2008 JOHN NEUFELD AWARD Philadelphia’s Mortgage Foreclosure Diversion Pilot Program
The 2008 John Neufeld Award is awarded to The Philadelphia Mortgage Foreclosure Diversion Pilot Program. Since this program is so unique we have submitted the entire nomination for your reading. Through the judicial leadership of the Judicial District of Pennsylvania (FJD) this program has forged a collaboration of volunteer spirit of the Philadelphia Bar Association with sound case management techniques that are helping residential homeowners in Philadelphia stave off foreclosure and the loss of their homes. The Mortgage Foreclosure Diversion Pilot Program provides court-sanctioned negotiations between lenders and borrowers to try to resolve troubled loans and avoid foreclosure. This is the response of the Philadelphia Court System to a national crisis. Nationally, over 700,000 mortgages are seriously delinquent (more than three months arrears). In Pennsylvania over 22,000 are seriously delinquent. As noted in The Philadelphia Inquirer, the number of Philadelphia foreclosure filings with the Office of the Prothonotary climbed 1,680 in the first 12 weeks of 2008 and is expected to total 8,500 by year’s end, up 37% from 2007. By April 2008, the increases in sub-prime and predatory lending practices, adjustable rate mortgage payments and unemployment/underemployment combined to create an economic perfect storm. It became apparent the resulting rise in mortgage defaults and foreclosures would have a devastating impact on residential homeowners, adversely affect lenders and investors, reduce the City of Philadelphia’s tax base and decrease the City’s ability to provide services to its citizens. As a matter of public policy, the leadership of the Philadelphia Courts determined that judicial intervention was not only justified, but absolutely necessary to avert a crisis. The precedence for the program was established in 1983 and repeated in 2004 when the Philadelphia Court of Common Pleas intervened at a time when a large number or residential homeowners were facing the loss of their homes. The Mortgage Foreclosure Steering Committee was subsequently created and chaired by Common Pleas Court Judge Annette M. Rizzo. Membership included the Sheriff, the City Solicitor, attorneys representing lenders, foreclosure attorneys, housing and community activists and members of
the Philadelphia Bar Association’s Volunteer Indigent Program. The group struggled to develop case management protocols for foreclosure proceedings, due to their diverse backgrounds and interests. At this point, President Judge Jones noted, “a systemic solution was needed to address this reoccurring problem.” In 2008 under Judge Rizzo’s leadership, the committee finalized the foreclosure protocols in less than seven weeks. To make the program work, President Judge C. Darnell Jones called upon a valuable resource – one the judiciary partnered with many times before: volunteer attorneys. President Judge Jones said, “Volunteering is the highest calling of Philadelphia lawyers, to be able to give back to their profession which will give them a lifelong career”. This valuable resource responded to the Court’s call through a ground-swell of volunteerism resulting in 220 attorneys serving as representatives for residents facing foreclosure or as Judges Pro Tem in Conciliation Conferences. Administrative Judge Keogh praised the program as a “safety net” for people who otherwise cannot represent themselves. The Mortgage Foreclosure Diversion Pilot Program is a case management alternative designed to provide early court intervention in residential owneroccupied mortgage foreclosure cases. Foreclosure cases that are not owneroccupied residences remain eligible for Sheriff’s Sale. The process involves early identification of suitable properties for the program and diverts those cases to counselors and pro bono attorneys for possible interest rate renegotiation, loan restructuring, or other settlement options prior to foreclosure. Diversion from the initial foreclosure proceeding begins by identifying owner-occupied residences and issuing a Case Management Order. The order sets forth the following: a date for a Conciliation Conference that requires attendance by the homeowner-defendant and lender-plaintiff; a notice to the defendant to call the SAVE YOUR HOME HOTLINE where they are referred to a housing counselor; instructions that require the defendant to provide the counselor with the necessary financial and employment information; requires exchange of financial and income information along with loan resolution proposals; and any other information needed prior to the conference. Conciliation Conferences are held before pro bono Judges Pro Tem and attended by a pro bono attorney representing the homeowner and the attorney representing the lender. At the conference, the parties review the defendant’s financial information, determine if an agreement can be reached, or whether the property shall proceed to Sheriff’s Sale. If the parties feel an additional Conciliation Conference would be beneficial, one is scheduled. At the conclusion of the Conciliation Conference, a Case Management Order is entered memorializing the outcome. The foreclosure program applies differentiated case management techniques such as the Day-Backward and Day-Forward approach. In this
