(Updated to correct expired link to the article below.)
King 5 investigations learns there have been a number of lack of good faith certifications. AG: Changes needed to catch 'bad faith' banks. (Interesting that in this investigation there's no mention of the several dozen certifications of lack of good faith on behalf of the borrowers. That may be another story - though it's unlikely to be another King 5 investigation.)
Mediators - or Judges?
Apparently whoever the reporter was talking to - at least one borrower's advocate - left him with the impression that mediators were little judges: making "findings" and entering "rulings."
I know of a lot of advocates who like to think of us mediators as judges finding facts and concluding questions of law and making rulings and coming to decisions. A fair number of mediators, too. The problem with that is, well, we're not. We're mediators, not judges. Pretty clear distinction in the RPCs on the difference.
And there's just nothing in the FFA that makes us judges. Nothing. Nada. Zip. Zilch.
If it's not in the statute, where does this idea come from? I've got some thoughts about that.
It seems to come from borrower's advocates who would really, really like us to be judges. That's understandable. I get that all the time.
What's less understandable is when this idea that we're judges comes from mediators themselves. I can't imagine how one even get to this idea without having completely lost one's groundings in what it means to act impartially and be a neutral. Yet I've heard of those who think it's their job as a mediator to "wield the stick" and "take it to the banks." Having a certification must feel really good to them.
But this is not appropriate. And not good practice.
I've had borrower's representatives argue vociferously for "closing the mediation" (something we've got no authority to do) and "bad faith" the bank; of course I don't; then a few weeks later the document exchange gets done, the underwriting is completed, and an offer of a TPP is made. If I had done as the borrowers' representatives wanted, their clients would have lost their homes.
If they were arguing that to a mediator who was not well-grounded in impartiality, that argument might have held sway. And that borrower's representative's client - the homeowner - would have been out of their home, out on the street. Some small comfort in that the certification of lack of good faith would be in that instance.
The borrower already has a representative. The mediator is not the borrower's uber-representative. If the mediator's acting that way, they're not bringing the mediator's value as an impartial neutral to the mediation. And ironically, they may even be helping to put the borrower on the street.
What is Good Faith?
That borrower's advocate in this article is quoted as saying that bad faith is "any type of behavior where it's clear the lender is not trying to help the homeowner."
That's not unlike what I've heard other borrower's advocates say, including those arguing to me to find bad faith in their mediations. Anyone agree with this formulation? If so, would you mind pointing-out to me where exactly in the FFA you find any language to support it?
Some of you have been unfortunate enough to get my full in-person rant on this or have read my other writings on the subject, so you may know that I see good faith just a tad bit differently than that.
I've taken the intent of the FFA - to create a "framework for communication," and put it together with all the mechanisms for that framework, the obligations of the parties, and the authority of the mediator. I come up with this: good faith is participating in the mediation to communicate about possible agreed resolutions to avoid foreclosure.
That's a bit different than what this reporter was told.
On AG Investigation of Lack of Good Faith Certifications
Is it A Good Thing or A Bad Thing that King 5 now got lack of good faith certifications on the AG's radar? As a former AAG myself, I think it's a good thing. The legislature made the certification to be the basis for a CPA violation and so something should come of that. Having them email Commerce every month or so to get copies of new certifications probably should be on some AAG's to-do list.
Just to let you know, the Consumer Protection Section of the AGO doesn't prosecute every case it gets a complaint about. It has to use its prosecutorial discretion to bring cases when it can make a difference. It usually puts together a number of complaints, indicating a pattern of behavior. Even so, a few instances can be enough if the behavior they're targeting is bad enough. The point is, once it's an AGO-brought CPA case, it's a pretty big deal.
But what do you mediators who are making all those lack of good faith certifications think? What do you think about your certifications being litigated?
Maybe you can withstand the attempts at third-party discovery on you (better hope the half-baked privilege in the FFA works for you to quash that subpoena.) Even if it does, would you like to have your certifications litigated in a treble damages CPA violation lawsuit, with the AGO on on side, the banks lawyers on the other, a bunch of amici borrower's advocates, and you in the middle?
Have you backed-up your certifications with all the documentation that caused you to determine the servicer was not participating in good faith? Do you like the idea of having your determinations trashed in open court?
