Jeffson County, Kentucky sets pilot Foreclosure Mediation Program

Effective March 30, 2009, the Jefferson County, Kentucky courts (which includes the City of Louisville) have initiated a pilot Foreclosure Mediation Program for owner occupied residential properties. This program will impact all servicers handling defaulted accounts in Jefferson County, and if the program is considered successful, it may be adopted by other Kentucky counties.
Presently, the program only involves new foreclosure actions filed before four of the judges within Jefferson County. However, the Jefferson County Master Commissioner's office anticipates rolling this program out to all divisions of the Court by June or July of this year.Jefferson County's program is considered to be an "opt-in program". In other words, debtors must affirmatively request mediation. This program is anticipated to run parallel to the standard foreclosure process. The request for Mediation is not intended to stall the entry of judgment in the foreclosure, but will delay or stop the actual foreclosure sale if servicers fail to participate in the mediation process.This program uses a state grant to fund social service outreach organizations' efforts to contact borrowers. Retained organizations, working through the Kentucky Housing Corporation, will attempt up to three personal contacts at the residence in order to notify borrowers of the program. If contact is made with the borrowers, these housing counselors will work with the borrowers to complete a request for mediation and a financial package to be provided to their mortgage servicer.Completed packages will be forwarded to the attorney for the servicer, and a hearing will be set at least two weeks from the date the package is delivered to the attorney. The servicer's attorney will be required to forward the completed package to their client to review for possible loss mitigation options.The mediation hearings will be conducted every Thursday morning before the Master Commissioner. Counsel for the servicer will be required to be present, and a representative of the servicer, with true settlement authority, must be available by telephone. In addition, the debtor and the housing counselor must be present, along with a pro-bono attorney to represent the debtor.If the servicer participates in this process, then the foreclosure sale may occur if no settlement can be reached. The Court will encourage servicers to mitigate loans in a way that permits borrowers to stay in their homes, or to allow the borrower time to arrange alternative housing and exit the property in a "more graceful" manner.Our firm is encouraging all servicers to cooperate to the fullest extent in this program. If servicers provide staff to adequately review financials prior to the mediation conference, and give their counsel direct access to dedicated loss mitigation employees with true settlement authority, this program should allow servicers and borrowers to reach settlements in many cases that will benefit all parties concerned.Proactive involvement in this process should increase cure rates, successful loan modifications, forbearance plans, and Deeds-in-Lieu of Foreclosure. In many cases, active participation in this program may drastically reduce loss severity on defaulted accounts, shorten timelines to complete the foreclosure process, and may eliminate the need to manage a larger pool of REO properties in Jefferson County.Servicers who fail to cooperate to the fullest extent with this program, or who are perceived by the Court as being uncooperative, will undoubtedly find prosecution of their cases in Jefferson County to be more difficult, and will likely suffer from substantial timeline delays and possible adverse publicity in the community.The Court has expressed a willingness to work with law firms and servicers to ensure that the financial package that is completed includes all information and documentation that may be necessary to consider a loss mitigation proposal. The Master Commissioner office has asked us to forward them any specific information or documentation requirements that servicers might have. Servicers will be required to accept and review the financial package in the format the Court sets forth. As a result, we are encouraging all servicers to forward us copies of their required financial packages, so that we may provide them to the Court and request that they include the necessary information in the Court package.
If you would like a copy of the court order or if you have any questions regarding this topic, they can be addressed to Richard Nielson at rnielson@nsattorneys.com, or you may contact Rich directly at (859) 655-8010