Here is an article written by Sarasota attorney’s from the law firm of Berlin Patten:
On February 9, 2012, 49 state attorneys general announced a deal with 5 of the largest mortgage lenders to settle abusive and fraudulent foreclosure practices in recent years. Under the deal, Bank of America, Wells Fargo, JP Morgan Chase, Citigroup and Ally Financial agreed to commit $25 billion for relief to homeowners whose homes were foreclosed between 2008-2011 and to current homeowners behind in mortgage payments or whose homes are worth less than the outstanding mortgage(s).
One major draw-back: loans backed by Fannie Mae and Freddie Mac are not included in the deal.
While the specific plans of the deal have not been fully released, the terms of the settlement include the following:
- The participating lenders agreed to commit $17 billion to reduce principal balances for homeowners who (a) are delinquent in making payments and (b) owe more than the home is worth. Analysts estimate that 1 million homeowners may qualify for a principal reduction under the program, with an average reduction of $17,000. That is only 10% of the estimated 10 million U.S. homes believed to be underwater, and many homeowners would need more than $17,000 in principal reduction to keep their homes. Note: homeowners must be delinquent in payments to qualify for a principal reduction.
- $3 billion of the settlement will be committed to refinancing mortgages at lower interest rates for homeowners current on payments. This is the only relief provided for homeowners who are making their mortgage payments.
- The lenders will pay $5 billion directly to state and federal governments which will be used to compensate foreclosed homeowners and to fund legal aid and consumer advocacy groups. From this amount, homeowners who lost their homes to foreclosure in the years 2008 through 2011 may be eligible for a lump sum payment of up to $2,000. Note that the payment is only to settle claims by the states and federal government.
As part of the deal, state attorneys general gave up their right to sue the participating lenders for fraud committed in prosecuting foreclosures, including the robo-signing scandal. However, the states and federal government can still sue for any uncovered wrongs in the origination or securitization of loans. Further, the agreement does not prevent homeowners from suing lenders. Any homeowner who accepts funds or other relief under the deal does not waive any rights to sue the lender for mortgage or foreclosure fraud.
Homeowners have 3 years to take advantage of the program – however, to avoid possible tax implications for principal reduction or a payout, homeowners should take advantage of the program in 2012. This is because the tax exemption for discharged debt on homestead properties passed in 2007 expires at the end of the year. The IRS has declined to comment on whether the payouts of up to $2,000 are taxable.
In addition, the Justice Department announced a settlement with Wells Fargo, Citigroup and Ally Financial to compensate military service members whose homes were wrongfully foreclosed by these lenders. Under the settlement, these banks are required to pay a minimum of $116,785 to any service member who wrongfully lost his/her home in foreclosure to one of the 3 lenders. The banks must also compensate service members for any lost equity, interest or any other damages suffered due to a wrongful foreclosure.
To determine if you qualify for relief under the settlement, contact your lender directly.
Berlin Patten, PLLC.
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