instance, Day-Backward is all foreclosure cases commenced before September 8, 2008. Day-Forward will be effective for all cases commenced after September 8, 2008. The Day-Backward cases req5uire the plaintiff to mail to the defendant a Certification of Premises As Residential – Owner Occupied and Request for Conciliation Conference. If this is completed by the defendant and filed with the Prothonotary, the Sheriff’s Sale is postponed and a Conciliation Conference is scheduled. For Day-Forward cases a designation on the complaint coversheet and special computer coding identifies owner-occupied residences. A Case Management Order which includes a date for a Conciliation Conference is issued at the time of commencement. The total number of cases identified for Sheriff Sale in April and May was 1,670, of which 661 or 40% were diverted from Sheriff’s Sale and scheduled for a Conciliation Conference. In June and July 2008, an additional 1,129 cases were filed and 589, or 52%, were identified as owner-occupied residences which were diverted from initial Sheriff’s Sale and scheduled for Conciliation Conference. Subsequent foreclosure cases will be identified, diverted, postponed from sale and placed on the Conciliation Conference Track. The program recognizes that it cannot save every foreclosure from Sheriff’s Sale and that a mortgage is a contract, and lenders have rights that need to be protected. The program provides an opportunity to seek available federal, state and local alternatives, but when an agreement cannot be reached, the premise is placed back on the Sheriff’s Sale list. The program provides additional time to pursue these options and can offer a “graceful exit”. Sometimes, this “graceful exit” means postponing the sale two or three months to mark the conclusion of the school year, so children are not uprooted from their school or community. While the program is a pilot and its duration is set to end on December 31, 2009, it has caught the attention of public officials and organizations at state and national level. U.S. Senator Bob Casey (D-PA) has recognized the value of this program by sending a letter to the Secretary of Housing and Urban Development (HUD), urging HUD to educate and inform other cities about Philadelphia’s successful Residential Mortgage Foreclosure Diversion Pilot Program. Senator Casey went on to write: “A program as successful and economical as Philadelphia’s should not be limited to a single city when homeowners across the country are suffering. I am writing you to initiate a discussion about what HUD can do to make other state and local governments aware of the Philadelphia program and provide the necessary guidance to assist them in implementing similar efforts.” Nationally, the program is being considered in other major metropolitan areas. Houston, Chicago and New York City are considering adapting the
program which was recognized and deemed innovative by the National Center for Responsible Lending and the Pew Charitable Trust. The program was also recognized by The Wall Street Journal and The New York Times and praised by media outlets including Good Day Philadelphia, The Today Show, The Philadelphia Inquirer and The Philadelphia Daily News. With the constantly changing dynamic of socio-economic hardships, the need for a proactive judiciary will always exist. The Philadelphia Courts have demonstrated leadership and initiative in taking steps to address an issue at a local level without awaiting federal or state intervention. ‘Solution-now’ is the core of Philadelphia’s urgency in creating a last opportunity to save a family. A single foreclosed house decays a neighborhood, but every home saved, helps revitalize a community. We would like to thank David Lawrence, District Court Administrator for the submission of this fine program. On behalf of the Past Presidents we would like to thank all of those who submitted a program for consideration of this distinction. Although we can recognize only one program for the John Neufeld Award, we felt that all nominations submitted were deserving of recognition. We even went so far as to discuss a runner up position. Thank you for the nominations and continue to strive to make your courts a success. Myrtle A. Thomas Immediate Past President 2008