How the National Mortgage Settlement May Help California Homeowners and Those Who Have Lost Their Homes

California Bankruptcy Lawyer Explains the National Mortgage Settlement Since long before the beginning of the current economic downturn, we have counseled hundreds of individuals and families seeking information about filing personal bankruptcy in the Bay Area. But since this recession began, those seeking bankruptcy advice have likewise needed advice on how they might be able to avoid foreclosure, modify their home loans, or what to do about debt from a home equity line of credit on a home they have already lost.

In many cases, we have been able to assist our bankruptcy clients catch up on their mortgage payments through a Chapter 13 bankruptcy, or even to strip off second mortgage loans from their property. In many other cases, due to job loss and other economic distress, our clients have been unable to catch up with a payment plan and have needed to surrender underwater homes in Chapter 7 bankruptcy cases. Frequently distressed homeowners have needed obtain a Chapter 7 discharge to ensure that their home equity line lenders can never sue them whether or not their property has been foreclosed.

Now there may be some additional relief apart from filing bankruptcy available to California homeowners who lost their homes to foreclosure between 2008 and 2011. Recently, the federal government and 49 state attorneys general reached a settlement with the country’s five largest mortgage loan servicers: Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo. This agreement is known as the “National Mortgage Settlement.”

The National Mortgage Settlement requires those five loan servicers to set aside $25 billion supposedly to end problematic mortgage loan practices and to help distressed homeowners. This sounds great in theory, but what does this actually mean for the homeowner? Or for the person who lost her home during the foreclosure crisis? For those who were foreclosed upon between January 1, 2008, and December 31, 2011, by one of the five mortgage servicers involved in the settlement, the settlement agreement provides for payment of cash compensation totaling $1.5 billion to be distributed among approximately 750,000 victims of foreclosure nationwide. Over the next six to nine months, the states’ attorneys general are supposed to identify such individuals and contact them in order to help process these payments. Obviously, although this figure is not enough to provide much to so many people who have suffered a foreclosure. But it is something

If you still currently own your home, the National Mortgage Settlement offers relief for you in a few ways. For example, if you are current with your mortgage payments, but your home is “underwater” (the amount of your mortgage loan exceeds the current fair market value of your home), you may still be eligible to refinance your home at a lower interest rate. Per the terms of the settlement, servicers have to provide up to $3 billion to assist in helping homeowners refinance their homes nationwide.

Even if you are not current on your monthly mortgage payments, there may still be relief available. Part of the terms of the National Mortgage Settlement require those five mortgage servicers to provide principal reduction and other forms of loan modification relief nationwide. A loan modification is a permanent change in one or more of the terms of a borrower’s loan that allows the borrower to avoid foreclosure in the near term, and generally provides a lower monthly payment.

For more information about the mortgage servicing settlement in California, you can go to, or If you live in the Bay Area and are interested in learning whether filing personal bankruptcy may help you catch up on your mortgage, strip off a second mortgage, delay a foreclosure, or discharge a home equity line of credit, call us for a free consultation.

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