If you've got a problem with that, I don't think you should do this work. But that's not my point.
The point is ask yourself this question: are your certifications of lack of good faith made impartially, neutrally, without favor or bias, and do they demonstrate that you've done the best job you could do as a mediator? Have you done enough in your certifications to withstand allegations that you're acting partially, favoring borrowers or biased against banks? Or do they demonstrate that you like to "stick it to the banks?"
And let me add another kicker: do your certifications show your "willful or wanton misconduct?" Of course you don't think so, but that's not the most pertinent question. Do the servicer's lawyers think it does? Just wait for that assertion to come across your threshold via process server.
A Different Way to Use a Lack of Good Faith Participation
As the article notes, though less clearly, a certification has no legal force or effect. It takes a lawsuit to turn it into anything useful. That's a good thing. But mediators, don't be mistaken into thinking that you're doing anyone any good by simply slamming "bad" behavior with adverse certifications and being done with it. Your job's not that easy. You've got more work to do.
I've heard some stories from mediators and representatives about some of these certifications. I hope they're not even half true because I'm appalled by some of them.
The prospect of an adverse certification can be a powerful tool for a mediator to get the parties to participate as the FFA intends. But it only works if mediators use it that way. Apparently at least some mediators aren't using it that way.
Here's a tip on whether you're using an adverse certification as a mediator could: A lack of good faith certification shouldn't be a surprise to the party who gets it. They should see it coming a mile away. They should know why they're getting it, have been warned it was coming, been told again what they needed to do to avoid it, and instead decided not to.
Our job is to facilitate negotiations. Or job is not to police parties to find or rule that they're in "bad faith." The certification is a tool for us to use to get the parties communicating. If all you're doing is refereeing mediation sessions and deciding afterward that somebody wasn't participating in good faith, I'll suggest you're not doing the job you could.
Use the prospect of an adverse certification to get the party to participate in good faith. Use it to get them and you back to doing what the FFA intends: communicating together about the issues to foreclosure to explore if there are any resolutions to be agreed upon and foreclosure avoided.
I've had to raise the prospect of a lack of good faith certification with servicers several times. I've warned them that if their behavior doesn't change, and there's no agreement, that's what they're going to get. Pick your metaphor: they're cruisin' for a bruisin'; they're making their bed and I'm going to make sure they lie in it. And I once again make abundantly clear - as I've already made clear before - exactly what it is they need to do to start participating in good faith.
So far, it's worked in all cases. (All but one - that case the servicer didn't show up at all - no one ever communicated - that's another story). I've even drafted my certification, with pages and pages of single-spaced notes documenting exactly how they failed to participate in good faith. I was ready to to put up on the big screen exactly the certification they were going to get if things didn't change. In all those cases (all but that one) it worked. Once, the bank's attorney nearly came through the door of the mediation room waiving the TPP offer in their hands. I told her to listen for that whizzing noise - that's the sound of them dodging a bullet.
The point is that if you're seeing a lack of good faith, you should be using it first and foremost for one purpose: to persuade them to participate in good faith. It can be done. It should be done. It's effective. It helps parties reach agreements. It helps homeowners stay in their homes. Are you doing it?
Whaddya think? Agree? Disagree? Out of line? On point? Comments? Snide remarks?
Well, that was quite a read, Jeff! I, too, saw the King 5 report and was concerned with some of the same things you mention. I didn't care for the language that said a mediator "forces" the beneficiary to sit down with the borrower. I felt that it also painted an inaccurate picture tying the borrower's past experience to that of the mediator's certificate as "proof" the beneficiary had been wrong all along. Overall, it didn't appear that the reporter was as properly informed as he could have been and completely misunderstood the role of a neutral and impartial mediator; who, yes, finds that the borrowers receive not in a good faith findings too.
Vivian, good point. I would add that, when approaching the whole "bad faith" thing from a borrower's advocates' perspective and lens, it's going to appear to validate all the pre-mediation frustration they've had.
Another thing that was missed is that the document exchange is more nuanced than many borrowers think it should be. The comment from the borrower about "the bank continued to request documents she had already provided" reflects this misperception.
(Yes, you provided bank statements for April-June. That was then. Because we rescheduled the session to give you time to go get a signed lease for your buddy renting the basement, you now need to provide the July-September statements. Those aren't "the same documents.")
