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Update on the Cash Distribution to Foreclosed Homeowners from the National Mortgage Fraud Settlement

What qualifies you to receive the $1,500 to $2,000 restitution payment for losing your home to foreclosure? More clues have just become available.

 The “largest consumer financial protection settlement in US history,” the $26 billion national mortgage fraud settlement, was announced with great fanfare in February. More than a month later, on March 12, 2012, the details of the settlement were finalized and hundreds of pages of settlement documents were signed and finally made public. But all those pages still did not at all make clear how a person whose home was foreclosed will qualify to get the money.

To remind you about this, most of the money in this settlement is earmarked for current homeowners for loan modifications, refinances, and other ways to help them hold on to their homes. But just shy of $1.5 billion is for those who’ve already had their homes foreclosed. That’s the subject of this blog.

This part of the settlement applies only to:

  • foreclosures that occurred during the calendar years 2008 through 2011
  • mortgages held or serviced by Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial/GMAC and CitiGroup and their affiliates
  • mortgages on which at least 3 payments were made and the property “was not abandoned by the homeowner or condemned prior to the time of the foreclosure sale” 
  • “owner-occupied, one-to-four unit” residence in all states except for Oklahoma, which is not participating in this settlement

Find out if your mortgage is included in this settlement pool by going to the special settlement website for the banks’ toll-free phone numbers and websites.

But once you are in this pool, what further conditions, must you meet to get the money? The initial settlement documents last month surprisingly did not make this clear. They just stated that “cash payments” from the $1.5 billion fund would be provided to borrowers whose homes were foreclosed during the 2008 through 2011 period and “who submit claims arising from the Covered Conduct [the alleged mortgage servicing and foreclosure fraud]; and who otherwise meet criteria set forth by the State members of the Monitoring Committee.”

So if you are a foreclosed homeowner, do you only get the settlement money if you can show your foreclosure happened because of your bank’s alleged misconduct? Has the “Monitoring Committee” provided any more information on this or any other criteria to be used?

Two and a half months after the February 9 announcement of the settlement, there is still no definite answer to the first question. And the second question? The 14 state attorneys general on the “Monitoring Committee” has curiously not directly told foreclosed homeowners anything more about the qualifying criteria, apparently because that will be the job of the “Settlement Administrator.” But in the last few days this Committee HAS indirectly provided some important clues about the criteria through its release of two documents:

The RFP states the following:

Borrower Certifications:

In addition to the baseline eligibility criteria listed above, eligible claimants must also complete a claim certification form in which they certify under penalty of perjury to the following:

  • Borrower lost the home to foreclosure while attempting to save the home through a loan modification or other loss mitigation effort.
  • Servicer errors or misconduct in the loss mitigation or foreclosure processes affected the borrower’s ability to save the home.

But those two requirements are not clear either. What would be considered an adequate attempt by the borrower to save the home? For example, if you simply made a number of unsuccessful attempts to get the lender to respond to phone messages—would that be enough? And how are you going to know when a bank’s misconduct “affected” your ability to save the home when the bank is providing you that kind of information and not admitting anything? Indeed, in this entire multi-billion dollar settlement the banks are not admitting to a single act of misconduct!

The First Addendum—released just a few days ago on April 20—gives some further clues, albeit maddening ones. Here is a pertinent question from the Addendum and the Monitoring Committee’s response:

Question #12: Will the Settlement Administrator be required to request and review documentary proof from claimants who submit claim certification forms in order to determine eligibility?

Answer: No. Other than reviewing the claim certification forms to ensure that claimants properly made the required certifications, the Settlement Administrator will not be required to request and review documentary proof from claimants in order to determine eligibility.

So to receive the settlement money, it looks like you as a foreclosed homeowner will have to sign a claim form stating under penalty of perjury that the foreclosure occurred in spite of you efforts to save the home, AND the foreclosure occurred because of the bank’s “errors or misconduct”—which you may well have no way of knowing about. But, it looks like you will not need to provide any documentation to verify your statements. It is unclear whether information will be provided by your bank to the Settlement Administrator which might contradict your statements—for example asserting that you did not attempt to contact the bank to try to save the home. And if that occurs, there’s also no indication how such disputed facts would be resolved.

Stay tuned here, and on the settlement website, for answers to these continuing ambiguities.

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