Orlando’s Mortgage Mediation Program a Success, Model for Others

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By Daniel Gill

The Mortgage Modification Mediation program used in bankruptcy cases in Orlando, Fla., has proved to be a success and has spawned similar programs in other U.S. jurisdictions.

The program puts lenders or loan servicers and their counsel in the same virtual room as debtors and their counsel with the purpose of seeing whether a loan modification can be worked out.

About half the time, it is. This number is far higher than the 2 percent success rate of the Florida state court’s foreclosure mediation program, Aubrey Ducker told Bloomberg Law. Ducker is a Florida attorney with extensive experience in foreclosure mediation.

Benefiting Everyone

Even if a loan modification isn’t in the cards, parties often benefit from the process. Sometimes a debtor learns one isn’t possible and has an easier time walking away from an underwater property, Laurie Weatherford told Bloomberg Law in a Jan. 24 call with other professionals. Weatherford is the Chapter 13 trustee serving the Orlando area.

Weatherford said the program was born out of frustration experienced by Judge Karen S. Jennemann of the U.S. Bankruptcy Court for the Middle District of Florida.

Jennemann was frustrated by the number of bankrupt debtors she would see who tried to apply for mortgage modifications only to get no response from the lender or loan servicer.

Jennemann called on Weatherford in 2009 to put together a committee of interested professionals to see if they could come up with a solution. Bankruptcy courts in Orlando launched the MMM program the next year.

The program works best in Chapter 13, Weatherford said. But it can also be used successfully in Chapter 7.

Here’s how it works: An individual or married couple have 90 days after filing for bankruptcy to file a motion for Mortgage Modification Mediation. Secured creditors can oppose or object, but they don’t, Weatherford said.

The court’s website says it will prepare and enter an order directing MMM.

Utilizing Technology

The parties use a secure web portal for submitting documents to initiate mediation. Correspondence must go through the portal.

The portal is a key component to the program, Robert Branson told Bloomberg Law. Branson is a consumer bankruptcy attorney in Orlando who also serves as a mediator in the MMM program.

It’s important because more often than not, loan modification applications fail because documents are misplaced or lost, and it’s difficult to get the lender to focus attention on the application, he said. The portal eliminates the lost document problem.

Mediation must conclude within 150 days of the case filing unless the parties agree or the court orders differently. They select a mediator from a pre-approved list.

Both lenders and debtors contribute $250 to pay the mediator. Mediations take place by phone.

Making the Numbers Work

“The mediation is making the numbers work for the loan servicer and underwriter,” Weatherford said. “Debtors need to show that a proposed deal is affordable and won’t fail.”

Usually the parties, if they reach an accord, set up a temporary modification. Once three to five payments are made, the lender will agree to a final modification. That’s approved by the court.

According to data compiled by Weatherford’s office (tracking MMM activity in only Chapter 13 cases), there have been 7,779 mediations opened since the program began in 2010 through December 2017. Of that, 5,756 have been completed.

Of the completed mediations, 3,903, or 67.8 percent, concluded with loan modifications. In 2017, there were 486 completed mediations, with 274 (56.4 percent) of those ending in modifications.

Ultimately, success comes down to improved communication. With the portal and mediation, lenders understand better the debtors’ financial situations and ability to succeed in a modified loan.

And debtors get the benefit of understanding financial requirements of lenders. If they don’t get a modification, it’s because the numbers don’t work. It’s not because lenders lost documents or didn’t understand the debtors’ income and expenses.

Profound Effect

Successful loan modification can have a profound effect on debtors struggling to get a fresh start through bankruptcy.

“If we can get a $1,700 payment down to $800 a month, we’ve changed the lives of debtors,” Tammy Branson said. She’s a paralegal working with her husband, attorney Robert Branson. They were instrumental in the formation of the program and frequently guide clients through the MMM process.

“We’ve given them a way to keep their homes, their dignity,” she said.

A Model for Others

The program has been adopted all over Florida, the professionals said. And many other jurisdictions nationally have built mediation programs using Orlando’s MMM as a model. In fact, many jurisdictions use Orlando-based mediators for their programs.

These jurisdictions include the districts of Nevada, South Carolina and Arizona, as well as the Southern District of Indiana and the Northern District of California.

Others have tried to address the mortgage modification problem. The Southern District of New York, for example, features an optional mediation, albeit one done without a mediator. Its success is in large part due to the involvement of counsel for the homeowners.

“As bankruptcy attorneys, we don’t speak mortgage,” Tammy Branson said, “and the lenders don’t speak bankruptcy.”

The mediation allows the parties to get on the same page and enter into mutually beneficial agreements, she said.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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