If nothing else, at least one family has been offered a principal reduction as a result of the foreclosure fraud settlement. Normally, this story would make me hopeful that the foreclosure fraud settlement will lead to significant changes in the foreclosure landscape. However, even though Bank of America has been provided with both cash incentives to modify loans and a court order compelling it to reduce principal balances on mortgages, the article notes that the Vallejo family, who received the principal reduction, are going to be required to complete a trial period before being finally approved for their newly modified loan.
Trial periods are nothing new, but they have been significantly abused in the past. Bank of America is no stranger to keeping borrowers stuck in a series of perpetual trial modifications only to ultimately deny a permanent loan modification a year later. Although the Vallejo family has been given a glimmer of hope, they are still left at the mercy of Bank of America.
Keep in mind that the foreclosure fraud settlement is less than strict when it comes to enforcing the terms of the settlement. It is entirely possible that this deal could fall apart, yet be an error that does not require reporting or that does not pass the threshhold for number of errors required to trigger a violation of the settlement. Hopefully this specific situation will work out for everyone involved.
If you are attempting to obtain a loan modification from your mortgage lender and are hoping that the foreclosure fraud settlement will lead to a principal reduction or other favorable terms, do not forget that until there is a fully-executed, permanent loan modification in place, there is no true guarantee that your servicer or lender will follow through on its promises. Although Illinois law may protect borrowers in these situations, using recent changes in the law to your advantage will require filing a lawsuit or a counterclaim in an existing foreclosure case.
For borrowers seeking predictable outcomes, the foreclosure fraud settlement is still an unknown factor.