Supporter of a moratorium on foreclosures in Michigan standing outside a home that exploded on Lee Place near Woodrow Wilson on Detrot's west side, May 5, 2008. The home had been foreclosed. (Photo: Alan Pollock)., a photo by Pan-African News Wire File Photos on Flickr.
January 8, 2013
Banks pay $8.5B for foreclosure tactics
165K Michigan homeowners who defaulted may receive damages
More than 165,000 foreclosed Michigan homeowners whose homes were taken by banks using mismanaged and illegal foreclosure tactics have been waiting nearly two years to find out if they're eligible for compensation. Under a new deal announced Monday, they'll have to wait longer, but could eventually be eligible for up to $125,000 in compensation.
Those foreclosures — plus another 4.4 million — were being reviewed under an April 2011 order from the Federal Reserve and the Office of the Comptroller of the Currency that found widespread and systemic inadequacies and mismanagement in foreclosures handled by 10 major banks. But outside auditors inspecting the files became so bogged down that the two federal agencies forged a new deal that allows the banks to pay $8.5 billion to settle the wrongful foreclosure complaints.
Payments ranging from $1,000 to $125,000 are expected to go to 3.8 million homeowners in foreclosure during 2009 and 2010 who are covered by the settlement, and notices to eligible victims are supposed to be sent out by the end of March.
But one local foreclosure defense attorney says Monday's deal doesn't go far enough.
"It's really too little, too late," said Valerie Moran, an Oak Park attorney who represents homeowners fighting foreclosure. Moran said her clients covered by the original settlement submitted a claim in April and haven't heard anything other than confirmation their paperwork was received.
More troubling, Moran says, is the fact that despite two federal agencies finding widespread misconduct and potential fraud in those foreclosures, local judges in Metro Detroit refuse to intervene in cases where the owners are still living in the home.
"Everyone knows about it, yet people are still proceeding with evictions," Moran said. Officials from the Comptroller's Office , she added, "have done nothing to stop the banks from using the flawed foreclosure to dispossess a homeowner from their home. They don't want to really help the homeowners. They just want to make it look like they're doing something."
A spokesman for the Comptroller's Office said the settlement wasn't a foreclosure prevention effort, but was designed to punish banks for past bad behavior and compensate victims.
The spokesman, Bryan Hubbard, added that examiners are checking to ensure the banks take steps to make sure foreclosures are handled properly, but that review hasn't been finished.
The agencies forged the new settlement after finding that the review process was too long and expensive, failing to issue a single payment to a wronged homeowner in nearly two years.
"We received numerous calls from homeowners asking, 'What's taking so long?'" Hubbard said.
About $3.3 billion of the new settlement would be direct payments to borrowers, regulators said. Another $5.2 billion would pay for other assistance, including loan modifications.
The settlement covers Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The 2011 action also included Detroit-based GMAC Mortgage, HSBC Finance Corp. and EMC Mortgage Corp.
This is separate from the $25 billion deal announced in September to address faulty foreclosure processes by five major banks including Bank of America and GMAC/Ally Financial. That agreement was with federal agencies and a coalition of state attorney generals including Michigan's Bill Schuette.
Under the September agreement between the five banks and state attorney generals, Michigan receives an estimated $780 million, according to Schuette's office. This amount includes $90 million in payments by a national settlement administrator to Michigan residents who went through foreclosure from 2008 to 2011, $515 million for servicers to offer principal balance reductions, short sales and other mortgage relief, as well as a $97 million direct payment to the state of Michigan.
Associated Press contributed.