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Attorneys General Expect to Begin Negotiations on Proposed Robo-Signing Settlement

March 17, 2011

Recently, our Fontana foreclosure defense attorneys wrote about the release of a proposed settlement between five major mortgage lenders accused of "robo-signing" and the attorneys general of all 50 states, who were investigating the practice. Since then, the plan has been praised by consumer advocates but criticized by the banking industry and Republican politicians, including three attorneys general who were part of the investigation. According to a March 17 article from the Wall Street Journal, lead AG Tom Miller of Iowa expects to start negotiating with lenders soon on a final settlement. He says the original proposal is an "opening salvo" subject to change, but acknowledged the possibility of no settlement.

The settlement is an attempt to keep prosecution for robo-signing out of courts. The five largest mortgage lenders are accused of breaking the law by falsifying legal documents used in courts to take borrowers' homes away, which raised concerns that some foreclosures may have been unjustified or avoidable. The settlement proposal would require lenders to hold off on starting foreclosure proceedings until loan modification applications have been decided; provide a single point of contact as borrowers' applications made their way through the system; bans excessive or fraudulent fees; and requires them to eliminate illegal practices including robo-signing, false documents and false notarizations. Many of these practices are already illegal or prohibited under the federal Home Affordable Modification Program. There is also a proposal to fine lenders an unspecified amount of money for their wrongdoing.

While those provisions have attracted some criticisms, the bulk of the criticism is aimed at another proposal to require loan modifications that include reductions in principal. Principal reductions are vehemently opposed by lenders, who successfully killed a proposed federal law allowing bankruptcy judges to do this for people who had already filed for bankruptcy. Opponents say principal reductions would give borrowers an incentive to go into foreclosure and would cost too much.

As Westminster foreclosure defense lawyers, we believe lenders are not being honest about their opposition. We are not well placed to say what banks can and cannot afford, but we can say that none of our clients have ever wanted to go into foreclosure voluntarily. That's particularly true because default plunges borrowers into a bureaucratic nightmare, not to mention damages their credit. Lenders are also arguing against this settlement by pointing out that no or few people were incorrectly foreclosed because of robo-signing. This may be true, but it conveniently glosses over the fact that banks broke the law. Just as drunk drivers can be convicted of DUI even if they didn't cause a crash, companies that break the law can and should be penalized even if they happened to avoid accidentally taking away the wrong people's homes.

At Howard Law PC, we help homeowners who are victims of this illegal, sloppy and indifferent behavior by their lenders. Throughout the housing crisis, we've heard many times from borrowers who complain that their loan servicers consistently lose paperwork, deny their applications for no good reason or penalize them for failing to send in documents not requested. We believe this is a form of predatory lending that borrowers should not put up with, and our Oceanside foreclosure defense attorneys help them sue for fairer treatment. In a loan modification lawsuit, borrowers can bring their case before a judge to get an impartial third party's opinion on whether their applications got fair consideration, and often stop a foreclosure sale right away.

If your home is in default or foreclosure and you've struggled for months against an indifferent bureaucracy at your loan servicer, you should call Howard Law for help. To set up a free, confidential case evaluation, send us an email or call us toll-free at 1-800-872-5925.