Mortgage Settlement Scams

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 What is the National Mortgage Settlement?

In 2012, the federal government reached a settlement agreement with 49 state governments and the nation’s five largest mortgage servicers, Ally Financial, Bank of America, Citibank, JP Morgan Chase, and Wells Fargo.

The state and federal government had alleged that the mortgage servicers had routinely signed documents relating to foreclosures without knowing whether they were correct, a practice known as “robo-signing.” Other errors by the mortgage servicers were failure to provide timely and accurate notices of payment changes, notices of fees assessed, and final accountings of payments made during the borrowers’ bankruptcy cases.

These five banks agreed to pay approximately $50 billion in combined gross relief in order to settle or avoid further disputes relating to mortgage services and foreclosures.

The conduct of the five mortgage servicers and negotiation of the National Mortgage Settlement (NMS) were consequences of the subprime mortgage crisis of 2007 to 2010. The crisis was set in motion when mortgage lenders approved home purchase mortgage loans to people with poor credit scores. In some cases, the borrower actually had no income and no assets. Lenders packaged the loans in a new type of special investment vehicle known as a “mortgage-backed security.” These securities were sold to investors.

A crisis developed when large numbers of borrowers were unable to pay their mortgages and they went into foreclosure. The effects rippled through the economy and had disastrous consequences for many, especially many Americans who lost their homes to foreclosure. This is the context in which the NMS and other later agreements were negotiated and finalized.

A mortgage loan servicer is a business that collects and processes mortgage payments and handles defaults and foreclosures. The service may or may not own the underlying mortgage loan that it is servicing.

The NMS provides financial compensation, because the settlement was distributed to homeowners who had mortgage loans that were wrongly foreclosed. The settlement was provided to many homeowners who took out loans from one of the five mortgage services and then lost their homes to foreclosure between January 1, 2008 and December 31, 2011. A homeowner’s eligibility for settlement money depended on the particular facts of the person’s case. Payment was also made to the federal government and the governments of the 49 states that participated in negotiation of the NMS.

In 2015, the United States Trustee Program made another national settlement agreement with Wells Fargo Bank. It required Wells Fargo to pay $81.6 million in compensation to almost 68,000 people for its repeated failure to provide homeowners in bankruptcy with the notices that the bank was legally required to provide. This denied homeowners the opportunity to challenge the accuracy of mortgage payment increases.

In that same year, the U.S. Trustee Program finalized a national settlement agreement with JPMorgan Chase Bank. It required Chase to pay more than $50 million, including cash payments, mortgage loan credits and loan forgiveness, to over 25,000 homeowners who were, or had been in bankruptcy at the time.

In 2019, the U.S. Trustee Program agreed to a memorandum of understanding with Ditech Financial LLC. It documented almost $35 million in remediation that was paid by Ditech to more than 20,000 homeowners for the following:

  • Unnoticed loan modifications for borrowers in bankruptcy resulting in overpayments and improperly capitalized and unnoticed fees and costs;
  • Failure to run annual escrow analyses for borrowers in bankruptcy;
  • Failure to waive certain payments Ditech had made but never communicated to homeowners, following a borrower’s discharge in bankruptcy.

And, in 2020, The U.S. Trustee Program entered into agreements with three lending institutions, Nationstar Mortgage, U.S. Bank National Association and PNC Bank. The first agreement was a memorandum of understanding with Nationstar Mortgage that documented remediation of approximately $40.68 million in credits and refunds paid by Nationstar to over 20,600 home loan borrowers. The money was paid as compensation for failures to provide the borrowers with timely and accurate notices of payment changes and fees assessed, final accountings of payments made during the borrowers’ bankruptcy and other errors.

The U.S. Trustee Program also entered into a memorandum of understanding with the U.S. Bank National Association which documented the payment of remediation of over $29 million in credits and refunds to approximately 26,000 borrowers for failures to provide timely and accurate proofs of claim, notices of payment changes, notices of fees assessed, final accountings of payments made during borrowers’ bankruptcy cases, and other errors. U.S. Bank also waived approximately $43 million in fees and charges in part for borrowers in bankruptcy.

The U.S. Trustee Program entered into a letter of acknowledgement with PNC Bank documenting remediation of approximately $4.869 million in credits and refunds paid by PNC to over 14,000 borrowers for failures to provide timely and accurate notices of payment changes, notices of fees assessed, and final accountings of payments made during borrowers’ bankruptcy cases, as well as other errors. PNC also provided compensation in the form of lien releases and debt forgiveness

What Are Mortgage Settlement Scams?

Mortgage settlement scams are frauds designed to prey on consumers who either are, or believe they are, eligible for a payout from the National Mortgage Settlement. The goal of the scammers is to obtain personal information, such as a person’s social security number or bank account information. Or, they want to charge a person a fee to help determine whether they qualify for payment under the NMS.

What Are the Most Common Mortgage Settlement Scams?

Criminals who commit fraud use some of the following tactics:

  • Websites that Feature Opportunities for Access to Mortgage Settlements: Many websites try to obtain a user’s personal information by using the phrase “mortgage settlement.” Be wary of any websites that advertise accessibility to mortgage settlements, especially if it asks for a social security number, bank account information, and the like.
    The Consumer Finance Protection Bureau (CFPB) is a federal agency that provides consumers with reliable information and does not seek to exploit or steal from them. It is a good place to start looking for reliable information and answers to questions about the NMS;
  • An Agent Demands Up-Front Fees: A common mortgage settlement scam involves the scammer posing as an agent and asking for fees in return for quick payouts of settlement money. However, the problem is that people who are eligible for NMS payouts are never required to pay fees to receive their settlement payouts. This scam is just a way to get a person’s money in exchange for nothing at all;
  • Fake Mediators: A person should watch out for any communications, such as phone calls, emails, and letters, from any person or company who claims to be a mediator offering to mediate a settlement between a person and their mortgage lender or servicer. Do not give any private information to these people, including bank account or tax information, as they may use this information against the person, possibly for identity theft.
  • False Bank/Trust Accounts: Some scams involve the fraud perpetrator asking the homeowner to deposit their settlement funds into specific bank accounts or trust funds to which the perpetrator has access. If a person is asked to deposit their settlement deposit into a certain account, they should contact their mortgage company or bank right away to determine whether the requested deposit is in fact required;
  • Requests for Participation in Settlement Program: This scam involves perpetrators offering homeowners participation in the NMS. They ask for the owner’s bank account information, and they may promise to hold money in escrow during loan modification. As soon as the money or bank account information is shared with the perpetrator, the money is stolen.

Should I Hire a Lawyer?

If you think that you have been the victim of a mortgage settlement scam, you should consult a mortgage lawyer for reliable guidance.

If you believe that you qualify for a payment based on one of the agreements with mortgage lenders and services noted above, you may also wish to consult a mortgage lawyer for advice regarding whether you are eligible for a settlement payout. A knowledgeable mortgage lawyer in your area can provide you with much-needed assistance regarding settlement payouts, how to get one if you are eligible, as well as mortgages and foreclosures.

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