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The recent $25 billion settlement between the largest U.S. banks and states as a penalty for unscrupulous foreclosure handling means that illegal foreclosures are likely more common than people realize, and struggling homeowners should be prepared to exercise due diligence if being foreclosed upon. This is especially true if settlement funds do not end up helping in the form of principal forgiveness, mortgage-rate adjustment or some other type of relief. Fighting presumed illegal foreclosure used to be much more difficult, but some states (e.g. Indiana, Massachusetts, Washington, West Virginia, Wisconsin, Utah and more) have enacted laws to make it easier for homeowners to battle back. For more on this continue reading the following article from JDSupra.

“[A] big report out of California this week estimates that 84% of the nation’s foreclosure filings are illegal due to improprieties of some sort - robosigning, etc. - and that almost 100% of these foreclosures contain irregularities.” (Florida HB 213: Will the Florida Fair Foreclosure Act Become Law and Will It Do More Harm Than Good? by Rosa Eckstein Schechter) 

Think the foreclosure you’re facing might be illegal? If the results of a recent California audit are indicative of what’s going on in the rest of the country, you may be on to something. 

So what can you do about it? For now, not much, according to Lawyers.com: 

“‘Quite honestly there’s very little recourse available,’ [Stuart Rossman, director of litigation at the National Consumer Law Center] says. ‘There’s the ability to determine who is servicing the mortgage, but it won’t help you on the chain of title on the note.’ If banks can’t even define what ownership means anymore, good luck finding the legal title-holder. And retaining attorneys to fight back against the banks can be an expensive proposition, especially for consumers who can’t afford to maintain their mortgage payments as it is.” (Defective Foreclosures Rampant

Several states have begun to pass laws designed to create new and enhanced protections for borrowers, including Washington, West Virginia, Wisconsin, Indiana, Utah, Massachusetts, California, New Jersey, and others. 

Until then, troubled mortgage holders will probably have better luck working with their lenders to find options than they would fighting the foreclosure over ownership of their mortgage, which include short sales, loan modification, and other alternatives (see Mortgage Foreclosure: 6 Alternatives to Consider in 2012). 

But there is light at the end of the tunnel: the $25 billion foreclosure settlement between state and federal regulators and the five largest servicers of residential mortgage loans in the country. From law firm K&L Gates:

“… the servicers generally agree to pay billions of dollars in consideration, to be paid through a combination of cash (i.e., ‘hard dollars’) and in-kind contributions for consumer relief (i.e., ‘soft dollars’), including in the form of permanent principal forgiveness on delinquent loans and refinancings of current borrowers on ‘underwater loans’ (for which borrowers owe more than the current value of the property).” (Global Foreclosure Settlement: The Success of Herding Cats)

This article was republished with permission from JDSupra.