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Judges as Problem Solvers: New Approaches to Foreclosures

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According to recent figures from the Mortgage Bankers Association, in town after town and in communities across the country, over 14 percent of all residential mortgages are in foreclosure or behind at least one month in their mortgage payments. The Center for Responsible Lending has predicted that there will be 2.9 million foreclosure starts by the end of 2009, and as many as 7 million foreclosures are predicted for the near future. While the Treasury Department has made some headway in obtaining temporary modifications of some loans in default, the Congressional Oversight Panel has criticized the administration for securing, as of September 1st of this year, fewer than 2000 permanent mortgage modifications nationwide through the Home Affordable Modification Program (HAMP).

In addition to federal efforts like HAMP, states and municipalities are attempting different approaches to grapple with the growing foreclosure crisis. Cities like Philadelphia and States like New York have adopted foreclosure mediation programs that attempt to bring the banks and the borrowers together so that they can work out deals to keep the homeowners in their homes. Yet little has been said, and even less proposed, for how the nation's state courts will be able to manage this explosion of foreclosure filings. One response--similar to the way some courts handle domestic violence cases, petty drug offenses, and offenders with psychiatric disabilities--would involve channeling all foreclosure cases to courts organized for the sole purpose of handling them. These courts would be staffed by judges with a deep understanding of both the law and the resources available to help homeowners in distress.

In the majority of states, state statutes provide a remedy for foreclosure and lenders can bring delinquent homeowners into court to take back the homes securing the mortgages. For too many borrowers, they cannot afford an attorney to defend them in these cases, and the complicated defenses that might be available are often too difficult to raise without representation. Making things more complicated, typically foreclosure actions are scattered throughout the courts, and are not directed to a single judge or a group of judges with particular expertise in the relevant law or specialized knowledge about a particular lender, borrower or community. Unlike specifically organized courts that handle landlord-tenant matters, where the laws are often just as arcane as in the mortgage arena, judges handling foreclosure actions are usually generalists and rarely have a particular expertise in mortgage or foreclosure law. Making matters worse, when foreclosure actions affecting a community are spread throughout a court system, little attention is paid to the consequences of foreclosures on a particular neighborhood, and community resources cannot be directed in a coordinated and efficient fashion to those most in need of assistance.

Given the structural deficiencies of such an approach to foreclosure actions, in jurisdictions where court intervention is required to complete a mortgage foreclosure, foreclosure actions should be channeled to specialized courts equipped to take into account the complexities of foreclosure litigation and the defenses that might be available to borrowers. In addition, housing counseling providers and community mediation personnel could staff these courts. And judges could take into account the impacts of foreclosures on specific neighborhoods and communities, targeting resources to where they can do the most good.

In this way, the judicial system could build on the work of other "problem-solving courts," like mental health courts, domestic violence courts and community courts that handle low-level offenses. As in these other settings, as judges and court personnel work on these cases day in and day out, they develop a strong familiarity with the law, the needs of the litigants before them, the community impacts of the problems they address, and the community supports available. At present there are over 2000 such problem-solving courts throughout the country, though none in the area of mortgage foreclosures.
Even in jurisdictions that permit foreclosures to occur without judicial intervention, more resources could be directed--perhaps even subsidized by lending institutions--towards making community mediation more available to lenders saddled with borrowers in default. These mediators could enjoy the respect of the community in general and the borrowers in particular, and might bring borrowers in default to the negotiating table more readily than servicers pursuing their debts. For borrowers and lenders alike, the best outcome to a delinquent mortgage is often a mediated resolution of the dispute, but borrowers all too often freeze when faced with the specter of foreclosure, and think that by ignoring the dunning phone calls and letters, maybe, somehow, foreclosure can be avoided.

By concentrating the handling of foreclosure actions in certain courtrooms and before particular judges, those judges and their court personnel can watch for trends and develop comprehensive approaches to the cases before them. By bringing all homeowners in distress into the same courtroom, community-based organizations, philanthropic groups and social service agencies can direct the assistance they can provide where it can have the greatest impact. Legal services attorneys and volunteer lawyers could more readily serve these homeowners, knowing that such representation could be provided efficiently and effectively if the clients can be found in the same courtroom.

Channeling foreclosure actions before particular judges will not solve all of the problems faced by millions of homeowners, nor restore the depleted tax base of communities across the country hit hard by cratered home prices and abandoned properties. Yet such a response will help make dealing with homeowners in distress a little easier: permitting a fair assessment of the strength of the cases against them, ensuring any defenses that they may have are recognized, and directing holistic services to where they can have the greatest impact. Addressing these cases in a strategic and thoughtful way may lessen the impact of the foreclosure crisis on the families and communities still braced for impact, where there is a persistent fear that the worst may still be coming.