Balancing the Scales Amid Foreclosure Crisis

July 23, 2012

 The following post appears courtesy of the Access to Justice Initiative.

On February 9, 2012, the Justice Department announced that the federal government and 49 state attorneys general reached a $25 billion agreement with the five largest mortgage servicers in America, to address mortgage loan servicing and foreclosure abuses.  While the majority of the settlement funds will go to various forms of relief provided directly to borrowers, $2.5 billion may be used by state governments to fund foreclosure prevention services including housing counselors, legal aid and other similar public programs as determined by the state attorneys general.

These funds may also be used to compensate states for losses resulting from the alleged unlawful conduct of the mortgage servicers, which might include forgone state and local tax revenues, and increased costs for police, maintenance and other services required to deal with the impact on neighborhoods of abandoned properties.

The Department of Justice’s Access to Justice Initiative (ATJ), has been working with foreclosure mediation program and court administrators, researchers, advocates, and representatives from government agencies and the lending community to support mediation and legal services to stem the foreclosure tide.

This spring, ATJ, along with representatives from the Department of Housing and Urban Development’s Housing Counseling Program, briefed state attorney general offices on the value of foreclosure mediation programs, where a neutral third-party (often, but not necessarily employed by a court) helps facilitate negotiations between a lender and homeowner as they attempt to reach agreement, as well as legal assistance and housing counseling that can help avoid preventable foreclosures and assist homeowners affected by mortgage default to understand their options to regain their housing and financial stability. 

Since the date of the settlement, a number of states have made plans to use a portion of the settlement funds to implement funding initiatives geared toward increasing support for services that assist homeowners at risk of foreclosure. 

Attorney General Lisa Madigan of Illinois and Attorney General Bill Schuette of Michigan have both announced plans to allocate settlement funds to state foreclosure prevention programs, including legal assistance.  Attorney General Madigan, at an April forum on the “State of Legal Assistance” co-sponsored by the White House and the Legal Services Corporation, said:

 “[W]e need to give homeowners a fighting chance to save their homes from foreclosure. The best way we can help is by providing distressed borrowers with legal representation to ensure they have an advocate to fight for them in the courtroom and that they will be treated fairly in the process.” 

Illinois is dedicating at least $20 million in funding from the settlement to legal counseling programs that help borrowers who are currently underwater or facing foreclosure.  In Michigan, Attorney General Schuette is backing legislation that would direct $20 million in funds from the settlement to foreclosure counseling and legal aid services for homeowners. 

These states are not alone. Attorney General Roy Cooper of North Carolina has committed over $30 million to provide housing counselors and legal services to distressed homeowners. Attorney General Dustin McDaniels of Arkansas plans to direct $3 million of the settlement funds to the Arkansas’ Access to Justice Commission, and to two University of Arkansas law school clinics that provide legal aid and assistance to low-income residents.

"Maryland has led the nation in its swift response to the foreclosure crisis," said Maryland Governor Martin O'Malley. In May, Maryland Attorney General Doug Gansler and Governor O’Malley announced that $14.8 million from the settlement will be used for both housing counseling and legal aid assistance programs. "This plan sticks to the spirit and the letter of the settlement by using these resources to help the Marylanders most affected by the housing crisis. As a result, all Marylanders will benefit," said Gansler. And Attorney General Martha Coakley of Massachusetts created a new program, HomeCorps, funded by settlement funds. HomeCorps will provide direct legal representation to distressed borrowers through local civil legal aid attorneys.

Attorney Generals in Alabama, California, Colorado, Indiana, and Tennessee have also announced plans to use settlement dollars to fund programs for low and moderate income residents that include counseling support, legal services, and hotline support referral services.

The foreclosure settlement is providing much-needed relief to homeowners across the nation.  ATJ seeks to continue to promote state efforts to use discretionary funds to further the goals of the settlement by providing support for services that are critical to helping keep homeowners at risk of foreclosure in their homes.

Posted in: