Judicial foreclosure exists in nearly every state in the United States. Generally, a lender initiates a foreclosure action when the property owner/borrower has failed to make mortgage payments. In a judicial foreclosure, the lender must go through the court system, filing a complaint and serving the borrower. In most states, the court will then either find for the borrower or for the lender. If the court finds that the borrower has indeed defaulted on his or her loan a judgement will be entered for the lender. The lender can then hold a sheriff’s sale of the property in order to pay off the debt. Many states also offer a “redemption period,” or a certain amount of time in which the borrower may buy back the property.
As most people know, the court process can be long and costly. Although many states also offer a non-judicial foreclosure option, as the recession has continued and more and more people are unable to make mortgage payments, banks and courts have become overwhelmed by the foreclosure process. In response to this unprecedented situation, many states have begun to offer foreclosure mediation as an alternative to traditional foreclosures.
Although each state that offers a mediation option might do it a bit differently, in general foreclosure mediation involves the borrower, the lender and a neutral third party mediator. The mediator’s role is to listen to each party and assist them in coming to their own resolution. Generally the borrower must have at least some ability to make payments in order to reach an agreement with the lender. Outcomes of mediation can include 1) reinstatement of the loan (where the borrower agrees to pay enough to bring the loan up to speed), 2) a specific repayment plan that involves making regular mortgage payments and an additional amount each month to pay off the amount in default, 3) a loan modification or 4) time to refinance, among other options.
Recently, there has been some question as to whether foreclosure mediation actually works to reduce judicial caseloads and prevent foreclosures. States such as Florida have ordered reviews of their foreclosure mediation programs, however, proponents argue that the programs can be fixed by giving homeowners more power and forcing lenders to meet more obligations before declaring that the mediation is a failure.
Regardless of the future of foreclosure mediation programs, if you are facing foreclosure and your state offers the option, mediation probably won’t hurt. It’s worth coming together and meeting with lenders to try to reach an agreement and avoid foreclosure. Court Reference can help you discover whether your state offers a foreclosure mediation program; it provides links to many different foreclosure mediation services.