Judge upholds bankruptcy court's right to launch foreclosure mediation program

Source: The Providence Journal (Rhode Island)

PROVIDENCE –– In a decision issued Friday, U.S. Bankruptcy Court Judge Arthur N. Votolato upheld the court’s right to establish a mediation program for homeowners facing foreclosure.

Votolato implemented the program, called the loss mitigation program, in November 2009. It does not require lenders to issue loan modifications, but it requires them to engage in good-faith negotiations with borrowers who want to modify their mortgages.

With the decision, Votolato overruled objections to the program filed by creditors in two bankruptcy cases. The creditors are PHH Mortgage Corp., doing business as PHH Mortgage Service Center, and Ocwen Loan Serving LLC as servicer of Deutsche Bank National Trust Co.

The cases involve homeowners Alberto G. Sosa and Jason E. and Bridget L. Lawton.

“Today’s decision by Judge Votolato is a win for Rhode Island homeowners,” said U.S. Sen. Sheldon Whitehouse, D-R.I. “The Rhode Island bankruptcy court’s foreclosure-mediation program helps distressed families to cut through the red tape of our broken mortgage modification process and has already saved at least 100 homes in our state.

“I hope today’s decision will encourage other bankruptcy districts to follow Rhode Island’s lead and adopt similar programs.”

In Friday’s decision, Votolato stated the program “was implemented in response to the home mortgage and foreclosure crisis generally,” and also because the court “repeatedly had to postpone hearings” due to delays that debtors were experiencing in seeking out-of-court mortgage-loan modifications.

“This practice of parties repeatedly seeking more time simply because they had not yet connected was counterproductive, it was a huge waste of time for the parties and the Court, and was forcing needless litigation ...” the order stated. “...We decided to break the log jam” by introducing a process that would open “communications between debtors and the lenders’ decision-makers.”

At a hearing in October, Whitehouse praised Votolato’s program, saying it is especially needed because of the documented failures of the federal government’s flagship foreclosure-prevention program, the Home Affordable Modification Program.

Just $4 billion of the $30 billion budgeted for HAMP is likely to be spent, and only a fraction of eligible homeowners will be assisted by the program, according to a December report from the Congressional Oversight Panel.

Whitehouse will chair a Senate Judiciary Committee hearing Tuesday to examine the success of bankruptcy court mediation programs.

The Center for Responsible Lending projects that 31,192 homes in Rhode Island will proceed to foreclosure during the years 2009 to 2012.

URL to original article: http://www.housingwire.com/2011/01/30/judge-upholds-bankruptcy-courts-right-to-launch-foreclosure-mediation-program