ARE BANKS LIVING UP TO ROBO-SIGNING SETTLEMENT OBLIGATIONS?

Earlier this year, five of the nation's largest mortgage servicers reached a $25 billion settlement with federal and state officials regarding the now infamous "robo-signing" scandal. Specifically, it was alleged that bank employees were signing sworn foreclosure affidavits even though they did not have first-hand knowledge of the facts contained in the affidavits - leading to claims of unfair practices and foreclosure abuses.

When the robo-signing settlement was announced, it was heralded as a victory for consumers and that it would provide immediate relief to homeowners facing foreclosure. However, as the banks now start to fulfill their obligations under the national settlement, it appears that they may not actually be shouldering as much of the burden as the initial numbers suggest.

Bank of America Relief

According to Reuters News, Bank of America - which owes the most out of the five banks involved in the national settlement - announced that $15.8 billion in mortgage relief had been provided to 164,000 of its customers through September of this year. This included $2.5 billion in home-equity loan relief, $7.4 billion in shorts sales or deeds-in-lieu of foreclosure and $4.75 billion in principal mortgage reductions (in addition to $847 million in other relief programs).

Consequently, Bloomberg Businessweek reports that Bank of America feels it is on pace to fulfill all settlement obligations in one year instead of the three years originally given for compliance. However according to recent reports, the numbers reported may not actually reflect the true cost to Bank of America.

For example, the Financial Times reports that of all the first-lien principal reductions agreed upon by Bank of America, roughly 60 percent are from loans that were bundled into mortgage-backed bonds and sold to investors - meaning investors and not the bank are bearing the brunt of these penalties. However, it should be noted that the national settlement was written to allow banks to reduce principals in mortgages they do not actually own, but only service. So while this may appear suspicious on the surface, it is permitted under the settlement.

Another issue with the implementation of settlement provisions is that state governments are using money received to fill gaps in their general funds as opposed to helping homeowners avoid foreclosure. Accordingly, it seems that homeowners may not be receiving the help they had originally hoped for following the initial announcement of the robo-signing settlement.

Bankruptcy and foreclosure

If other methods of foreclosure relief have failed to provide assistance for struggling homeowners, they may want to consider utilizing a Chapter 7 bankruptcy in conjunction with their foreclosure defense. For instance, a homeowner can halt all foreclosure proceedings by filing for Chapter 7 bankruptcy and subsequently challenge the bank in court - during which time the homeowner's credit is improving. Consequently, even if the homeowner loses to the bank in a court battle, they may now be eligible for FHA financing on a new home - a home they can afford and build equity in - since their credit has improved.

This type of strategic planning is just one example of how an experienced consumer rights attorney can help a homeowner facing foreclosure no matter the circumstances. If you are facing a foreclosure and feel like you are out of options, it may serve you well to speak with a knowledgeable bankruptcy attorney who can help guide you through this complex process.