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Independent Foreclosure Review Deadline Extended, Compensation Schedule Released


In the past, I have written about the Independent Foreclosure Review. I have not always been very enthusiastic about the chances of significant relief coming out of the program. According to ProPublica, the Office of the Comptroller of the Currency and the Federal Reserve Board have developed a framework for determining what kind of compensation former home owners may receive as a result of the reviews.

Some of the payments make sense. For example, if a servicer foreclosed on an active duty servicemember in violation of the Servicemembers Civil Relief Act, The options are to rescind the foreclosure, fix all credit and payment history errors, and pay $15,000. If it is impossible to rescind the foreclosure (e.g. the property was purchased by a third party), the remedy is to pay $125,000 plus any equity the property had, "remedy deficiency," and correct credit reporting.

Presumably remedying a deficiency would mean that any deficiency judgments would be vacated.

As one might expect, not every remedy is as robust. Once you get past things like foreclosing on someone who is not in default, foreclosing on an active duty servicemember, and failing to convert a trial modification to a permanent modification, the penalties begin to taper off significantly.

For example, failing to follow up on a loan modification application is a stiff penalty of $2,000, regardless of whether the foreclosure has completed. If the foreclosure lawsuit is still pending, the servicer must also offer the chance to apply for a loan modification or loss mitigation program.

Failing to solicit a borrower for a HAMP application is a fine of $1,000 paid to the borrower.

Most interesting is that some of the proposed remedies are essentially "TBA." For instance, beginning or completing a foreclosure while the borrower is protected by a bankruptcy filing and the automatic stay has a remedy of "determined on a case-by-case basis as bankruptcy law dictates."

This is a bit odd. Violations of the automatic stay are divergently valued by attorneys and lenders alike, even when based on identical fact patterns. Moreover, with a competent bankruptcy attorney, many of these violations should be remedied when they occur, not months or years later.

It also appears that this framework is not required. It exists to give the independent reviewers starting points for recommending remediation. The servicer then proposes its remediation plan. That plan is then approved by the federal banking regulators. Where these numbers actually end up is anyone's guess.

If you've had any success with the independent foreclosure review, please let me know. I would love to have some data on what is actually being done.

For those who haven't yet applied (which is apparently most eligible Americans), the deadline to do so is now September 30, 2012. You can find more information about the program here.