Three lawyers who represented financial institutions before the 1st Circuit declined to comment or did not return phone messages seeking comment on the potential impact of the decision. Sherman also declined to comment.
George Babcock, a Rhode Island attorney who represents more than 500 families fighting foreclosures, said many of homeowners have reached settlements with the help of the program.
"I find it all very unfortunate that a plan that was designed to help people and is really helping people is going to be scuttled," he said. "I hate to say that the banks are the bad guys, but the banks are the bad guys,"
Steven Fischbach of Rhode Island Legal Services, who filed an amicus brief in the case, said the program was devised by the court to deal with a flood of cases, which reflects the severity of the foreclosure crisis.
"The program is very important because it provides a certain avenue to speaking with a lender to get a modification of a mortgage," he said. "It is very hard to get someone on the phone who has authority to respond to and evaluate mortgage modifications."
He said it was too soon to say whether the decision was a death knell, but said it was important to note that the appeals court could have struck it down. Instead, it gave the district court a chance to fix the problem.
"I think the court recognized that the court in Rhode Island was faced with an onslaught," he said.
He called for a state law that would force financial institutions into mediation before foreclosing.