02 Dec Can You Take Part in the National Mortgage Settlement?
In October 2010 the attorneys general of 49 states and the District of Columbia, along with the federal government, began to investigate banks and mortgage servicers to determine their role in the recent mortgage crisis. They looked at some of the largest banks and mortgage servicers in the United States, including Bank of America, Wells Fargo, GMAC, Citigroup, and J.P. Morgan Chase. The investigation showed that banks and mortgage servicers hadn’t just made occasional bad decisions; they had engaged in illegal and unethical activities that were major factors in the housing crash.
The Banks’ Bad Practices Harmed Homeowners
In a lawsuit filed in March of 2012, the attorneys general alleged that the banks’ misconduct resulted in the issuance of improper mortgages, premature and unauthorized foreclosures, violation of service members’ and other homeowners’ rights and protections, the use of false and deceptive affidavits and other documents, and the waste and abuse of taxpayer funds.
Banks were “Robo-Signing”
One of the banks’ activities that led to the investigation was a practice known as “robo-signing.” In a typical foreclosure action, bank officials are required to swear in an affidavit that they have personally reviewed the documents showing the bank owns the mortgage and the homeowner is in default to the extent claimed by the bank. To process large quantities of foreclosure actions at the lowest cost, however, banks allowed employees—many times contractors from temp agencies who were appointed as bank officers en masse—to robo-sign the affidavits without actually reviewing the underlying documents. Robo-signing led to countless improper foreclosures, leaving many Americans without homes and property records clogged with fraudulent documents.
Banks used similar tactics in preparing and filing bankruptcy documents that were not reviewed for accuracy as is required by the bankruptcy rules. We have seen several instances of banks filing inaccurate documents with the bankruptcy court in our cases, one of which was so egregious that it ultimately resulted in a large settlement for the debtor.
Banks were “Dual Tracking”
The attorneys general also alleged that banks were “dual tracking.” When a bank dual tracks, it pursues a foreclosure at the same time it negotiates a loan modification with the homeowners. So while one department tells the homeowners that it is doing everything it can to keep them in their home, another department goes through the steps required to sell the home in a foreclosure. Dual tracking deceived many borrowers about the status of foreclosure of their homes, sometimes resulting in their homes being sold without them even knowing it.
Banks Ignored Laws Regarding Communication
A third allegation by the government was that banks were failing to communicate with government officials and consumers in ways required by law. Many borrowers who sought mortgage modifications heard nothing back from the banks, even though banks who participated in the federal government’s HAMP program were required to make good faith efforts at modifications. When consumers complained to the banks or government officials about these and other servicing issues, banks would often reply with false or misleading information, or simply fail to respond at all.
The National Settlement
Each of the named banks settled the claims based on their illegal, unfair, and deceptive practices (the “Settlement”), which is enforced through consent judgments entered against each bank in the U.S. District Court for the District of Columbia. The Settlement punished the banks for their wrongdoing and also provided new protections for consumers seeking to become homeowners or stay in their current homes.
First, the Settlement provides for $25 billion in consumer relief. This relief comes in a variety of forms. To start, banks are required to make cash payments to government agencies and to borrowers who wrongfully lost their homes through foreclosure. As a local example, this money funded the UNC School of Law’s Consumer Financial Transactions Clinic, which allows third-year law students to gain experience by helping low- and middle-income people facing foreclosure or abusive practices related to credit cards, predatory loans, or check-cashing services.
Borrowers who were improperly foreclosed on after January 1, 2008 were also notified of their right to file a claim for payment under the Settlement. If you received a notification you can make a claim here. The deadline to make a claim is January 18, 2013, so don’t delay making your claim if you are interested. Do beware of scams though; some companies may try to “help” you make a claim and charge you money to do so. You shouldn’t need help making a claim and you should also never pay for someone to help you make a basic claim.
The Mortgage Settlement also provides relief for financially distressed borrowers on the verge of losing their homes. The banks are required to earmark $17 billion for assistance to homeowners who can make more reasonable payments on their mortgages. At least 60% of the funds must go towards principal reductions on mortgages. Some of the other money will go to other consumer services such as facilitating short sales or allowing payment forbearances for unemployed homeowners. The banks must also offer refinancing programs for homeowners who are making their payments on time, but whose homes are underwater due to the crashing real estate market.
Mortgage Servicing Standards
The Settlement also provides detailed mortgage servicing and foreclosure standards directed at correcting the banks’ past abuses and established a “National Monitor” tasked with enforcing the agreement against the banks. The monitor, Joseph Smith, is based out of Raleigh and reports to the attorneys general and court to ensure compliance. If the banks don’t comply, they are answerable to the court and may be assessed civil penalties. More information about oversight of compliance with the Settlement is available here.
For example, banks can no longer robo-sign in foreclosure actions—they must personally review all documents to ensure they own the mortgage and that the default they claim is actually correct. They also must send borrowers a detailed pre-foreclosure notice that includes alternative options to foreclosure and summarizes the banks’ right to foreclose.
The banks involved in the National Mortgage Settlement are also now required to offer alternative options – loss mitigation – to borrowers before foreclosing on their homes. The Settlement requires that they reach out to customers who are at risk of losing their home to offer alternatives, and that they designate a single employee to be a continuous contact person for borrowers seeking loss mitigation. This doesn’t mean that every borrower will qualify for a modification, but it at least gives more borrowers a chance to find out.
The Settlement addresses dual tracking by restricting the banks’ ability to refer loans to foreclosure when a loan modification is pending, providing for an appeal of the decision on the modification, and requiring the lender to wait a certain amount of time before proceeding with a foreclosure sale upon a final determination on a loan modification. A full list of the protections given to borrowers can be found here.
As bankruptcy attorneys who have seen our fair share of how the banks’ abuses have negatively impacted borrowers, we are certainly hopeful that the Settlement will encourage banks to play by the rules. We are committed to doing our part to ensure they do so as well. If you are in foreclosure and you believe that your lender hasn’t been following the rules, contact us to see how we can help. We have experience assisting clients who have been victimized by wrongful foreclosures and we may be able to assist you in your case as well.