Homeowners Say Foreclosure Settlement Checks are Smaller than Promised

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Homeowners Say Foreclosure Settlement Checks are Smaller than Promised

By Sarah Pierce

UPDATE 5.9.13: Federal Reserve announces additional checks will be mailed to 96,000 borrowers due to errors that caused them to receive checks that were too low.

Two weeks after homeowners reported they were having problems cashing their checks from the $9.3 billion bank foreclosure abuse settlement comes reports of a new injury: the checks are much smaller than regulators promised.

Federal regulators announced the settlement in March following a lengthy investigation into allegations that Bank of America, Wells Fargo, JPMorgan Chase and nine other banks engaged in improper foreclosure methods in 2009 and 2010. The first wave of settlement checks were mailed starting April 12 and will continue through July 2013.

Regulators from the Federal Reserve and the Office of the Comptroller of the Currency (OCC) released a chart detailing how payments from the bank foreclosure abuse settlement would be calculated. According to the chart, payments range from $300 to $125,000 – the maximum amount allowed under the settlement terms.

Homeowners who have already received their checks are alleging they are much smaller than promised under the terms of the deal. Some report they were shortchanged by hundreds of dollars based on the chart, with no explanation of how their payout was calculated. Other homeowners say they were paid only a fraction of what they feel they are owed from the improper foreclosure methods.

Part of the problem lies in the fact that the bank foreclosure settlement is a blanket deal aimed at resolving claims involving millions borrowers. Regulators crafted the deal to pay out all 4.4 million people who received foreclosure notices in 2009 and 2010, regardless of whether they suffered any harm. Eleven categories were created to offer more money to borrowers who suffered the most harm, with a minimum $31,250 payout going to those who suffered a “complete foreclosure.” Those who suffered the least harm will receive $300.

The settlement replaces a long and costly program called the Independent Foreclosure Review, which utilized independent third parties to review troubled loans on a case-by-case basis. The program was nixed after a year, however, due in part to how difficult it was to review millions of loan files and determine which state and federal violations applied.

Under the settlement, the banks themselves will be making these evaluations, which begs the question: if thousands of outside consultants could not do the job in a year, how can the banks be expected to do the same thing in a matter of months?

Unfortunately, there is little recourse for homeowners who feel they were shortchanged by the bank foreclosure abuse settlement. Luckily, the terms of the deal do not prevent these borrowers from pursuing future legal action related to their foreclosure.

Updated May 9th, 2013

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