Attorneys say foreclosure prevention program is stalling settlements, mediations

Attorneys say foreclosure prevention program is stalling settlements, mediations

Sheri Qualters / Staff reporter

The National Law Journal

March 03, 2009

Lawyers say President Barack Obama's new mortgage foreclosure prevention program, the Homeowner Affordability and Stability Plan (HASP), is stalling settlement of mortgage foreclosure litigation, bankruptcy actions and mediations.

HASP is designed to help an estimated 7 million to 9 million homeowners stave off foreclosure, according to a Feb. 18 U.S. Department of the Treasury announcement.

The plan includes three major components: low-cost refinancing for 4 million to 5 million homeowners currently unable to refinance because falling home values have reduced their home equity; $75 billion for loan modification and similar programs to help 3 million to 4 million homeowners; and increased funding to Fannie Mae and Freddie Mac to expand their mortgage lending. According to the Treasury Department, the administration expects to issue loan modification guidelines by March 4.

Joy Harmon Sperling, a partner in the Florham Park, N.J., office of Day Pitney's consumer finance and creditors' rights practice area who represents mortgage lenders, said borrowers' attorneys have been declining settlements since the Treasury Department's announcement.

"There are cases I was close to settling where the borrower said, 'I don't want to settle, I want to see what I can get from the president,' " Sperling said.

Even before HASP was announced, homeowners facing foreclosure have recently seemed to be "more willing to roll the dice" and try avenues besides settling a foreclosure case with the lender, said James S. Wertheim, a litigator in the Cleveland office of New Orleans-based McGlinchey Stafford, who represents creditors and loan servicers.

"Rather than sit idly by, we are starting to see buyers to get aggressive with counterclaims and cross claims against the lender and other participants in transactions to get some leverage and get some kind of deal," Wertheim said.

The HASP appears to do or encourage what a lot of homeowners and their lawyers are trying to do through litigation.

"It gives homeowners potentially a stronger hand," Wertheim said. HASP has definitely slowed settlements of foreclosure cases, said Chris R. Arthur, a lawyer in the Charleston, W. Va., office of Samuel I. White P.C., a Virginia Beach, Va.-based boutique that specializes in representing secured creditors. Arthur said he's not sure whether putting the brakes on the process is a good thing or bad thing, but he's recently postponed mediation of a foreclosure matter because his client wants to see how the government programs affect the case.

In bankruptcy cases, bankruptcy lawyers are assessing whether access to a HASP program will help bankruptcy petitioners keep their houses, Arthur said.

"Both sides taking a 'wait and see' approach," Arthur said.