NCLC Online Newsletter #1

Thank you for reading the first e-newsletter from the Neighborhood Christian Legal Clinic.  We hope to use this forum to regularly highlight the work of the Clinic so you can see how your gifts of time and money are being used.  This month, we?ve chosen to share about our Helping Hoosier Homeowner?s Project, which has helped hundreds of low-income Hoosiers either remain in their home or avoid predatory (or at least unwise) mortgage loans.  Thanks for reading, and thanks for your partnership in serving our low-income neighbors.

New Law to Aid Foreclosure Mediation

No one benefits from a sheriff's sale. The borrower loses their house and the lender loses money. A new law requiring settlement negotiations in all residential foreclosure cases went into effect July 1st.  The law encourages settlement negotiations between borrowers and lenders to keep people in their homes. 

The law requires lenders to notify homeowners of their right to a settlement conference before a foreclosure judgment is issued.  The lender must serve the notice within 30 days of filing an action and provide contact information for the Indiana Foreclosure Prevention Network.  The parties don't have to reach an agreement, but must negotiate in good faith. 

According to NCLC staff attorney Chris Purnell, "The impact has been immediate, fostering communication where previously there was none." Before mandatory settlement conferences, there might be little communication between the borrower, lender, and the lender's legal counsel. There were cases where the borrower would contact the lender, work out arrangements, and the lender's attorney was never informed. The attorney proceeded with the foreclosure oblivious to the new terms of the agreement. WRTV Channel 6 posted a video on its website regarding the new law with comments from Mr. Purnell.

The foreclosure crisis in Indiana is clear at the Neighborhood Christian Legal Clinic.  Prior to last year, foreclosures were a small part of the Clinic's mission.  The number of cases skyrocketed from 36 in 2007 to 465 foreclosures in 2008.  So far this year, the Clinic has taken on 997 foreclosure cases and we expect the number to climb higher.

A client facing foreclosure will first meet with one of the Clinic's certified housing counselors.  The counselor will perform a budget assessment and pull a credit report to evaluate the client's finances.  The goal is to help the client plan a budget or change spending habits to keep their home.  Once the housing counseling portion is completed, the counselor will contact the lender to assess the borrower's options.

Before a settlement conference, the counselors will ask the client certain questions and help them find the answers:  What is the highest payment they can realistically afford?  Where will they go if they lose their home?  These questions force the client to think about the future.  Most people facing foreclosure are scared.  If they have children, the clients have to consider what will happen to them.

At the settlement conference, an NCLC attorney, the borrower, and the lender's legal counsel will negotiate in good faith.  These are informal meetings without a judge.  The NCLC attorney will seek new terms for the mortgage that the client can afford.  Payments might be temporarily lowered or raised to account for the delinquency.  Permanent modifications might extend the term of the loan or lower the interest rate.

If the home cannot be retained, the NCLC attorney will pursue disposition options such as a "deed in lieu of foreclosure" or "judgment in rem."  The client will lose their home but walk away with no further financial obligation to the lender.  A foreclosure judgment is the last resort because the client will still owe the difference of the loan after the sheriff sale.  The Clinic's goal is to save the client's home or help them exit the home with as little financial loss as possible.