Florida Legislature and the Billions of Dollars in Damages From Foreclosure Fraud: Movements in Tallahassee Meet With Strong Editorial Opinion

by Rosa Eckstein Schechter

In two editorials this week, major Florida newspapers are spotlighting the issue of collecting money to pay for all the Foreclosure Fraud and robo-signing expenses that have been felt by so many different players in the Florida real estate market: housing, banking, construction, insurance, and other industries have all been hurt by what some have labelled "Foreclosure Gate."  Seems that lots of people are looking at all that damage and wondering where the money is going to come from to pay for the harm that has resulted...and what to do with it once Florida gets it.

1.  The Big Bank Foreclosure Fraud Settlement With Florida Attorney General Pam Bondi

First, there has been that big national settlement between the country's Five Big Banks and the state attorneys general, including our own Florida Attorney General, Pam Bondi.  As part of a big national settlement agreement, the banks agreed to pay millions of dollars in exchange for being released from future lawsuits filed by the individual states.

The total amount put into that settlement pot was $25 billion, and Florida received $334 million as its share of the settlement pie.  Five billion dollars was set aside of that $25 billion sum for specific usage by the states, in a separate fund. 

Here's what Florida got in this deal, in detail, as explained on Florida AG Bondi's web site:

Attorney General Bondi formally entered a landmark $25 billion joint federal-state agreement with the nation's five largest mortgage servicers over foreclosure abuses and unacceptable nationwide mortgage servicing practices. The proposed agreement provides an estimated $8.4 billion in relief to Florida homeowners and addresses future mortgage loan servicing practices. The settlement generally releases civil claims related to robo-signing, other foreclosure-related abuses, and loan origination misconduct, but it provides no release of criminal claims or of claims related to mortgage securitization.

"This settlement will provide substantial relief to struggling Florida homeowners, and ensures that our state gets its fair share of the relief being provided nationally," stated Attorney General Pam Bondi. "This agreement holds banks accountable and puts in place new protections for homeowners in the form of strict mortgage servicing standards."

Florida’s share of the total monetary benefits under the settlement is approximately $8.4 billion.

Florida borrowers will receive an estimated $7.6 billion in benefits from loan modifications, including principal reduction, and other direct relief.

Approximately $170 million will be available for cash payments to Florida borrowers who lost their home to foreclosure from January 1, 2008 through December 31, 2011 and suffered servicing abuse.

The value of refinanced loans to Florida’s underwater borrowers would be an estimated $309 million.

The state will receive a direct payment of $334 million.

It's here -- that last item, dealing with the direct payment to the State of Florida, that the Miami Herald has an opinion, which it has made clear on its editorial page yesterday.

According to the Miami Herald, there seems to be a move within the Florida Legislature to look at that $334,000,000 that Florida received in the Big Bank - AG Settlement and consider using it in other places in the budget.   They've got examples to follow:  apparently, Arizona's statehouse already grabbed their share of this pie and diverted it from Arizona foreclosed home owners.  The Herald is against this.

From the Herald:

Attorney General Bondi disagrees. Given that she played a crucial role in the settlement, she knows what she’s talking about.

She and the other attorneys general who hammered out the settlement apparently foresaw the potential for misuse of the funds and inserted language that left no doubt about the funds’ proper use.

The settlement states that permissible purposes include, but are not limited to, “supplementing the amounts paid to state homeowners under the Borrower Payment Fund, funding for housing counselors, state and local foreclosure assistance hotlines, state and local foreclosure mediation programs, legal assistance, housing remediation and anti-blight projects, funding for training and staffing of financial fraud or consumer protection enforcement efforts, and civil penalties. ...

Attorney General Bondi should hold fast to her position that the money from the mortgage settlement can be used without legislative permission. The language of the settlement is clear and the intended uses of the money are equally clear."

2.  Sanctions Against Foreclosure Mill Law Firms Like the Law Offices of David J. Stern

Meanwhile, the Palm Beach Post is concerned about another possible pocket in all this Foreclosure Fraud mess: those who were commonly labelled "foreclosure mills" in the press, the most notorious being that of Broward County's own Law Offices of David J. Stern.   After Florida AG Pam Bondi lost her argument that the Florida DTPA (Deceptive Trade Practices Act) should apply to law firms and therefore allow her offices to sue and collect damages under that statute, it now seems that collect any cash from the Foreclosure Mill lawyers will be left to the Florida Bar and its sanctioning procedures.

The Palm Beach Post is arguing for the Florida Legislature to consider this situation and take action, finding a way to make Florida law firms financially responsible for the foreclosure fraud damages.  From the Post:

To hold firms accountable, the state should give investigators more tools to work with. The Deceptive and Unfair Trade Practices Act has been deemed inapplicable to law firms, but the Legislature could amend the law or create a similar one. The state Supreme Court could expand the Florida Bar’s authority to sanction law firms as well as individuals. Such steps would not be difficult, and they would help to ensure that white-collar criminals can’t get around the law just because they’re lawyers.

So, what is happening here?  As the Herald points out, there has already been a big settlement with the major mortgage lenders to pay billions of dollars in settlement.  The Post is pushing for a similar success in gathering money from the lawyers who represented these lenders during the Foreclosure Gate events.  But what is going to happen to this money once its collected?  That's the big question right now isn't it?


Written by:

Rosa Eckstein Schechter

Eckstein Schechter Law on:

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