On July 22, 2011 the Foreclosure Fairness Act ("Act") became law in the state of Washington. The Act provides an opportunity for homeowners to negotiate a loan modification with the borrower’s lender. The in-person negotiation mandated under the Act is conducted in a mediation.
At mediation, an independent mediator works with the borrower and a representative of the lender in an attempt to consummate a loan modification. In order to qualify for a mediation, the borrower must first receive a notification from his or her lender offering an opportunity to participate in mediation. However, the borrower may NOT request the mediation directly. The request must be made by an approved housing counselor or attorney.
After receiving the notification from the lender, the borrower has 60 days to meet with a housing counselor or attorney and request the mediation. If the borrower is a candidate for modification (no reasons for the meeting need to be established to request mediation), the housing counselor/attorney must make a formal request with the Washington Department of Commerce ("DOC") (www.commerce.wa.gov/foreclosures). The request must be made prior to the Notice of Trustee Sale is recorded.
The DOC has ten (10) days after it receives the request from the housing counselor/attorney to notify the parties of the borrower’s request for mediation and the name of the mediator who will preside over the mediation. DOC will also notify the borrower of the documents that must be produced prior to the mediation.
The mediation will be scheduled for not later than 45 days from the notification from Commerce. The mediator will contact the parties within 15 days of the mediation date to schedule the time and place for the mediation.
Within 10 days of the mediation, the borrower must provide financial information requested by the lender. Although the Act sets forth the documents to be made available, lender attorneys and mediators have informed me that borrowers should promptly submit those documents requested by the mediator and/or lender attorney. Likewise, the lender will provide the borrower with his/her loan balance, arrears, an itemized list of fees and charges, net present value and relevant loan modification calculations.
At the mediation, both the lender and borrower must negotiate in good faith. Within 7 days of the mediation, the mediator will make a "written certification" of the results of the mediation and whether the parties participated in good faith. If the lender is not deemed to have participated in good faith, this may be utilized by the borrower to seek injunctive relief to stop the foreclosure.
In terms of mediation costs, both the borrower and lender each pay $200 to the mediator for a half-day mediation. Mediator fees can easily exceed $2000 in a typical mediation.