Owners given one last chance to save home

updated 3:29 p.m. ET Aug. 21, 2009

LOUISVILLE, Ky. - Peter and Gina Fochtman sat stone-faced at the courtroom table. Across from them was the man who could determine their family's future: an attorney for the bank trying to foreclose on their home.

Since they fell behind on payments several months ago, the couple had made dozens of fruitless phone calls and confronted seemingly endless paperwork problems.

Then, just as they were about to lose their house, the Fochtmans got assistance from a city program that required the lender to meet with them as a last step to avoid foreclosure.

"It's just been a nightmare all the way through," said Peter Fochtman, a produce salesman who blames most of his financial troubles on surging health care expenses and the cost of treating one child's heart condition. His wife works part time as a clerk at a school uniform store.

Louisville's requirement has helped thousands of families stay in their homes, and similar measures are popping up in other cities and states such as Connecticut, Nevada and Philadelphia.

In an effort to ease the foreclosure crisis, the programs give struggling homeowners a final chance to talk with lenders and put borrowers in touch with attorneys and housing counselors.

More than 1.5 million American households were at risk of losing their homes in the first six months of the year, according to foreclosure listing service RealtyTrac Inc.

Since the beginning of 2007, more than 1.6 million homeowners have had their homes repossessed. Today, a record 12 percent of American homeowners with a mortgage are either behind on their payments or facing foreclosure. And that number is expected to climb for another year, depending on how many people lose their jobs in the recession.

A lifeline for homeowners
In places that have such programs, lenders or their attorneys are generally expected to attend negotiating sessions if homeowners ask. But banks are under no obligation to modify loan terms.

For the Fochtmans, the program offered a lifeline. Their anxiety was growing as their four children — ages 8 to 20 — kept asking how much longer they would be able to stay in their home.

Adam Hall of the Mortgage Bankers Association of Kentucky said lenders welcome the process as an option to avoid foreclosures, which he called "the worst case scenario" for banks.

"We just want to make sure that we don't overset expectations," he said. "It is not going to solve every single person's problem. ... But hopefully it will help a number of people to avoid foreclosure."

In Louisville, foreclosure complaints sent to homeowners now include information about the conciliation program. Community activists and volunteers visit each home to encourage participation.

The program has been fully operational since July 1 after a phase-in starting in early spring. At least 30 homeowners have had conciliation conferences so far, but the number will rise substantially by September.

The foreclosure process can continue while a homeowner goes through mediation, but local judges have agreed to hold off on ordering home sales until owners and lenders can meet to negotiate. That could also help the court system, which is being clogged by foreclosure cases.

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