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Attorneys General Considering Financial Compensation for Victims of 'Robo-Signing'

November 19, 2010

Our Colton foreclosure attorneys work every day with mortgage borrowers who have been mistreated by banks, so we've been following the ongoing coverage of the robo-signing scandal. That's why we were very interested in a Nov. 17 Washington Post article that broke the news that leading lenders may set up a compensation fund for homeowners who lost their homes improperly. The idea comes out of negotiations between the 50 state attorneys general and the nation's top mortgage lenders. Those talks continue, but the Post reported that both sides agree that some sort of compensation would help avoid a flood of lawsuits from homeowners. Also on the table, the newspaper said, would be a requirement to put more resources into loan modifications; a rule forbidding foreclosures while loan modifications are negotiated; and possibly, a "cram down" provision for underwater homeowners.

Iowa Attorney General Tom Miller, who is leading the negotiations, said he hopes to address the mortgage industry's underlying problems as well as the issues presented by the robo-signing scandal itself. Banks acknowledge that robo-signing is technically fraud, but insist that the underlying facts are correct and the foreclosures are valid in the vast majority of cases. The Senate banking committee was not so sure. Echoing arguments from consumer advocates, senators on the committee expressed concern that incorrect foreclosures are more common than banks suggest, and that the problem stems from inadequate resources being allocated to foreclosures by major lenders. The proposals to emphasize loan modifications and forbid foreclosures while a loan workout is being considered are attempts to address those underlying problems. The fund itself would likely address only the problems of people who can show they lost their homes improperly.

Our Chino Hills loan modification lawyers are cautiously optimistic about the proposed foreclosure fund. For borrowers who have already lost their homes to incorrect foreclosures, fair financial compensation is basically the only remedy left. To make sure that all qualified borrowers actually get access to the money, Miller must insist on clear rules for who may claim compensation, and allow victims to enforce their rights in court if necessary. However, the proposed fund is not the best option for borrowers who are in foreclosure or expecting to be there soon. These borrowers still have a chance to save their homes. To do so, they should speak to an experienced foreclosure lawyer right away, who can help them find and challenge improper behavior. For example, if the lender has started foreclosure proceedings while a loan workout application is under review, the borrowers can and usually should sue for failure to meaningfully consider the loan modification.

As for the other measures Miller is proposing, we cannot emphasize enough that the agreement must include meaningful penalties for lenders who break the rules. We believe the lack of enforcement options is the primary reason that the federal loan modification program, HAMP, has not succeeded. In fact, HAMP has a version of the rule against "dual-track foreclosures," but no consequences for violating the rule -- and the foreclosures continue to happen. Failure to include teeth in this agreement would make it pointless, allowing lenders to continue perpetuating the problem this settlement is intended to solve.

Howard Law PC represents borrowers throughout California who are trying to fight incorrect, unfair foreclosures. This includes people who believe their completed foreclosure was robo-signed -- depriving them of any meaningful review of whether their foreclosure was valid -- as well as people who are still fighting an incomplete foreclosure. Over the past two years, our La Mirada foreclosure attorneys have seen more and more evidence that lenders are intentionally failing to put enough resources into loan modifications, because they can make more money by drawing out the foreclosure process. The robo-signing scandal is just another example of how lenders can profit at borrowers' expense by failing to give foreclosures, a devastating financial event for ordinary people, even a cursory review to ensure that they are correct. We help clients fight back through aggressive negotiations and, whenever necessary, litigation.

If you believe your lender is not dealing with you fairly and you're on the road to foreclosure, don't hesitate to call Howard Law for help. To learn more or set up a free consultation, send us a message online or call 1-800-872-5925.