Coloradans who lost homes to foreclosure may qualify for settlement funds

In September 2012, the Colorado attorney general mailed letters to Colorado residents who may qualify for reimbursement from the national mortgage settlement that the five largest mortgage lenders in the U.S. reached with the federal government and 49 state governments, informing people of the deadlines for filing claims. People in Colorado should be aware of the details of the national mortgage settlement, the provisions the settlement includes for payments to borrowers to reimburse them for their losses and how Chapter 13 bankruptcy may be an option for those looking to protect homes from foreclosure.

National mortgage settlement

In February 2012, the five largest mortgage lenders, Ally/GMAC, Bank of America, Citi, JP Morgan Chase and Wells Fargo reached a settlement with the federal government and a number of state attorneys general in response to allegations of wide-spread abuses in the foreclosure processes of these lenders. Federal and state authorities had discovered that these lenders routinely engaged in practices that violated foreclosure laws, such as signing foreclosure documents outside the presence of a notary and filing documents without ensuring that the information about the debt was accurate.

Some of the key provisions of the settlement include:

  • A requirement that the lenders must offer up to $17 billion in principal reduction and other forms of loan modification for distressed borrowers
  • A requirement that the lenders offer up to $3 billion in refinancing assistance for those with underwater mortgages
  • Payments to states from the lenders to help fund state foreclosure prevention programs
  • National mortgage servicing standards
  • State attorneys general oversight of national mortgage lenders
  • Payments to those who lost homes to foreclosure

Payments to borrowers

Those who lost homes to foreclosure between January 1, 2008 and December 31, 2010 and had mortgages serviced by one of the five lenders participating in the settlement may apply to receive compensation for the losses they may have suffered as a result of the mortgage lenders' foreclosure process abuses. The national settlement overseer mailed postcards to those who qualified across the country.

Those seeking payment need not demonstrate actual financial loss, and they do not give up their rights to pursue other remedies in addition to the payment, such as filing private lawsuits against the lenders or participating in class action suits.

Those wishing to apply for payment must complete their claim forms by January 18, 2013. People can fill out paper forms or submit their claims online.

Chapter 13 may help

The national mortgage settlement includes provisions that are supposed to aid borrowers who are behind in their payments. However, those funds will not be able to help all of those struggling to keep their homes. Those who are suffering financially and are afraid of losing their homes to foreclosure may want to consider filing Chapter 13 bankruptcy. One of the most powerful protections that filing bankruptcy offers to people is the automatic stay on collection actions that the court issues as soon as a person files a bankruptcy petition - including foreclosure actions.

Deciding to file bankruptcy is a big step, and one that people should not take lightly. If you are considering filing bankruptcy, speak with a seasoned bankruptcy attorney who can discuss your circumstances and advise you of all of your options.