In February 2012, 49 states, including Michigan, reached a $26 Billion settlement with five of the nation’s largest mortgage lenders over foreclosure practices previously utilized by these financial institutions. Earlier this month, the settlement was approved by a federal judge. The settlement is designed to provide restitution to borrowers who were improperly foreclosed on between 2008 and 2011. In addition, borrowers who are currently struggling with their mortgage payments or have homes that are underwater may be eligible to receive assistance from the settlement fund. Ultimately, the settlement may provide relief and assistance to countless borrowers struggling with our current housing crisis.
The settlement reached with the five financial institutions is incredibly complex and involves hundreds of pages of procedures, guidelines and policies. Below, the Real Estate Practice Group has summarized the main components of the settlement and the groups of borrowers who may be eligible to file a claim against the settlement fund.
Payments to Foreclosure Victims
A portion of the settlement fund has been earmarked to compensate borrowers who were improperly foreclosed on between January 1, 2008 and December 31, 2011. In order to qualify, your mortgage must have been with either: 1) Bank of America; 2) Citibank; 3) JPMorgan Chase; 4) Wells Fargo; or 5) Ally Financial (formally GMAC, Inc.). In addition to this threshold requirement, there are a number of other criteria that must be met. Mortgage giants Fannie Mae and Freddie Mac are not covered by this settlement. If you qualify, you will likely receive a letter from your lender advising you of your rights to submit a claim for payment from the settlement fund. Eligible borrowers are expected to receive a payment of approximately $2,000. However, this amount will depend on the number of claims that are filed. Borrowers who lost their homes to foreclosure during this time period are unlikely to get their homes back.
Relief for Struggling Homeowners
The settlement is also designed to assist borrowers who have the intent and ability to stay in their homes while making reasonable payments on their mortgage loans. Here, the settlement fund will be used to reduce the principal balance of home loans for borrowers who are in default or at risk of default on their loan payments to the applicable financial institutions. Principal reductions will likely yield lower payments and may give borrowers an opportunity to preserve their homes.
In addition to lowering eligible borrowers’ mortgage payments, the settlement will be used to support a number of important programs. These programs include: relocation assistance for homeowners facing foreclosure, waiving of deficiency balances, funding for remediation of blighted properties, facilitation of short sales, unemployed payment forbearance and benefits for servicemembers. If you believe that you qualify for one or more of these programs, you should contact an attorney to discuss your eligibility and the requirements to receive assistance.
Refinancing of Underwater Homes
The settlement fund will also be used to assist borrowers who are not delinquent on their payments but cannot refinance to lower interest rates because of negative equity problems. If you are upside-down on your mortgage with one of the covered financial institutions, you may be eligible to refinance your home. At a minimum, a borrower must be current on his or her mortgage payments, have a loan to value ratio in excess of 100% and must have a current interest rate in excess of 5.25% to be eligible to participate in the refinancing program. However, there are a number of types of loans that are excluded from the refinancing program, and there are additional requirements that must be satisfied to be eligible. According to the settlement, a borrower’s refinanced interest rate must reduce monthly mortgage payments by at least $100.
Release of Claims
Under the settlement, the states will not pursue civil charges against the settling financial institutions related to mortgage abuses. However, state and federal authorities can pursue criminal charges. In addition, borrowers and victims of improper foreclosures are not required to release any claims against the financial institutions and are free to seek additional relief in civil courts. The states’ release of claims does not apply to third parties who may have provided default or foreclosure services for the financial institutions.
Payments to the States
Michigan and the other states participating in this settlement will each receive a portion of the settlement fund. These funds are designed to be used by the states to avoid preventable foreclosures, ameliorate the effects of the foreclosure crisis, enhance law enforcement efforts to prevent and prosecute financial fraud, deceptive acts or practices, and compensate the states for costs resulting from the conduct of the covered financial institutions. Ultimately, each state will be responsible for developing its own programs and procedures to effectively use these funds to assist its citizens with the current housing crisis.
Conclusion
The settlement reached with Bank of America, Citibank, JPMorgan Chase, Wells Fargo and Ally Financial (formally GMAC, Inc.) will likely provide relief and assistance to countless borrowers throughout the country. If you have been foreclosed on, struggling with your current mortgage payments or underwater on your existing mortgage, you may be eligible to receive a portion of the settlement fund. You should contact an attorney to discuss your eligibility and the requirements for recovery under the various programs. For more information, please contact an attorney in Fraser Trebilcock’s Real Estate Practice Group.