Philly sheriff stops foreclosure sales...at least for a while

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Most people feel like they can't do anything to stop the overwhelming foreclosure crisis -- even if they do feel sympathy for homeowners. Buyers are going on bus tours of foreclosed homes, hoping to scoop up bargains. A Florida production company is making a foreclosure reality show.

Philadelphia Sheriff John Green, profiled today by the Wall Street Journal's Michael M. Phillips, decided he would try to do something on his own to keep people in their homes.

The sheriff's job is to auction off homes that the court orders. The judge was supposed to handle the merits of the case. But back in 2004 and again this year, Sheriff Green just stopped doing the foreclosure sales. He wanted to buy enough time to sit lenders down with homeowners to work out a solution. His campaign website says he has saved thousands of people from foreclosure.

The WSJ piece (subscription required) chronicles how his effort started as a lone desperado move, but then picked up the imprimatur of a council resolution -- facing questions about whether his actions had been legal at all, ever. Earlier this year home lenders didn't want Congress to allow bankruptcy judges to be able to rewrite the terms of mortgages, so you can imagine how displeased they were that a sheriff was taking matters into his own hands.The end result of the political drama is something that's practically common sense. Instead of going through the adversarial court process, Philly homeowners go through a kind of mediation with lenders. It's not official mediation, which is more formal, but it's close.

The City of Philadelphia chipped in $2 million for counseling and lawyers for homeowners to prevent foreclosure. A judge ruled that homes can't be sold in foreclosure unless the homeowner has a chance for a negotiation with the lender. The lender isn't forced to cut a deal, though. Homes can still sold at a foreclosure auction if the two sides can't work it out, although the lenders stand to make more money by keeping people in their homes paying their mortgages than by selling at foreclosure auction.

Yesterday was the first frenzied day of the program in City Hall, The Philadelphia Inquirer reported. Like all programs set up to help the housing crisis, Sheriff Green's system is designed to help those who were brought down by misfortune (like an injury, illness or job loss) not by greedy speculation.

Last year foreclosures in Philadelphia were up 18% to 6,237 and they're supposed to jump another 36% this year, to 8,500. Still, Philadelphia hasn't been hit as bad as other areas because Philly prices didn't go up that much (don't tell Philly boosters who like to say it's become the sixth borough of New York.)

Housing advocates say the project Sheriff Green kicked off is unique around the country. Let's hope it catches on. All kinds of disputes are heading to some kind of mediation instead of court. Divorce lawyers, Wall Street firms and anyone who's been through a grinding court case finds the mediation process cheaper and fairer.

When you're dealing with cash-strapped homeowners and pressured lenders, cheap and fair seems like a good way to go.
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