Louisville, Kentucky Starts Foreclosure Mediation Pilot

The courts of Jefferson County, Kentucky - which includes the city of Louisville - have initiated a pilot foreclosure mediation program for owner-occupied residential properties. The 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.
Effective March 30, 2009, the program only involves new foreclosure actions filed before four of the judges within Jefferson County. However, the Jefferson County ""master commissioner's office"":http://www.jcomm.org anticipates rolling this program out to all divisions of the court by June or July of this year.
The project is modeled after a foreclosure diversion pilot program currently underway in Philadelphia, Pennsylvania, designed to use the courts to bring lenders and homeowners together to explore alternatives to foreclosure. According to Jefferson County Master Commissioner Daniel T. Albers, a ""statistically high number"" of homeowners participating in the Philadelphia program have obtained a resolution to foreclosure that allows them to stay in their homes, while providing the mortgage company with a ""satisfactory loan workout.""
Jefferson County's program is considered to be an ""opt-in program."" In other words, homeowners must request mediation. The program is anticipated to run parallel to the standard foreclosure process, and the request for mediation is not intended to stall judgment in the foreclosure, but will delay or stop the actual foreclosure sale if servicers fail to participate in the mediation process.
The 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, these housing counselors will work with the homeowner to complete a request for mediation and a financial package to be provided to their mortgage servicer, in order to set a hearing date.
If the servicer participates in this process, then the foreclosure sale may occur if no settlement can be reached. The court said it 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.
Servicers who fail to participate, or who are perceived by the court as being uncooperative, will likely find prosecution of their cases in Jefferson County to be more difficult and may suffer substantial timeline delays.
Information on Jefferson County's Foreclosure Conciliation Project was provided by Newport, Kentucky-based ""Nielson & Sherry, PSC"":http://www.nsattorneys.com, which assists lenders and asset management companies with foreclosures and collections, as well as other real estate and default-related legal services. Nielson & Sherry said it is encouraging all servicers to cooperate to the fullest extent in the foreclosure mediation pilot.
According to the firm, ""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.""