In April 2008, in the midst of the recession and with mortgage foreclosure numbers climbing to an all-time high, the Philadelphia Court of Common Pleas entered an order that no owner-occupied residential property could be foreclosed upon without a court-supervised conciliation between owner and lender.
This innovative program, known as the Mortgage Foreclosure Diversion Program, started in earnest a month later in May 2008 in the courtroom of Judge Annette Rizzo, and, in the ensuing five-and-a-half years, a total of 7,000 Philadelphia homeowners, many of whom are elderly, averted foreclosure. Perhaps more important, more than 80 percent of those who obtained agreements to prevent foreclosure are still in their homes two-and-a-half years after signing a settlement agreement. To get an understanding as to how this program was conceived and how it operates, we interviewed Judge Rizzo.
Q. Tell us how you became interested in the mortgage foreclosure problem.
A. Even before I was appointed to the bench, I had been interested in housing, and I recall that as early as 2004, when I was sitting in Motions Court, I heard quite a few matters involving housing and foreclosures—with the resulting dislocations for the owners and occupants, who were frequently the elderly.
I thought there had to be a better way and started to “ask around.” I was supported and encouraged by our then-President Judge Darnell Jones (now a federal district court judge) and eventually by leaders in the judiciary, including our chief justice and the Administrative Office of Pennsylvania Courts.
As the idea spread for an alternative to the existing procedures that led to a sheriff’s sale of a property whose owner was in continuing default, we got support from the mayor and City Council and cooperation from many public and private groups, including the city solicitor and the sheriff, leading to the April 2008 prohibition of foreclosure without the court-ordered conciliation. We had “buy-in” from the Philadelphia Bar Association, where our Steering Committee is based, as well as housing counselors and gradually, and perhaps most importantly, from the lenders.
The cooperation has been tremendous. The Philadelphia District Attorney’s Office, the U.S. Attorney, the Philadelphia Corporation for Aging, the Pennsylvania Department of Aging, and HUD are just a few of the partners. One unique aspect of the program is that the judiciary is in direct and full partnership with nonjudicial groups—most notably the mayor, who has given full support to our program with his funding of community outreach groups.
Q. How does the program work?
A. We sit in session every Thursday with a morning and afternoon list of approximately 150 cases in each session. It is a nonadjudicatory proceeding, I am not robed, and I do not sit on the bench. There is a formal “Call of the List,” although those who visit may view it as a Moroccan open air market. I tend to view it as the floor of the original Stock Exchange—“organized chaos.”
Most often a resolution is reached in the courtroom, either by ongoing discussions or with the assistance of a judge pro tempore (JPT) appointed by the court to oversee the mediation process in private settings. Lenders and housing counselors along with volunteer attorneys representing the borrowers have established good working relationships, and that connection or “human touch” helps to resolve these cases without the use of formal mediation.
If, however, no consensus is reached, a JPT attempts to resolve the case. A recommendation is then made to the court as to a possible postponement “with purpose,” or a decision is made that the reconciliation has not borne fruit and the case must then proceed in the ordinary course.
Our borrowers have the benefit of well-trained housing counselors to assist them in the process, as well as volunteer lawyers through Philadelphia Volunteers for the Indigent Program (Philadelphia VIP), a nonprofit law center. To date, more than 600 lawyers have served in various cases, including 40 JPTs, representing approximately $3 million in pro bono services rendered.
So we have been “convenors” in both the formation of the program itself and individual cases. The volunteer aspect of the program is, in and of itself, a testament to local organizations, and particularly to our Philadelphia Bar Association stepping up to the plate to serve!
Q. So how do you measure success?
A. Success is seen in outright dismissals of court actions, settlements, loan modifications, forbearances, deeds in lieu, short sales, and what I term “graceful exits.”
I want to take a moment to talk about “graceful exit,” a phrase I use to describe a case in which it is not feasible for the homeowner to remain in the property—that is, there is no means by which a loan can be performing and therefore this process again, on a microlevel, fosters discussion about planned departure from the property, which then brings certainty to the parties and dignity to the homeowners. It also allows them to plan for the next phase of their living situation. We have seen many cases in this regard, and we view this as a success for these homeowners.
