The goal of foreclosure mediation is to work with your client’s lender to facilitate the best possible resolution for your client during the foreclosure process. By the time your representation begins, the lender has already filed a foreclosure case against your client. Keep in mind, you will be representing your client in a legal capacity during mediation, but you will not be litigating their case. The two categories of resolution for your client are retention and relinquishment. In most cases, your client will want to retain their property. However, you might have to guide your client through the difficult process of relinquishment, if an agreement cannot be reached.This GuideMe is intended to supplement Chicago Volunteer Legal Service's (CVLS) volunteer mediation program training and materials. It will provide you a synopsis of the legal information you need to further research your client’s options to determine the best course of action. Because this process is mediation instead of litigation, and often results in the modification of an existing legal agreement, the following statutes and programs may affect the negotiation: Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et. seq.;The HAMP website has extensive resources to help you and your client;Deed in Lieu of Foreclosure is governed by 735 ILCS 5/15-1401.What is my role? Your role as the attorney for the borrower will be to advocate for your client’s desired outcome in the negotiation and mediation process. You will not be required to file any pleadings or attend any court hearings. You will begin your representation by contacting your client for an in-person or telephone interview. Once you determine your client’s goal and research the reality of that goal, you will contact the lender’s attorney to attempt to negotiate a settlement before the actual mediation. The negotiation may take numerous telephone calls and coordinating updated documents. If you cannot reach a solution, you will attend and negotiate on behalf of the borrower at the mediation. If an agreement is not reached at the first mediation, subsequent mediation sessions may be required.Does my client have the right to possession during foreclosure? The borrower has the right to possession of the property during the foreclosure process, until the court approves the sale of the property. See 735 ILCS 5/15-1701. Clients often fear that when they are served with summons they will be kicked out of their house immediately. You can assure your client they are entitled to remain in the property during the mediation and foreclosure process.What is the first retention option analysis I should do for my client? The first retention option to consider is the Home Affordable Modification Program (HAMP). HAMP is a loan modification program where your client’s monthly mortgage payments could be reduced to as much as 31% of his gross monthly income, by reducing the interest rate, extending the term, and possibly forbearing or forgiving the principal. In order for your client to be approved for HAMP, the following requirements must be met: First lien mortgage that originated on or before January 1, 2009Not previously HAMP modifiedDelinquent or imminent defaultOwner-occupied single family propertyNot vacant or condemnedFinancial hardship sufficient that owner cannot make monthly paymentsA minimum monthly mortgage payment ratioBorrower agrees to set up an escrow, for various securities, during the trial period if one does not currently existThe current unpaid principle balance for a 1 unit property is no greater than $729,750 (which increases for multi-unit properties, see the HAMP handbook)The first trial period payment will occur on or before December 31, 2012For more information on HAMP, the HAMP website is useful. The website includes an eligibility test as well as a page that describes the application process. HAMP also publishes an extensive 170-page handbook which includes full list of qualifications and influencing factors.Besides HAMP, what are my client’s other retention options? Traditional Loan Modification: This is traditionally the most popular and attractive retention option for borrowers. For this type of loan modification, the lender agrees to change the interest rate, the term of the loan, and/or the amount of principal. Forbearance: Forbearance means the lender agrees to accept no payments for a specified period. This is a viable option for borrowers who are unemployed or experience a temporary finite loss of income from something such as an illness. Reinstatement: Reinstatement is the borrower’s right to pay everything that is owed to bring the mortgage current and then to resume making scheduled payments. The amount will include all of the arrearages plus any attorney’s fees and costs that have been incurred. The borrower has 90 days from the date of service to reinstate the loan, and may only be allowed to reinstate once every five years. 735 ILCS 5/15-1602. However, lenders often accept reinstatement beyond the 90-day period. Few clients have the financial resources to reinstate. Redemption: Redemption is the borrower’s right to pay off the loan in full and prevent the property from being sold through the foreclosure. The borrower has the right to redeem up to 7 months from the date they are served or 3 months from the date of judgment, whichever is later. This means that the borrower either sells the home or refinances to pay off the loan completely. 