PROVIDENCE, R.I. (AP) — A federal appeals court threw more than 700 Rhode Island foreclosure cases into uncertainty by concluding that there are problems with how a judge set up a program designed to force homeowners and banks into mediation.
The 1st U.S. Circuit Court of Appeals said U.S. District Judge John McConnell did not follow the proper procedures when he instituted his unique order governing foreclosures. A lawyer who represents hundreds of families suing to stop from being foreclosed upon says he fears the appeals court is jeopardizing a program that is helping people.
McConnell signed an order on Aug. 16, 2011, in which he took over all mortgage foreclosure cases in federal court in Rhode Island. The order halted the cases, suspended all deadlines and required homeowners and financial institutions to engage in "directed and serious settlement discussions" before he would allow any individual case to proceed. He placed no time limits on the discussions.
The following January, he appointed former bank CEO Merrill Sherman to serve as a special master to help oversee the process and reach settlements, saying that the cases were problematic for both sides.
"Plaintiff homeowners are confronted with the emotional and economic devastation of losing their homes to foreclosure. Defendant financial institutions are confronted with countless mortgages on which homeowners have stopped paying," McConnell wrote. "The problem is exacerbated by a significant downturn in real estate values that has placed many of these properties 'under water.'"
He said it was in the interest of everyone involved to find a system to "explore all possibilities for the potential settlement of these claims."
About 130 cases had been settled or otherwise dismissed under the program as of April 30, according to a report Sherman filed last month.
The June 14 appeals court decision is written by retired U.S. Supreme Court Justice David Souter, who was sitting in on the case. He wrote that McConnell's order violated court procedures because he should have given the banks a hearing on whether the lawsuits were likely to succeed before he ordered mediation. He also said McConnell would have to establish limits on the amount of time and cost spent on mediation.