Mortgage foreclosure program on the rocks
A program that aims to stem the tide of residential mortgage foreclosures in Bucks County by helping homeowners negotiate with lenders has served more than a quarter of residents targeted in a foreclosure action since July.
However, a lack of funding and dedicated staff for the program have prevented the accurate tracking of outcomes in those cases and may imperil its future as foreclosure filings continue to rise.
The Bucks County Mortgage Foreclosure Diversion Program was created at the urging of legal aid and credit counseling agencies last August. In an order by President Judge Susan Devlin Scott, lenders who file foreclosure actions in Bucks County court are required to participate in mediation with homeowners.
Homeowners are notified of the program when they receive a foreclosure notice and urged to call a hotline where they are referred to legal aid and credit counseling services if they are financially eligible. Unlike Philadelphia's foreclosure diversion program, which requires both homeowners and lenders to sit down and talk, Bucks County's requires homeowners to opt in.
"I think an opt-in program is much more suited to Bucks County. I think people in Bucks will take responsibility to do it for themselves," Scott said, noting that when a person is invested in the outcome of mediation, it is more likely to succeed.
"You can't just have something handed to you. I think you have to have a commitment," Scott said.
Out of 1,992 foreclosure actions filed in Bucks County Court between July and April, 516 defendants have taken advantage of the program at least to the point of scheduling conferences with attorneys for the bank or mortgage company. In 418 cases, conferences were actually held, but the outcome of many cases is unclear.
Marie Runkle, a judicial secretary who administers the diversion program, said the volunteer mediators who oversee the negotiations are not required to report the nature of a settlement and the court orders filed to withdraw a foreclosure action do not list a reason.
Runkle, whose responsibilities include secretarial duties for the county's senior judges, said the court lacks the manpower to conclusively track the outcome of each case.
Douglas R. Praul said the court has sought a grant through Congressman Patrick Murphy's office for the last two years. The request was denied in 2009 and the court's 2010 application is still pending.
"We are trying as best as we can to give the back office support to keep this program going on a very limited budget," Praul said. "We're taking people out of their regular jobs to keep this thing going."
Praul said the court did discuss the possibility of additional funding from the county for the foreclosure diversion program.
"The decision was that we would do what we did until they could find money to support additional people," he said.
Although the program is scheduled to end at the close of the year, the timing was based on a projection that mortgage foreclosure rates would decline.
Recent data indicates the number of foreclosure filings is continuing to rise. The number has climbed from 186 in July to 231 in April with only two dips in November and January.
"If the grant doesn't come through, I don't know how much longer we can limp along," Praul said.
According to the Bucks County Sheriff's Office, in the first five months of this year, 251 homes have been sold at sheriff's sale - the ultimate result of foreclosure actions where efforts to intervene are absent or fail. In comparison, 160 homes were sold at sheriff's sale during January through May 2009.
Barbara Lyons, a Doylestown attorney who said she has served as the mediator in more than 300 cases, told the Bucks County Commissioners in a presentation last month that only 11 cases filed since July have proceeded into foreclosure. But because a homeowner has avoided foreclosure doesn't mean that they will be able to stay in their home.
"We would encourage everyone to at least see if they qualify or there is some loan modification program that can keep them in their homes," Lyons said.
But in some cases, a homeowner who is unemployed or underemployed and has no immediate prospect of increasing his or her income simply does not have the money to pay a mortgage. In those cases, lenders are willing to work out an alternative to foreclosure, Lyons said.
"Rather than the homeowners being evicted with the sheriff at the door, they're saying we'll work with you to sell the home," Lyons said. "We're seeing some very realistic and compassionate folks on the lending side of the table."
Mortgage companies will allow homeowners to stay in their homes while they list the property for sale and in some cases allow the owner to sell the property for less than the balance of the loan.
In many cases, Lyons said, even when the homeowner loses his or her home the process itself provides a degree of relief.
"Even though they don't get what they wanted, they are heard and they know they've done everything they can do," she said.
Paula Powers, a counselor with the nonprofit Credit Counseling Center in Richboro, said about half of the cases in which she has provided credit counseling for homeowners in the foreclosure diversion program have resulted in an alternative to a sheriffs sale.
Some lawyers who have represented homeowners in the mediation process said that while the program is valuable because it forces lenders to listen to homeowners, many lenders appear unwilling or unable to reach resolutions that keep homeowners in their homes.
Josh Goldblum, a Philadelphia bankruptcy attorney, said many banks aren't set up to handle the number of loan modification applications they are receiving.
"Everyone is limited by the ability of the mortgage companies to make adjustments," he said.
He added that any adjustment that the bank agrees to is voluntary.
Jeff McCullough, a Doylestown attorney, said the inability of mediators to require loan modifications makes the process one of forestalling the foreclosure.
"There is no doubt that the program is slowing down the process of foreclosure. Is it achieving permanent loan modifications? I haven't seen it yet," McCullough said.
But Ersula Cosby, a Langhorne attorney, said the goal of the program should not be to keep everyone who faces foreclosure in his or her home.
"It is delaying the process of foreclosure and it's giving people a chance to get things together and work things out. So in that sense it is helpful," she said.
Michael McKeever, a Philadelphia attorney who represents lenders in foreclosure actions, said most lenders are willing to accept a delay of three or four months to give a homeowner a second chance. McKeever said banks would prefer to avoid foreclosure because they don't want to become responsible for properties.
When homeowners lose their homes in a sheriff's sale or simply walk away, the house becomes a liability susceptible to falling into disrepair, vandalism and other illegal activity, McKeever said.
He acknowledged that loan modifications are not the most common outcome, but he added that when a homeowner does secure a modification, it is because the diversion program has simply improved communication between the parties.
"Let's have the discussion, figure out what we have in common and see if we can resolve it based on that," McKeever said.
Peter Hall can be reached at 215-345-3067 or phall@phillyBurbs.com
June 02, 2010 02:41 AM