After years of negotiation, mortgage companies and the Department of Justice have finally reached an agreement to compensate homeowners for the mortgage servicers' alleged botched foreclosure practices between the years of 2008 and 2010. The 13 mortgage companies agreed to pay a Foreclosure Settlement of $9.3 billion including $5.7 billion in noncash assistance and $3.6 billion in cash payments directly to nearly four million borrowers across the country.
The mortgage companies and servicers involved in the settlement are Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo. Payments to the former homeowners are being sent in waves, the first started in April. The settlement follows a similar settlement agreement last year between the mortgage industry and 49 state Attorneys General (including Florida) valued at over $25 billion.
Foreclosure Settlement Information
Although the compromise agreement seems large, most borrowers will receive very little. Of the four million borrowers, most will receive between $300 and $1000. Some mortgagors will receive substantially more; 20% of the borrowers will receive between $1000 and $125,000 from the settlement. A spokesman for The Federal Reserve said that the amount each homeowner receives will vary according to the stage of the foreclosure lawsuit and the type of possible servicer error. For example: 1,082 who were active duty military and another 53 whose houses were foreclosed despite never having defaulted on payments will receive $125,000 each from the settlement, regardless of their home's value.
Even then, many borrowers from Morgan Stanley and Goldman Sachs originally received smaller amounts than expected. These two banks were the last lenders to agree to the settlement and had actually agreed to pay many borrowers a higher amount; however, the check writing company, Rust Consulting, got the calculations wrong and sent out checks at the same rate as the other 11 mortgage companies. Over 96,000 homeowners were affected by Rust Consulting's mistake.
Representatives from Rust quickly realized the problem and will send checks out on May 17 for the difference in amount. Rust states that the company received no financially gain from the mistake.
There have been other issues with the checks that have already been mailed out. Some of the checks have been denied from certain check cashing companies. However, out of the 2.1 million checks that were cashed only 20 had been denied and none for insufficient funds. Therefore issues such as these are highly unlikely to occur. Bank representatives point to the scale and complexity of identifying borrowers affected and entitled to a cash settlement to explain the slow turnaround. For some lenders, eligible borrowers must be discovered one by one, as banks have very little data available to identify large groups of eligible borrowers.
If you receive a check from Rust Consulting, if you have questions regarding the settlement, or if you have foreclosure questions in general, please contact us.
Yesner Law, P.L. would like to thank J. Gabriel Castro, Managing Editor, Cumberland Law Review, for his contributions to this article.