a homeower can’t afford to make the mortgage payments, then how can he or she make a plan payment under a chapter 13 case and also make the mortgage payments. Therefore, foreclosure mediation often provides a distressed homeowner with much better odds of saving his home.

2. Who is eligible to participate in foreclosure mediation?

The goal of the foreclosure mediation program is to provide a court setting between the lender and borrower to try to work out an agreement(s) to try to avoid a foreclosure. The major requirement is that the homeowner/borrower must live in the home as the primary residence. However, in certain circumstances the clerk may be convinced to liberally construe this threshold requirement. Although all contested foreclosures are automatically referred to mediation, only about five percent of the foreclosure filings are considered to be contested. Still, many homeowners are unaware of the program and they miss a valueable opportunity to try to save their home. It is important to note that an incomplete mediation request(s), that may lack valuable contact information, could also jeopardize that your mediation application will be timely processed or considered.

3. How is a foreclosure mediation case started?

Once the court has entered a foreclosure judgment and the writ of execution has been issued, but before the sheriff’s sale has been held, a motion must be filed that seeks to obtain an order to stay the sheriff’s sale. This application must also request that the court refer the case to mediation. The sooner a foreclosure case is referred to mediation, then the greater the chance that the homeowner can save his home. In almost all of the cases a judge will grant a stay of the sheriff’s sale to permit the homeowners to engage in the foreclosure medation process.

To participate in the foreclosure mediation process, the homeowner must complete and send one original and two copies of the mediation request statement, a foreclosure mediation financial worksheet, and any required attachments. These documents are also listed on the Judiciary website at www.judiciary.State.nj.us/civil/foreclosure/index.htm.

The financial worksheet is a critical document and it provides the lender with important info to review any loan modification application(s). It is important to fill out the financial worksheets as correctly as possible. If there are any mistakes in reporting expenses and liabilities, for example using weekly instead of monthly income figures, then this error could hurt any chances to have a loan modification application approved.

The foreclosure mediation program also requires the production of copies of the latest federal tax return filed, a few months of pay stubs, proof of income, a few months of recent bank statements and the past six months’ profit and loss statements for self-employed workers. These are only the bare essential documents that may be requested. Other documentation is almost alwaysrequired for the bank to review any other modification, forbearance or reinstatement analysis.

The foreclosure mediation request statement is essentially a brief synopsis of the case and it must include the homeowner’s plan to save the home. All paperwork should be completed as thorough and as accurately as possible. The foreclosure unit then forwards these materials to the local county court staff for scheduling. Moreover, a copy is also sent to the lender’s legal counsel.

It is important to emphasize that homeowners who apply for foreclosure mediation are advised that mediation requests will not stop the foreclosure case. Defense counsel and homeowners must attentively monitor and address pending sheriff sale dates that may be set prior to scheduled mediations. However, in my experience most lenders will not schedule a sheriff sale if a foreclosure mediation is pending. Instead, most lenders will adjourn a sheriff sale date under the foreclosure mediation process is complete.

4. How can I prepare for the foreclosure mediation process?

The foreclosure mediation process can be very useful to enable you to save your home. However, don’t expect miracles. If you are not working and if you have no source of income, then there is very little chance that you can save your home and/or modify your mortgage. The lenders are primarily concerned that the homeowner has a source of income. It is also very important for the homeowner to provide income verification in foreclosure mediation.

Any loan modification application requires the timely submission of several documents, and they include the following: a request for modification and affidavit (RMA) form; an IRS 4506T-EZ or 4506-T form; program acceptable documentary evidence of all income; the last two years signed tax returns; two months of all bank statements; profit and loss statements for self-employed homeowners; a recent utility bill establishing residency; a hardship letter; and contribution letters, if applicable. The RMA, IRS 4506T-EZ and 4506-T forms can be found at www.HMPadmin.com. Many lenders also use their own modification request forms and affidavits in lieu of or in addition to the RMA.

All homeowners should be advised to bring updated financial information with them to their mediation sessions, even if they or their attorneys have forwarded the information to the lender or to lenders’ counsel on various occasions. Given the large number of foreclosures, there are often internal communication disconnects within the lending institutions. Documents sent to one section may not be shared with the current processing unit. Some lenders are establishing centralized processing websites to address this concern.

Any information exchange is a two-way process in mediation. The foreclosure mediation program requires that at the minimum the lenders must provide homeowners with current reinstatement and pay-off figures. Sometimes more detailed payment histories are required. In some cases, the lender may have secured broker’s price opinions (BPO’s) on the appraised value of the property at issue. Having this information prior to a mediation session enables your lawyer to explore realistic options with their clients.

Given the logistical difficulties in having lenders participate in person, the foreclosure mediation program permit lenders’ to participate telephonically and require their lawyers to provide speaker phone capability.

5. How is the foreclosure mediation process conducted?

All foreclosure mediation hearings are conducted at the county court houses,  and they are often scheduled in one-hour intervals. Foreclosures are consistently among the most emotionaslly charged type of cases to be mediated. Thus, every foreclosure case  should be approached on an individual basis. Providing the proper documentation at mediation is very important. Exchanging financial information consists of essentially 90% of the mediation process.There are currently three possible program forms that can be prepared at the mediation hearing. The mediation continuation accord (MCA) outlines specific steps that must occur on a given time line prior to a follow-up mediation date, and it also indicates whether or not sheriff’s sales are stayed. The interim provisional settlement (IPS) provides for a trial payment period, usually three to six months, after which a permanent loan modification determination will be made. Typically in these cases the foreclosure action continues but the sheriff sales are postponed either monthly after receipt of each trial payment, or for a set period of time that depends upon the circumstances or county practice.

The foreclosure mediation settlement memo outlines the terms of a final resolution, that includes any forbearance agreements, permanent loan modifications, loan reinstatements, repayment plans, and mutually agreed upon exit strategies. It is very important that these agreements are  prepared accurately and have sufficient detail. Any additional agreements that are effectuated over the phone should also be written on these court forms.