That's why they often get it wrong at first and need help from their representatives and the mediator to understand why it seems that way and why the servicer needs current documents.
This reporter's article is another example of the tough row to hoe educating the public in what mediation is, and what mediator's (can/should) do!
Jeff, I wholeheartedly agree. The bad faith certification is a last resort (I have never made one), but, like you, I use the power to do so as a tool to get the parties to the table with the documents needed for a productive discussion. It's a challenge to do that in a way that doesn't compromise neutrality - or at least the perception of it - but it's the right thing to do because a bad faith certification is a lose-lose result.
I didn't watch the video, but read the text, which did mention that borrowers are getting bad faith certifications too - it contrasted the percentages of unresolved cases with bad faith certs - 12% for beneficiaries, 8% for banks. What disappointed me was not highlighting that 5000+ of 6700+ cases DID reach an agreement; it just focused on the 1500 that did not.
Estera, you raise an interesting point about the tension between certifying a lack of good faith on the one hand and acting impartially and remaining neutral on the other.
I was actually kind of surprised to find in myself that I'm not having a problem maintaining neutrality or even the appearance of impartiality when I'm working with a party that is not participating in good faith.
As we go through the escalations - encouraging, nudging, cajoling, persuading and warning them to participate - they see that I'm affirming all along that the process works when the parties participate - themselves included - to address what's most important to them and to reach their own resolutions. The key for me is that no matter how hard-nosed and flinty I might become about the process and how they're not using it, even to the point of an adverse certification, I'm still not taking a position on the outcome of their dispute (neutrality) or acting on any bias, favor or prejudice against them (impartiality).
When I'm making a final good faith participation warning, I'm not acting from any bias, favor or prejudice. I'm acting on the behavior they've demonstrated. I'm not pushing for any particular outcome. Most of the servicer's counsel I've worked with who have been on the receiving end of my warnings get this.
It's why I say - to use a term many use negatively - I can become massively "directive" on the process while remaining completely neutral in the outcome and continue to act impartially toward the parties. It's still the parties' job to explore the issues to see if there's an agreement they can reach. It's my job to see the process is there for them and being used to do that.
Maybe an analogy might be a judge who makes procedural rulings - even finding a party in contempt - does not necessarily thereby indicate bias on the merits. (Someone who's been a judge can tell me if that's really apt or not.)
Even if I'm giving a party a final warning about good faith participation, I'm still not judging them. That's just the way I work. It's very important to me that I'm not judgmental, especially if I see that the party isn't using the process the way the legislature intends and requires. I bet some mediators just can't make these determinations without getting themselves angry and judging the party as acting illegally, immorally and unethically. They get mad and think the party is bad. I bet some mediators like getting mad at banks and do "bad faith" certs a lot. I bet some are afraid of getting mad and don't address the issue, even when they should. So for me, it's just a matter of addressing the issue when they're not doing what I think the FFA requires of them. That's it. But the question of non-judgmental approach to mediation is probably another post ...
The article expired that was originally linked here in the discussion. It's been updated to link to what I hope is a permanent article. Here it is again.
Jeff, you nailed it. Frankly, I have had more borrowers "not in good faith" than beneficiaries. But I have issued very few not in good faith certificates either way.
That said, our job is to get the parties together and discuss possibilities. The focus should be on accomplishing that goal, not on whom to punish for procedural issues.
I typically take it quite a ways before a "not in good faith" determination. An example would be, borrower provides documents that are incomplete or missing information like a signature. The housing counselor takes two months to get them fixed and resubmitted. The requested information is still incomplete. It goes round and round with several "stale" document issues. Finally I schedule a mediation to discuss missing documents and the borrower promises to have them in a week. I schedule a second mediation and right before the mediation the housing counselor withdraws stating the client fired them. The borrower is a no show at the second mediation. It takes me another month to track down the borrower and he gives reasons for leaving the housing counselor and I give him a list of what he needs to provide. He claims he will have in a week. Never happens. He also tells me that his housing counselor told him his best option was to let it go to foreclosure.
He claims he did not get a written letter from me because he moved and did not get my email because his account had been closed. It took awhile, but I finally realized he moved to a different apartment in the same building that he owned. It was a large house converted to 6 apartments each with their own bath and kitchen. He had not made a payment in 6 years. He quit returning my calls and never provided the additional information. Time to certify or cancel? Under the statute I could have certified early in the process, but I tried anyway.