735 ILCS 5/15-1603. Since judgment will generally not be entered before the mediation takes place, keep in mind that your client will still be able to redeem the mortgage if the mediation fails. Chapter 13 Bankruptcy: Chapter 13 bankruptcy is the only bankruptcy option that can stay a foreclosure. All of the client’s debt, including the mortgage arrearages, will be consolidated and the client will make one payment to the trustee to pay those debts. The client will have to make their regularly scheduled mortgage payment as well. Bankruptcy should be the last alternative explored because of the adverse effect on credit. The advantage to a bankruptcy is that the filing will automatically stay the foreclosure proceedings and your client will have a longer period of time than in a repayment plan to pay the arrearages back. On the other hand, your client will end up paying bankruptcy attorney fees as well as trustee fees. In order to stay the foreclosure, the bankruptcy needs to be filed before the actual sale of the property. It will not stay the foreclosure if it is filed after the sale, even if it is before the sale has been approved by the court. What are my client’s relinquishment options? If your client does not qualify for any of the retention options mentioned in the prior question, or you cannot come to an agreement with the lender after mediation, you will need to advise your client on relinquishment options, where they will surrender possession of the property.Deed in Lieu of Foreclosure: A deed in lieu of foreclosure is provided for by statute, 735 ILCS 5/15-1401, and means that the borrower deeds the property back to the bank in exchange for the lender agreeing not to request a personal deficiency judgment. A deed in lieu often makes sense when the borrower is worried about their credit, but cannot reinstate the loan and there is no equity to be recovered from a sale. It is believed that a deed in lieu is not as detrimental to a credit rating as a foreclosure sale. However, the same missed payments will be reported on the client's credit either way. The advantage to your client is there will be no personal deficiency judgment. However, if staying longer in the property is important to your client, this option may not be as advantageous as it seems. Cook County judges rarely grant personal deficiency judgments. So, if the client stays in the property and allows it to be sold in foreclosure, they will get to stay in the property longer without making mortgage payments than if they executed the deed in lieu. Consent Judgment: This alternative is similar to a deed in lieu, except it is used when there is a second mortgage on the property. Again, depending on the county in which the property is located, a personal deficiency judgment, may or may not be a factor. The lender cannot accept a deed in lieu when another lender has a secured interest. However, you can negotiate a consent judgment whereby the second mortgage holder is bound by the judgment if they receive proper notice and do not object. Beware: the second lender can later file a collection case against your client based on the note even though the mortgage has been foreclosed. Short Sale: This is an alternative whereby your client has a contract for sale to a third party and the sale price will not cover the outstanding mortgage. This is a good option where your client is worried about their credit and there is no equity in the house to be preserved. Lenders will not accept a short sale if they believe the property is being undervalued or if the sale is to a relative. The amount of the loan that is forgiven is not taxable unless the property is for investment. Relocation Assistance (“cash for keys”): This is a variation of the deed in lieu of foreclosure. The difference is that the lender will actually pay the homeowner to vacate the home in a timely fashion without destroying the property. The lender does this to avoid incurring the additional expenses involved in evicting such homeowners. Exit as a post-foreclosure rental: Your client may want to stay in the property after the foreclosure is complete. The lender may agree to rent the property. Historically, this has not been a popular option for lenders because they are not in the business of being landlords. This trend may be changing as the inventory of foreclosed homes is increasing. Chapter 7 Bankruptcy: Chapter 7 will not stay the foreclosure but will release the borrower from any debt, including any potential deficiency judgment. When should I advise my client to let the foreclosure continue past mediation? If your client continues with the foreclosure proceedings past mediation, a personal deficiency judgment is possible. A deficiency judgment is a judgment against the borrower for the amount of the mortgage the lender doesn’t recover after the foreclosure sale (if the property sells for less than what is owed). In order for the lender to get a personal deficiency judgment, the judge must order it. However, the judges in Cook County rarely grant them. In some cases, it might make sense for your client to go through with the foreclosure proceedings, for a couple reasons. They might be able to stay in their house longer than would be allowed to with some of the relinquishment options. This extra time might give them freedom to either find a new or better job.A foreclosure proceeding will affect your client’s credit rating, but it will not be dramatically different than the effects of the relinquishment option. Before advising your client on this issue, you will need to compare the repercussions for your client, based on their individual situation. How long does the mediation process take? This is a sample timeline for a case where the borrower participates in mediation and wants to keep the house with a bank-offered loan modification. It should give you an idea of how long this process takes in comparison to others and give you an overview of how this mediation program works:January – March: Borrower is missing payments. Generally, the borrower misses 3 payments before the foreclosure complaint is filed;April: Complaint is filed;Late April: Borrower is served by sheriff, process server, or publication;Early May: Borrower contacts Hotline that is listed on the summons and receives a date to meet with a HUD-certified counselor and a Chicago Legal Clinic (CLC) attorney;Mid May: Borrower meets with HUD counselor and begins to complete paperwork for loan modification. Borrower meets with attorney from Chicago Legal Clinic who reviews for legal defenses. CLC attorney assists borrower in filing Appearance, Answer and a Motion for Mediation;June: Judge enters Mediation Order, appointing CVLS to represent borrower;June: CVLS and plaintiff’s attorney receive Notice of Mediation date. Date will be scheduled within 5 weeks of Case Management Date;June: You (CVLS volunteer) agree