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From Banking and Finance Law Daily, February 10, 2015

Banks to pay $123M for unlawful servicemember foreclosures

By John M. Pachkowski, J.D.

Nearly 1,000 service members and their co-borrowers are eligible to receive over $123 million for non-judicial foreclosures that violated the Servicemembers Civil Relief Act (SCRA) due to the practices of five mortgage servicers. Section 533 of the SCRA prohibits non-judicial foreclosures against service members who are in military service or within the applicable post-service period, as long as they originated their mortgages before their period of military service began. Even in states that normally allow mortgage foreclosures to proceed non-judicially, the SCRA prohibits servicers from doing so against protected service members during their military service and applicable post-military service coverage period.

The payments are part of the 2012 National Mortgage Settlement entered into by JP Morgan Chase Bank N.A.; Wells Fargo Bank N.A. and Wells Fargo & Co.;Citi Residential Lending Inc., Citibank, NA, and CitiMortgage Inc.; GMAC Mortgage, LLC, Ally Financial Inc., and Residential Capital LLC; and BAC Home Loans Servicing LP, formerly known as Countrywide Home Loans Servicing LP, with the federal government and 49 state attorneys general.

2012 settlement terms. Under the terms of the original 2012 consent agreements, the mortgage servicers were required to collectively dedicate $20 billion toward various forms of financial relief to homeowners, including: reducing the principal on loans for borrowers who are delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth; refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth; forbearance of principal for unemployed borrowers; anti-blight provisions; short sales; transitional assistance; and benefits for service members.

In addition, the consent agreements required the servicers to pay $5 billion in cash to the federal and state governments. Approximately $1.5 billion of this payment was to be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008, and Dec. 31, 2011, and who met other criteria.

SCRA settlement. The latest action, announced by the Justice Department, satisfies the SCRA portion of the consent agreements.

The first part of the settlement requires JPMorgan Chase, Wells Fargo, Citi, and GMAC Mortgage to pay 666 service members and their co-borrowers over $88 million for non-judicial foreclosures at issue took place between Jan. 1, 2006, and April 4, 2012. The other 286 service members and their co-borrowers already have received over $35 million from Bank of America through an earlier settlement.

For mortgages serviced by Wells Fargo, Citi, and GMAC Mortgage, identified service members will each receive $125,000, plus any lost equity in the property and interest on that equity. Eligible co-borrowers will also be compensated for their share of any lost equity in the property. To ensure consistency with an earlier private settlement, JPMorgan Chase will provide any identified service member either the property free and clear of any debt or the cash equivalent of the full value of the home at the time of sale, and the opportunity to submit a claim for compensation for any additional harm suffered, which will be determined by a special consultant, retired U.S. District Court Judge Edward N. Cahn.

Payment amounts have been reduced for those service members or co-borrowers who have previously received compensation directly from the servicer or through a prior settlement, such as the Independent Foreclosure Review conducted by the Office of the Comptroller of the Currency and the Federal Reserve Board. The Bank of America payments to identified service members with non-judicial foreclosures were made under a 2011 settlement with the Justice Department.

Under another portion of the consent agreements, two other categories of service members will also receive compensation. The first groups includes service members who were foreclosed upon pursuant to a court order where the mortgage servicer failed to file a proper affidavit with the court stating whether or not the service member was in military service. The group is comprised of service members who gave proper notice to the servicer, but were denied the full benefit of the SCRA’s 6 percent interest rate cap on pre-service mortgages.

The Justice Department anticipates that these servicemembers entitled to compensation for these alleged violations will be identified later in 2015.

DOJ comments. Commenting on the payments, Acting Associate Attorney General Stuart F. Delery said, “While this compensation will provide a measure of relief, the fact is that service members should never have to worry about losing their home to an illegal foreclosure while they are serving our country. The department will continue to actively protect our service members and their families from such unjust actions.”

Acting Assistant Attorney General Vanita Gupta of the Civil Rights Division added, “We look forward, in the coming months, to facilitating the compensation of additional service members who were subjected to unlawful judicial foreclosures or excess interest charges. We appreciate that JP Morgan Chase, Wells Fargo, Citi, GMAC Mortgage and Bank of America have been working cooperatively with the Justice Department to compensate the service members whose rights were violated.”

Companies: Ally Financial Inc.; BAC Home Loans Servicing LP; Bank of America Citi Residential Lending Inc.; Citibank, NA; CitiMortgage Inc.; Countrywide Home Loans Servicing LP; GMAC Mortgage, LLC; JP Morgan Chase Bank N.A.; Residential Capital LLC; Wells Fargo & Co.; Wells Fargo Bank N.A.

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