SUPREME COURT REPORT ON RESIDENTIAL FORECLOSURE CASES

            On December 28, 2009, the Florida Supreme Court issued an Administrative Order to address the problem of managing foreclosures.  The plan in effect cedes some administrative functions to independent non-profit entities which will manage the mediation process with some accountability to and scrutiny of the circuit courts.  This framework, called the Residential Mortgage Foreclosure Mediation Program (RMFMP), is limited to foreclosures on residential, homestead property pertaining to loans that are subject to the provisions of the Truth In Lending Act (TILA), Regulation Z. The Administrative Order mirrors, with few revisions, the recommendations of a 15-member Task Force appointed by the Court in April, 2009, to address the judicial foreclosure issues occasioned by the vast number of filings. 

              While the language of the Order is not couched as an immediate mandate to the circuit court, it is certainly prudent to assume that it is applicable statewide and that each of the circuits will issue new mediation orders following the Model Order adopted. The Task Force had originally requested a change to 1.720, Fla. R. Civ. P.. Due to the emergency nature of the foreclosure process, the Court instead issued the Administrative Order.  It did, however, charge the Committee on Alternate Dispute Resolution Rules and Policy to examine the possibility of changing the rule.  It is noteworthy that there is no timeframe within which the circuit courts are to comply with the Administrative Order.

            The Administrative Order itself establishes the use of “managed mediation”, essentially another layer between filing suit and finalization of the matter. It sets the qualifications and parameters for managed mediations and creates what amounts to another layer through which to pass in order to achieve finality in a foreclosure. The Administrative Order consists mostly of a discussion of the history of the Task Force and general comments to support the Court’s recommendation of its various components.  For your information, a link to the Order follows:  http://www.floridasupremecourt.org/pub_info/documents/AOSC09-54_Foreclosures.pdf. The true meat of the Administrative Order lies in the Model Order to be adopted by the circuit courts.  Various features of this Order appears below. 

HIGHLIGHTS OF THE MODEL ORDER

                        1.         Program Manager.  Most mediations are to be handled through a Program Manager, which acts as a type of clearinghouse for plaintiffs, borrowers and mediators.  This Program Manager is contemplated to be a nonpartisan, non-profit organization that has the ability to manage a large number of cases.  To the extent possible, communications through the Program Manager are to be conducted electronically.

            2.         Foreclosure Counselor.  Prior to mediation, the borrower will be directed usually by the Program Manager to a Foreclosure Counselor, who will advise borrower of available options when facing mortgage foreclosure.  These Counselors must be certified by the Department of Housing and Urban Development (HUD) or the National Foreclosure Mitigation Counseling Program. 

            3.         Opt-Out Provision.   There appear to be two methods for opting out of the system, but only partially:

                        Method A:  Lender and borrower may agree in writing to conduct a pre-suit mediation, provided that such mediation substantially complies with the requirements of the Model Order in terms of exchange of information, foreclosure counseling, and the utilization of a certified circuit civil mediator who has been specially trained in the mediation of residential mortgage foreclosures.  Whether or not these guidelines are followed is challengeable by borrower.

                        Method B:  If the case has been filed, plaintiff and borrower file a written stipulation choosing not to participate in the RMFMP.  Note that there certain required disclosures to the borrower.

                        Since managed mediation involves no cost to the borrowers, there is little incentive for them to agree to either option.

            4.         Additional Procedures. 

                        A..       Plaintiff is required to provide to the Program Manager a completed form (a) certifying the origination of the note and mortgage, (b) that it was subject to TILA, (c) that the property is/ is not the homestead property of borrower, (d) that a pre-suit mediation conference has/has not been conducted, and (e) providing a list of persons, one of whom will represent plaintiff in mediation.   The Program Manager is charged with contacting borrower to explain the program and disclose financial information. 

                        B.        Plaintiff is also required to provide to the Program Manager (a) borrower’s payment history, (b) documentary evidence that plaintiff is the owner and holder of the note being sued upon, (c) the present net value of the mortgage loan and (d) the most current property appraisal available. 

                        C.        The Program Manager is responsible for referring borrower to a Foreclosure Counselor, advising borrower of its right to consult with an attorney and its right to apply for representation by a volunteer, pro-bono attorney. 

                        D.        Mediation is to occur within 60 to 120 days after the suit is filed, but no sooner than borrower’s financial disclosure for mediation has been submitted to plaintiff.  At the time of the mediation, the Program Manager is required to enter the mediation room and take attendance.  If the Program Manager determines that plaintiff’s representative does not have full authority to settle, the Program Manager will report that representative as not being present.