to accept the case;July: You meet with your client either by telephone or in person to discuss the desired outcome;July: You email plaintiff’s attorney and begin to negotiate the loan modification. You are unable to come to agreement; August: First mediation. You settle the case in mediation and get the loan modification your client desired;August: You receive the final written agreement and have your client execute. September: 12-week post-mediation status date in court. You are not required to attend. Plaintiff dismisses case. Can I observe a mediation before I do the one with my client? Because of the number of volunteers and requests, it is difficult to accommodate them all. Therefore, CVLS recommends viewing the following videos prior to the mediation; these videos illustrate common issues encountered in mediation:Introduction to Mediation More Documents NeededBank's Attorney Doesn't Agree to Second Mediation Bullying the ClientGetting a Job in the FutureRejected for HAMP ModificationInvestor Doesn't Do HAMPDignified ExitReview the CVLS materials For a complete video of the CVLS mediation training, watch “Cook County Mortgage Foreclosure Program, Volunteer Training.” At the bottom of the video page, you will find a copy of the power point presentation from the training as well as other supporting documents.Meet with your client and gather preliminary information When you meet with your client, work through the "Preparing Case for Mediation" packet as well as the "Volunteer Attorney AutoAnalysis Package," both of which can be accessed in the "Forms" section of this GuideMe.Prepare HAMP application For basic information about HAMP and the qualifications, see the “Issues” section of this guide or visit the HAMP website. If your client has not yet applied for HAMP, you will need to first submit an “Initial Package,” which includes:Request for Modification and Affidavit (RMA)Tax Authorization Form (IRS 4506T or IRS 4506EZ)Proof of IncomeDodd Frank Certification FormThese forms can be found on HAMP’s website. Submit or follow-up with your client’s HAMP application If the client has submitted a HAMP application on their own:Obtain authorization for release of information;Call servicer to verify that package was received; Inquire about missing documents; Work with client to submit missing documents;Contact client and servicer every 30 days and update file with documents to replace expired ones. Update case notes and be specific regarding next steps;If servicer refuses to talk because the case is in mediation, contact the servicer’s attorney.Client has not submitted a HAMP application on their own:Work with client to complete Request for Modification and Affidavit (RMA) and gather supporting documentation;Submit application on client’s behalf;Call servicer to verify that package was received;Inquire about missing documents;Work with client to submit missing documents;Contact client and servicer every 30 days and update file with documents to replace expired ones;If servicer refuses to talk because the case is in mediation, contact the servicer’s attorney.Client is denied HAMP application:Gather reason for denial from servicer. If you disagree with the denial, consider escalating the appeal through the Treasury;Meet with client (in-person preferred) and discuss any changes to their situation. There should be a standard for your agency that defines material change;Evaluate their circumstances and review all options including non-retention options;Call servicer and discuss any other options that may be available;Contact CVLS and tell them the HAMP application was denied. Client is ineligible for HAMP:Review their case for any other options;Call servicer to discuss other options;If none exist, discuss relinquishment options with the client. Determine what would make their transition the easiest. Be prepared to discuss the situation with CVLS, who will assist client through mediation.Client has no income:Talk with client and get a thorough understanding of their situation and potential for future income; Discuss relinquishment options with the client. Call the lender’s attorney and try to negotiate a deal Once your client agrees to an acceptable and desired outcome, you should contact the lender’s attorney and try and reach a settlement prior to mediation. If you cannot reach an agreement through preliminary negotiations, mediation is the next step.Prepare your client for the mediation Along with organizing your documents, make sure you explain to your client what is going to happen at the mediation session. Your client also needs to understand that there are no guarantees in this process, and they might not get their desired outcome.Things to review with your client prior to mediation:How should they interact with the plaintiff’s counsel/bank/lender/servicerThe acceptable optionsWho will be talking (client v. attorney)When they should be answering questionsWhat does it mean if they agree to something during mediationAnything in the process they might not understandHow decisions will be made during mediationGeneral concernsMediation might not be the end of the processGo to mediation To get a better sense of the mediation process and some common mediation scenarios, review the following videos: Introduction to MediationMore Documents NeededBank's Attorney Doesn't Agree to Second Mediation Bullying the ClientGetting a Job in the FutureRejected for HAMP ModificationInvestor Doesn't Do HAMPDignified Exit Remember, the first mediation might not result in an agreement. Often, the servicer will request more information, corrected documents, or a proposal they will have to review. Provide them with what they need, if it is a reasonable request, and follow up before the second round of mediation.Return for a second round of mediation If you could not reach an agreement at the first mediation, but agreed to reconvene, a second mediation will probably be your last chance to settle the case. After the first mediation, you should have a good understanding of what the lender wants. Go over your options with your client, again, and prepare him for the possibility of having to relinquish the property.