Foreclosed Homeowners Live Free for a Year in Some States

With the average foreclosure now taking 438 days, delinquent borrowers are finding that they can live in their homes without making mortgage payments for at least a year. But there is a catch. That nationwide average may not apply in your state.

The states with the longest wait time before foreclosure are those states that require a judicial foreclosure, which means the bank or investor must take the case to very crowded courtrooms. There are 16 states that require a judicial foreclosure: Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, New Mexico, North Dakota, Ohio, Pennsylvania and South Carolina.

But even if you don't live in one of those states, your state might be taking action to slow down foreclosures and at least require a mediation before you lose your home.

A North Carolina law that took effect on June 1 allows a homeowner to stop a foreclosure just by asking for assistance. The loan servicer would then have to determine if the homeowner qualified for any available modification or borrower assistance program. If not, the foreclosure can go forward.

In Florida, where the courts are jammed with 350,000 foreclosures a year, the state Supreme Court issued an administrative order mandating mediation for all residential foreclosures. Frequently you see stories of people frustrated because the bank won't work with them. Now if the courts start mandating mediation we may see fewer cases ending up in the courts.

Sen. Bill Nelson of Florida wants to impose a nationwide mandate for mediation. He's introduced legislation requiring lenders that receive federal insurance to enter mediation with borrowers before foreclosure. So far this bill is stuck in committee.

Other states have acted to impose mediation as well. Nevada allows homeowners to request mediation on non-judicial foreclosures. During mediation the servicer must produce documents that show it has the right to sue and that details how the servicer has calculated eligibility for loan modification.

Maine started its foreclosure diversion program in January. Borrowers enter the process after a foreclosure action has started. After the borrower answers a foreclosure summons and complaint, the court orders the homeowner to attend an informational session to learn about the mediation program, as well as the types of information the homeowner will need to get assistance. Homeowners also receive a list of community resources where they will be able to find assistance.

New York mandates settlement conferences for all residential foreclosures. These conferences discuss the obligations of both the homeowners and the mortgage investors under the mortgage loan documents. The purpose of these conferences is to determine whether the borrower and lender can reach a mutually agreeable resolution to help the borrower save his home.

As more and more states act to slow foreclosures, you can expect a creep upward in the number of days borrowers will be able to stay in the homes. But that's a good thing.

With millions of people facing foreclosure, the more people who are offered agreeable plans to keep their homes the better it will be for the real estate market. This will reduce the number of distressed properties on the market and maybe the housing market can finally find a bottom.

Lita Epstein has written more than 25 books including "The 250 Questions You Should Ask to Avoid Foreclosure" and "The Complete Idiot's Guide to Personal Bankruptcy."
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