Independent Foreclosure Review: Available Remedies

In response to the foreclosure crisis that has occurred in the United States over the past several years, the Federal Reserve Board (FRB) and the Office of the Comptroller of the Currency (OCC) have required certain mortgage servicers to hire independent consultants to review foreclosures that were initiated, pending, or completed during 2009 or 2010. If the independent consultants find that “errors, misrepresentations, or other deficiencies” in the foreclosure process led to financial harm for the borrower, the servicer is required to financially compensate the borrower or otherwise remedy any mistakes.

Available Remedies

Recently, the FRB and OCC released a list of the available remedies (called a “financial remediation framework”) that will be granted to borrowers if errors are found to have occurred in the foreclosure process. The remedy provided will depend on the type of financial injury the borrower suffered. Amounts will vary depending on whether the foreclosure is still in process or already complete, and whether or not the property has been resold to a new owner. Possible financial harms and remedies are described below.

  • Improper foreclosure. If a servicer improperly foreclosed on a borrower who was not in default, then the servicer must rescind the foreclosure, return the property to the borrower, if possible, and pay $15,000 to the borrower. If the property cannot be returned to the borrower because it was resold, then the servicer must pay $125,000 to the borrower, plus any lost equity in the home.

  • Servicemembers Civil Relief Act (SCRA) violations. If the servicer foreclosed on a borrower in violation of the SCRA, then the servicer must rescind the foreclosure, return the property to the borrower, if possible, and pay the borrower $15,000. If the foreclosure cannot be rescinded because the property was resold, the servicer must pay to the borrower $125,000, plus any lost equity in the home.

  • Foreclosure during forbearance plan. If the servicer foreclosed while the borrower was complying with a forbearance plan, the servicer must rescind the foreclosure, return the property to the borrower, if possible, and pay the borrower $15,000. If the foreclosure cannot be rescinded because the property was resold, then the servicer must pay the borrower $60,000, plus any lost equity in the home.

  • Foreclosure during a trial-period loan modification. If the servicer foreclosed when the borrower was making payments pursuant to a trial-period loan modification, the servicer must rescind the foreclosure, return the property to the borrower, if possible, and the pay the borrower $15,000. If the foreclosure cannot be rescinded because the property was resold, the servicer must pay the borrower $125,000, plus any lost equity in the home.

  • Other loan modification mistakes. If the servicer did not follow up with the borrower to obtain complete loan modification documents as required under the Home Affordable Modification Program (HAMP) or other loan modification program, then the servicer must pay the borrower $2,000 (as well as offer a loan modification or other loss mitigation solution if the property has not yet been foreclosed). If the servicer never solicited the borrower for a loan modification as required by HAMP or other loan modification program, then the servicer must pay the borrower $1,000 (as well as offer a loan modification or other loss mitigation solution if the property has not yet been foreclosed).

  • Credit reporting errors. The servicer must pay $500 to the borrower and correct the credit report.

  • Bankruptcy violations. Remedies for bankruptcy violations will be determined on a case-by-case basis as dictated by bankruptcy law.

Please keep in mind that this is not an exhaustive list of remedies. There are many different types of injuries that a borrower could have suffered that would require remediation. Moreover, the servicer may have made errors that did not necessarily end in a foreclosure but caused financial injury. For example, a servicer may have charged excessive late charges or inspection fees when the borrower paid the past due amount to stop the foreclosure.

If the borrower did not suffer any financial injury as a result of a servicer’s error, then no remedy will be provided under the independent foreclosure review. In other words, borrowers will not be compensated for emotional distress or pain and suffering.

Remediation Process

Eligible borrowers can submit a form to request a review. The independent consultants will then use the financial remediation framework to recommend remediation for borrowers who were financially harmed in the foreclosure process. Mortgage servicers must then prepare remediation plans based upon the consultants’ recommendations, which must be approved by the federal banking regulators.

The results of the review are considered final. The borrower cannot appeal the findings of the review or the amount of compensation. However, if the borrower believes that the remedy is insufficient, he or she may pursue other available legal remedies, such as filing a lawsuit against the servicer.

For More Information

Go to the Borrower's Quick Reference Guide to the Financial Remediation Framework on the OCC website to learn more about the available remedies available or the Independent Foreclosure Review website to submit a request for review. The deadline to request a review is December 31, 2012.

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