CONTACT: Sarah Orr, 608-890-2454, [email protected]
MADISON – University of Wisconsin Law School students will help Dane County homeowners facing foreclosure take their cases through a mediation process with their lenders.
Beginning in February, Dane County Circuit Court will require lenders to tell homeowners they have an option to mediate their foreclosure cases and notify them of available resources, including a clinic staffed by UW Law School students.
Mediation can be a useful way for homeowners and lenders to reach a solution – in a controlled setting – that works for both parties, says Sarah Orr, clinical instructor in the law school’s Economic Justice Institute and director of the foreclosure mediation clinic. Often, homeowners facing foreclosure have a difficult time communicating with their lenders, and may be juggling a range of financial issues in addition to potentially losing their homes, she says.
“We’re really trying to reach homeowners who may be kind of avoiding the whole situation, and if that’s what’s happening, the system is making decisions for them,” Orr says. “When they have this kind of opportunity, they get back in the driver’s seat and can participate in the decision making, and that’s going to work best for them and the other side.”
With the collapse of the mortgage industry and the economic recession in full swing in 2009, foreclosures spiked last year. The number of new foreclosure filings initiated in 2009 in Dane County through December had increased by 29 percent from the period in 2008, according to circuit court records compiled by Dane County Market.
“The foreclosure crisis is going to get worse in the U.S., or at least it will peak now and we’ll probably have a crisis for the next two years,” says Morris Davis, assistant professor of real estate with the Wisconsin School of Business. “As long as the level of house prices is low and as long as the unemployment rates is high, we’re going to have a lot of foreclosures.”
Dane County Circuit Court Judge David T. Flanagan says the mediation notice is aimed at getting homeowners to be more engaged in the process and to explore potential options short of foreclosure.
“It’s important that people become involved in the process rather than simply standing on the outside waiting to see what’s going to happen from some external force,” Flanagan says. “There’s at least some possibility that foreclosure can be avoided very early in the process. But for a lot of (homeowners), that can’t happen.”
The mediation clinic will be staffed by three third-year UW Madison law students who will help homeowners understand their options in the foreclosure process while gaining experience working with clients in a real-world legal setting.
“Foreclosure is a very personal struggle, which is why those in trouble often shy away from counsel,” says law student Nathan Johnson.
The mediation process might result in new terms for the loan, allowing owners to stay in their homes, but also leads to plans to transition people out of their houses, Orr says. Those who go through mediation will also be required to meet with a housing counselor to be sure they understand the terminology and the process, and to evaluate whether their budgets can sustain mortgage payments.
“Having a process for them to really thoroughly understand and consider their options is really important so they actually can participate in the decision making,” she says. “The homeowner can participate when they might otherwise decide not to and the resolution is something that’s sustainable for the homeowner and agreed upon by the lender.”
Lenders are not required to negotiate the terms of a mortgage with a homeowner, let alone participate in mediation. If a lender does agree to mediation, a conference between the parties will be arranged, and both the lender and the homeowner must pay a non-refundable $75 fee.
During the mediation process, homeowners must also continue to participate in court proceedings related to their cases.
Law student Kyra Olds says her research into the foreclosure crisis has shown that homeowners are having a difficult time navigating the process.
“I wanted the opportunity to get hands-on experience assisting homeowners facing foreclosure in a forum that encouraged and facilitated their full participation,” Olds says.
The program also gives law students the opportunity to develop such legal skills as counseling clients, Johnson says.
“Being able to empathize with clients and give them some hope is very uplifting for us and them,” he says. “The skills needed to counsel and humanize with clients are better learned with a handshake then the turn of a page.”
For more information, call UW Law School’s Consumer Clinic at 608-263-6283.