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Arbitration and Foreclosure: How it can help

Wednesday, November, 14, 2012

The foreclosure rate in our country has skyrocketed since 2008 and is only recently beginning to show some signs of slowing its momentum.  The result has been devastating for families everywhere, who are facing the threat of losing their home and losing their stability.  In an effort to stall the disastrous effects of the foreclosure crisis, lawmakers and activists have been looking for ways to ease the load carried by families who are struggling to stay in their homes.  The Obama Administration has put into place several policies for attempting to slow the momentum of legal foreclosures even further—some of which require mortgage lenders to participate in arbitration with the homeowner before foreclosing on a home. 

Since the recession has seen a decline in home values, policymakers and consumer advocates have created several proposals that are designed to help homeowners communicate with their lenders and keep their homes.  Along with HUD’s Hope for Homeowners and the legislative proposals submitted by the Treasury, proposals focusing on the alternative dispute resolution can play have been abundant.  As one state’s example, California passed a 90-day temporary moratorium on the foreclosure of residential first mortgage liens, with the explicit purpose of giving homeowners more time to work out loan modifications with their lenders.

Foreclosure arbitration has achieved the same goal, and in it, both homeowners and lenders are given the time necessary to work out the details of their circumstances in the presence of a neutral third party, known as the arbitrator.  In the process of foreclosure arbitration, an arbitrator who is often experienced in judicial proceedings will provide each side an opportunity to present what she or he has at stake in the conflict.  The arbitrator will then award a judgment after carefully considering all of the details and his or her knowledge of the law.

Foreclosure arbitration is an excellent alternative to costly and public litigation procedures, and can happen in less time.  With it, parties involved in a foreclosure dispute allow an experienced legal expert to make a decision for them and avoid having their case brought before a judge.  Agreeing to arbitration saves a lot of valuable time and money.  It’s a process that is discrete enough to maintain the integrity and reputation of all parties involved but effective enough to be able to resolve some otherwise “difficult to resolve” disputes that occur when homeowners try to handle the threat of foreclosure alone.