There are a slew of other issues.
The other day I got into tiff with a housing counselor when I told him that I could not make a "ruling" on a particular issue and his response was, "I don't want you to make a ruling, I just want you to tell them what to do!" He claimed the statute required me to regulate the process and that is what gave me the power to tell them what to do. That was his opening demand at the mediation. Before the end of the mediation, the beneficiary was able to point out the issues and print out documents that were completed at the mediation by the borrower.
Or the case over a 10 million dollar house on Mercer Island, waterfront. The borrower made $168,000 the year before. The borrowers loan was an interest only, 2.1 percent and the borrower only made 4 payments with the last one over 4 years ago. There is no deal better than what she already had. She made too much to even qualify. The housing counselors position was her client really did not make the money her tax returns nor business accounting indicated.
Or how about the cases where it makes NO financial sense to even ask for a modification. The property is SO far underwater that strapping the borrower with what would still be a bad financial position just did not make any sense. Sometimes the push to obtain a modification is so strong with the housing counselor that I don't think some of them see the overall Picture.
Another one where the borrowers documents included 3 different social security numbers and at the mediation she could not show which one was hers. She was told of the discrepancy months earlier. She was unable to prove she was the owner. She was given a list of documents and what the corrections were. She never responded and the housing counselor stopped returning my call or email.
I really could go on and on about the incomplete borrower documents or documents that disagree with each other. Tax returns without signatures. One pay period documents and not two. Failure to even show up and so on.
Another case where the ex-wife got the house as part of a divorce settlement. Then the ex-husband petitions for personal bankruptcy. Unfortunately the house is still in both of their names. The FFA guidelines provide a list of necessary actions that need to occur in this situation. Both she and her housing counselor seem unable to comply with what is a rather simple request from me. I have recommended the housing counselor tell her client she need legal representation on this issue. The only response was to simply provide another packet of documents. I think the housing counselor is in over their head.
This is a guess, but if I went back, I would be surprised if even 40% of the borrowers get a complete package of documents in on time. I really expected the housing counselors to at least act like escrow or loan officers. To make sure the documents were complete before submission.
There is one housing counseling office in Seattle that does not review or pass through documents from the client at all. They direct the client to send the documents directly to the attorney for the Beneficiary. In several cases the housing counselor had never met with client or reviewed the documents prior to the mediation.
Are there some beneficiaries that are more difficult than others? Sure, but not any more than I expected. The other day, a housing counselor in a mediation wanted me to order the beneficiary to close a short sale under an agreement that was agreed to by the parities over 12 months before. The problem was the beneficiary rejected multiple offers over that same time. It appeared that the beneficiary was waiting for a better offer. Each successive offer had been materially better than the one before. A deal was already reached. There was nothing I could do.
The only repeating problem I seem to have with the beneficiaries is it takes them too long for them to identify missing or incomplete documents or make a request for further explanation of some discrepancy in them. The slow response by the beneficiary typically combined with another late response by the borrower places the documents into the "stale" category. Which is the primary complaint of the borrowers.
Or where the legal counsel for the beneficiary changes firms, and the case seems to get lost in the shuffle.
So far my experience with Bank of America and Well Fargo has been average. Certainty not bad enough to certify "not in good faith."
The King5 Story starts with the assumption that the borrower is looking for a modification in every case. I believe that many of the parties going through the process are really looking for more free rent. (sorry for being so blunt) But as a mediator I am not allowed to judge.
I think the real story is the number of housing counselors that need to do a better job. In every case I have done except for one, once the documents were complete, an offer or a denial was subsequently provided in a timely manner.
Jeff, I agree with your definition of not in good faith.
All of the above case descriptions were included in my certifications which are part of the public record.
Sorry, I'm rambling
That's quite the omnibus rant, Sherman! And that's me speaking as a certified omnibus ranter.
You raise lots of interesting issues: what does borrower good faith look like; management of the pre-session communication and document exchange; efficacy of housing counselors; authority of mediators, etc. If you bust 'em up into digestible, chewable bits and start them as different discussions, I'd bet you'd bait some more replies!