The national foreclosure settlement has come under sharp criticism from consumer groups. It appears that homeowners may have become two-time victims of a broken foreclosure system. The settlement was reached by the Justice Department with five big banks in February of this year. This settlement, engineered by the U.S. government, was to compensate millions of borrowers for past foreclosure abuses. Payments are now being made.
In one reported case, a couple in North Carolina lost their home in 2010 to a foreclosure they contend shouldn’t have happened. It came while they were working on a loan modification. After the big bank settlement, the couple expected a payment from the deal. The North Carolina couple expected a payment of at least $6,000 and even as much as the maximum – $125,000 – but when their check arrived in April it was for $800. That was less than a month’s rent on their apartment, according to the couple.
It was reported that nearly $3.4 billion had been paid out to almost 4 million borrowers under the settlement. The low payouts, far from closing the books on an economic catastrophe that rocked millions of households in the Great Recession, appear to have reignited old feelings of anger and frustration. The banks and the government have at last put a price on foreclosure injustices – and unfortunately it’s very low. The renegotiated settlement created a $3.6 billion pot to compensate borrowers for “shoddy foreclosure practices” that ran the gamut from wrongful foreclosures to lost consumer documents. It’s being reported that about two-thirds of the recipients received $300 – the smallest possible amount. Fewer than 1,200 got $125,000, the most allowed. The rest of the victims fell into one of 10 other categories for compensation, mostly in the $400 to $7,500 range.
Exactly how individual borrowers’ compensation was determined is just one of many questions being asked about the settlement’s design and fairness. Regulators defined the categories for compensation, set the amounts and laid out the rules for mortgage servicers on how to classify people. Those who fit in more than one category were assigned to the one paying the highest amount, according to the regulators. Actually the agreement the government made with the banks leaves consumers little recourse. They cannot appeal their payouts the to banks or to the regulators. While consumers can still sue their mortgage servicers, most don’t realize this option is available to them. Federal banking regulators devised 12 payout categories for the banks’ victims. Those categories include:
• $125,000 for borrowers who lost homes even though they weren’t in default or were in the military and had some legal protection from foreclosures.
• $25,000 to $50,000 for people who lost homes even though they were meeting requirements of written trial loan plans.
• $3,000 to $6,000 for those who lost homes and had loan modifications denied.
• $300 to $500 for “all other loans.”
The regulators instructed the servicers on how to “slot” folks based on how far they had gotten in the foreclosure process. A person involved in a completed foreclosure sometimes received more than a person whose foreclosure was halted.
Critics of the settlement agreement question the size of the “settlement pot,” given that so few reviews were actually done. The following are two of the major areas of concern:
• It’s impossible to draw any conclusions from the completed reviews about error rates at particular companies, according to Lawrance Evans of the Government Accountability Office, who testified at a Senate hearing. He said not enough reviews were done in a statistically valid way.
• Consumer advocates question how good the actual reviews would have been, given that the servicers were actually paying for them. But they would have provided more insight into foreclosure errors than is known now, according to housing advocate Bruce Marks.
So this question remains, who were the real winners under the settlement? If you need more information on the settlement or the option of filing suit, contact Dee Miles or Lance Gould, lawyers in our Consumer Fraud Section, at 800-898-2034 or by email at Dee.Miles@beasleyallen.com or Lance.Gould@beasleyallen.com. You can also get information from the homeowner advocacy group Neighborhood Assistance Corp. of America.
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