Q. Your program would seem to have substantial impact on the elderly.
A. There are a host of issues that implicate elders and involve potential elder abuse that must be considered in developing a mortgage foreclosure diversion program. I think of it as a “cafeteria plan.” It has to be indigenous to the area, to the resources available, and to those who are committed to addressing the issues in the area.
In particular, reverse mortgages pose significant risks for elders because many of those who sign up lack adequate information and guidance on what they are and how they work. For example, many elders don’t know that after they get a reverse mortgage, they still have to pay property taxes and utilities. There is a lack of clarity that is dangerous.
We have formed a special program—a subset of the mortgage foreclosure court—to help identify these underlying issues and to provide clarity. Actions taken include calling upon HUD to issue clarifications and determining which wrap-around services the courts, nonprofits, and the government can develop to help elders with various related issues. We also have worked with the District Attorney’s Office to identify “scam” operators and agencies.
Q. Do you see any further “specialized” role for the courts in dealing with problems of the elderly and particularly “elder abuse” issues?
A. Definitely. Chicago has one centralized elder court, as well as an elder justice center. This is very positive and a tribute to Cook County Circuit Court Chief Judge Timothy C. Evans’s leadership and the support of the Cook County judiciary. Their success in convening community groups, as well as 20 or more bar associations in Chicago, is amazing.
This is eventually how the courts should recalibrate. I recognize there are now significant budget restrictions that have held back judge-led initiatives, but we should keep trying. These justice initiatives, which attract lawyers and the stakeholders in the field, improve “justice,” save the taxpayers lots of money, and help improve the public’s trust and confidence in our judicial system.
Q. What can the program do to prevent the borrowers from defaulting under their new agreement?
A. Early in the program, I recognized that many of the borrowers’ problems were due to a lack of “financial literacy.” So, when I see financial literacy problems, the borrower is referred to an orientation program on financial literacy underwritten by PNC Bank. There are four sessions in each program; one is at the court and three more are in the community.
The City is also involved. The Office of Housing and Community Development (OHCD) provides materials they call “Tools for Financial Growth,” funded by PNC and other lenders. This helps the homeowners sit down with housing counselors and better understand their financial problems and what they need to do. Then, the housing counselors can design a settlement proposal and cite the borrowers’ participation in literacy programs as evidence that they are really trying to get their financial issues in order.
Programs like this are never static—they have to be “in the moment.” Over time, the diversion program has also come to rely on specialists on mental health issues and “seniors issues.” We are constantly updating the scope of our activities.
Q. How do you describe the program when you speak about it?
A. For courts, it is a case management program. For communities, it is a community stabilization program. For individuals, it is a homeless prevention program.
There are lots of components, all working at the same time. Volunteer lawyers are used for negotiations and for trials, and “senior lawyers” serve as JPTs to break logjams.
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Judge Rizzo was described in a New York Times article addressing the Mortgage Foreclosure Diversion Program as “a high-energy woman.” Peter S. Goodman, Philadelphia Gives Homeowners a Way to Stay Put, N.Y. Times, Nov. 17, 2009. That energy is reflected in the many details she readily provides on the program. Nevertheless, Judge Rizzo was reluctant to expound further when asked about the many kudos and awards that have been given to her and her program in the past five years. The ABA Harrison Tweed Award in 2009 was presented to the Philadelphia Bar Association for its work with the program, and Judge Rizzo has testified twice before committees of the U.S. Senate. The U.S. Conference of Mayors has honored Philadelphia with its City Livability Award in recognition of the effectiveness of the mortgage program. And in December 2009, a feature on ABC News Nightline described the program as “one of the most creative and aggressive responses to the housing crisis anywhere in the country.” Judge Rizzo’s response to this kind of recognition is to emphasize that the cooperation of many is what has made the program possible.
In testifying in 2009 at a Senate hearing, Judge Rizzo recognized that Philadelphia’s Mortgage Foreclosure Diversion Program has become a well-known and admired model for such efforts:
Since our inception, we have been the subject of a multitude of media events, locally, nationally, and even internationally. We have been the subject of conferences in the business and legal sectors. We have been a blueprint for the implementation of similar programs across our Commonwealth of Pennsylvania and the country, with inquiries coming to us from Alaska to Maine—and even the “Paradise Island” of Hawaii!
Amazing what one judge with passion and energy—aided, perhaps, by the power of the robe—can start.