Servicers working through foreclosure mediation cases in Florida will no longer be able to send representatives to the bargaining table unless those agents have full authority to consider all settlement offers and authorize a deal on the spot without further consultation. That change is the result of The Supreme Court of Florida’s decision to amend civil procedure rule 1.720, according to attorney Daniel Consuegra, who leads The Law Offices of Daniel C. Consuegra, a default servicing law firm in Florida. The rule change is supported by foreclosure defense attorneys like Christopher Immel, who serves clients facing foreclosure at Ice Legal in Florida. “I think it will have a beneficial effect,” Immel said. “It will at least entice the banks to try and have the most responsible representative available to attend mediations. It is moving in the right direction as far as that goes.” But Josh Donnelly, an attorney with the Consuegra law firm, points to the amended rule’s impractical effect. Essentially, he says, the servicer is under no authority to agree to any type of settlement. The change simply means the servicer has to ensure the person sitting at the bargaining table is someone who has an absolute say on whether an offer recommended by a foreclosure defense attorney or mediator is accepted or denied. “When they first created this, the mediations were seen as something that was being done as an opportunity for the parties to get together and discuss mediation,” Donnelly said.  “It arose out of the need to get the parties together. We looked at it as forced loss mitigation. Over time that has kind of eroded and more defense attorneys, borrowers and mediators feel unless you are willing to discuss more than modification, you don’t have settlement authority.” Consuegra says it’s important for servicers or financial firms sending someone to the table to observe the amended rule, which also requires banks to file a certification of authority 10 days prior to mediation. That certification needs to include a written notice to the court identifying the parties who will be appearing as the servicers’ representative. The certification also will have to confirm that those parties have full settlement authority. The rule takes effect Jan. 1. A failure to follow the amended rule could result in sanctions. Consuega says, “What the rule requires is that the person attending have full settlement authority and not just in one area. A lot of times with these mediations, they are looking at one issue — HAMP. But you should be able to address every loss mitigation category.” Consuegra says the servicer has no obligation to accept any offer, but if the defendant says ‘I want to give you a deed-in-lieu’, the servicer representative needs an authoritative response and needs to say I have studied the file and will not extend a deed-in-lieu or I will. “They have to be able to address every single loss-mitigation issue in every category,” he said. Consuegra and Donnelly say a response of ‘I will have to check on that and get back to you’ or ‘I don’t have authority to accept that’ is not permitted under the new construction. In other words, the representative at the table must have absolute authority to consider all proposals offered. From Consuegra and Donnelly’s perspective, the rule could create inflexibility, turning the mediation process into one that is more adversarial. They see the potential for the change to put servicers in a protective mode that hinders the very purposes of the mediation. “One of the biggest disputes that is arising out of mediation is the question of whether or not a representative (sent by the servicer) has settlement authority, ” Consuegra said. “It is not unusual for the representative to say, ‘let me put you on hold and see about that.’ ” However, Consuegra warned that those words in a mediation are now risky because the rule requires the person at the table to have absolute authority to either outright decline or accept terms of a settlement. Donnelly said many of the procedures used in mediation now — along with this new rule — can be used as a delay tactic or a way to create stalls by raising procedural claims. Since banks will be forced to say yes or no at the table without further consultation, the threat of legal sanctions could create a process that focuses less on negotiations, the attorneys say. “I can see the banks walling themselves off and saying we are not interested in doing anything,” Donnelly said. But Immel, while understanding some of the concerns raised by servicing attorneys, has a different viewpoint. He says foreclosure defense attorneys have noted a trend of servicer representatives coming in with preset ideas on what settlement terms will be acceptable and not acceptable. He adds that in some cases, there is absolutely no flexibility when it comes to discussing individual files. “I think that is the defense’s viewpoint – that these people really do not have significant authority other than a confined set of circumstances (in which they can settle),” Immel said. “Even in a normal mediation, people can say ‘I like this idea, but I have to go consider this and I need this information before I make a final determination. The problem is before (this rule) you had people (sitting in the mediation process) who claimed they had not seen the loan modification paperwork before the meeting.” He claims servicer reps would end up looking at the numbers for the first time, and then say at the bargaining table that it will take another 30 days to decide. Immel said the situation becomes even more difficult when a servicer sends a representative, but they need the back-up of a trustee holding a loan within a securitization trust to make a deal. “If you show up with the servicer who can offer X,Y,Z, but you offer No.2, and they say ‘I have to go back to the Trustee,’ you have eliminated the mediation,” Immel pointed out. He says, in this case, you could have settled if you had the Trustee there.  Therefore, he sees the procedural change as a way to make sure the appropriate authorities are in the room. Yet, he recognizes the restrictions financial firms face. “How many live bodies do the banks and Trustees have to make these decisions is exactly the problem the banks face,” he said. “This is part of the problem of treating it like a business model and less like litigation. It undermines the process.” Either way, attorneys on both sides consider the change definitive, and one that servicers must carefully absorb. In his advisory to the servicing industry, Consuegra wrote, “Now, more than ever, it is imperative that servicers know and understand these requirements and make sure their representatives are trained to deal with the potential landmines they create. ” Write to Kerri Panchuk.