The New York State Legislature last week passed crucial legislation that serves to assist homeowners facing foreclosure. One piece of the legislation is that mandatory foreclosure settlement conferences, set to expire in early 2015, have been extended for five more years.
A settlement conference occurs in court, where the homeowner or an advocate on their behalf meets with the lawyer representing the mortgage servicer. The statutory purpose of the conferences is to see if a mutually agreeable resolution can be reached, with both sides being obligated to negotiate in good faith, in order to avoid loss of the home. In most cases, avoiding foreclosure entails some form of modification of the original mortgage. In practical terms, the homeowner needs to show that they can afford the modified mortgage payments. The servicer, in turn, is obligated to review the homeowner’s application to determine if they qualify for any modification or repayment options. While a homeowner is in the settlement conference process, the servicer is not allowed to move forward with the foreclosure.
In the application process, the homeowner’s financial situation is established largely by submitting documents to the servicer or their representative. While this may sound very simple, in fact the process is often very confusing and frustrating. Before the establishment of the mandatory settlement conferences in New York’s judicial foreclosure process in 2010, the homeowner dealt directly with the servicer with no intervening “umpire,” so to speak. There were lots of problems, including homeowners submitting documents that were often lost or not reviewed in a timely manner, the same documents being requested multiple times, or requests were made for documents that did not exist. The homeowner had little or no recourse to counter the demands of the servicer. Once the settlement conference was introduced, judicial oversight was added to the mix. Now the mortgage servicer had an entity to answer to, and there exists the possibility of real world negative consequences if the homeowner is not being treated fairly. The servicer can be fined, or the foreclosure suit can be dismissed. At the same time, if the homeowner does not meet their obligations, the servicer is allowed to move ahead with the foreclosure process.
While the loan modification application process in the settlement conference era is far from perfect, it is undeniably more efficient and fair than the pre-conference process, which has been likened to the “Wild Wild West.” Here at Empire Justice Center, we have contact with many homeowners in foreclosure, and their experiences are very consistent. The settlement conference mitigates the fear, confusion and frustration of the application process. In the words of one of our clients, “Before appearing in front of the judge, dealing with the bank was like yelling at a brick wall.”
The establishment of the settlement conference has led to thousands of New Yorkers saving their homes. In addition, they have instilled fairness into the system by establishing a consumer-friendly model for homeowners to defend themselves against foreclosure. Prior to the conferences, the Office of Court Administration (OCA) estimated that over ninety percent of foreclosure cases ended in a default judgment against the homeowner – meaning the vast majority of homeowners had no meaningful way to either work with their servicer or to defend themselves in the legal proceeding. In the first full year of the conferences, OCA reported that homeowners appeared in over ninety percent of the first conferences scheduled. About one-third of New York’s civil docket is foreclosure cases, and the data available tells us that the mortgage crisis in New York is far from over, with record numbers of foreclosures still to come. The mandatory foreclosure settlement conference will be a critical factor in helping as many New Yorkers save their homes as possible.