                        E.         The lender’s representative (as distinct from counsel) may appear electronically.

            5.         Sanctions. 

                        A.        In the event that plaintiff’s representative fails to appear at the mediation conference or lacks full settlement authority, the court may dismiss the action without prejudice, order plaintiff’s counsel or representative to appear at the mediation conference, or impose other sanctions including, but not limited to, assessing attorneys’ fees and costs if borrower is represented by counsel.  The same holds true if borrower fails to attend the mediation conference.

                        B.        The court will not set a final hearing, enter summary judgment or enter a default final judgment until the requirements of the Model Order have been met.

            6.         Costs.  The costs of the RMFMP are borne exclusively by plaintiff.  A payment of $400.00 is required at the time suit is filed and a payment of $350.00 is required within ten days after notice of mediation conference.   The payment is expected to cover reasonable program fees for the managed mediation, foreclosure counseling, mediator’s fee and administration of the RMFMP.  The fee would cover a second mediation session, if necessary.  If borrower cannot be located, chooses not to participate in the RMFMP, or does not make any contact with the Foreclosure Counselor, plaintiff shall be entitled to a refund.  That is, borrower essentially is forced into meeting with the Foreclosure Counselor if borrower intends to participate in the mediation.  The fees are also intended to provide for “neutral meeting and caucus space; scheduling telephone lines, instruments and infrastructure to support a Web-enabled information platform; a secure, dedicated email address or other system for transmittal of information; and other related expenses incurred in managing the Program.”           

            7.         Multiple Foreclosure Actions.   If a plaintiff has filed five (5) or more foreclosure actions in a judicial circuit, such plaintiff must appoint two RMFMP Liaisons, one of whom is to be an attorney and the other of whom is to be a representative of the entity servicing plaintiff’s mortgages, if any.  These Liaisons are required to track the cases, monitor whether the internal procedures are being followed with regard to each case and act as the court’s point of contact in the event of plaintiff’s non-compliance.  The Order is silent with respect to compensation for the Program Liaisons.

COMMENTS

            Correspondence with and through the Program Manager likely will increase the burden on plaintiff’s counsel in tracking its cases.  It is not exactly clear how the lines of communication will work, although there is a strong emphasis on electronic transmission.  It is unclear whether there will be multiple Program Managers throughout the state, or what happens if there are competing managers.  Other consequences are left to the imagination. 

            Given the maximum funding of $750.00 per case, it is questionable that knowledgeable, experienced mediators will be able to accept mediations and receive the same compensation as they might be receiving presently.  In that mediators are not required to be attorneys, it is possible that most mediators under the RMFMP will be non-attorneys.

            It is apparent that the entire process is designed to educate the borrower, but it is questionable that this information will help a borrower in making any better deal than if there were no education offered at all.  As well, lenders have settlement criteria which, by necessity in most cases, are fixed. 

            There is a blizzard of paperwork that arises out of the Model Order.  The Court mandates 19 new forms, 8 notices and one flowchart.  It also sets out parameters for managed mediation services, listing 37 points that are to be followed.

            As a point of interest, the minority report recommended that the individual circuits be permitted to revise, edit or employ other techniques, and it sought to limit the managed mediation services to only those instances where borrower showed a genuine interest rather than making the process essentially mandatory.  The minority report further objected to the bureaucracy created under the Order and, to the extent that the RMFMP is utilized, that the costs be shared between the parties.  None of these were adopted by the majority or the Court.

            The RMFMP effectively provides less scrupulous borrowers an additional vehicle for to extend the length of their stay in a property without payment at all.

            In terms of the impact on default judgments, it is conceivable that a circuit judge may require some proof of compliance with the preliminary program requirements such as payment of the initial fee to the Program Manager, and submission of the appropriate RMFMP forms with the summons and complaint, before it will enter a default judgment.  That will remain to be seen.  If there is no response at all and the case is otherwise ready for default, the initial $400 is returnable.

            Whether the Model Order for the circuit courts will accelerate the foreclosure process and help clear out the backlog on the courts’ dockets remains to be seen.  Some counties in the Panhandle have been operating under a very similar program over the last few months and claim to have achieved a 73% settlement record.  If the process will stimulate lenders to address the defaults in mortgages as early as possible, including agreed pre-suit mediation, then there is some reason to think that it might help the flow.  That is, if part of the reason for the current crisis is that borrowers have been unable to communicate effectively with lenders, this development might be some incentive to lenders in order to avoid the bureaucracy created under this Order.  That is, of course, speculative. Otherwise, the foreclosure professionals face a maze of new forms, procedures and entities not previously present, and at substantial cost.

By:  Douglas C. Roland, Esq.

    Bricklemyer Smolker & Bolves, P.A.

500 East Kennedy Blvd., Suite 200

Certified Circuit Civil Mediator