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From the beginning, Florida lawyer Tom Ice says he realized the mass signing of mortgages was more than just a paperwork problem.
"I suspected then, and I suspect now, that we were really just touching the tip of the iceberg," he says.
The Palm Beach County lawyer uncovered and named "robo-signing." In December of 2009, he deposed a bank employee who admitted to signing hundreds of mortgage documents in a day without reading them. Soon lawyers across Florida and the country were using evidence of systematic fraud in the mortgage industry to have foreclosure cases dismissed.
On Thursday, the federal government reached a $26 billion deal with the nation's largest banks to compensate homeowners. In Florida, some lawyers and homeowners say technical issues and trust battles remain for courts and the banks.
Who Gets What
After Ice's victory, defense attorneys around the country began using his deposition and conducting their own investigations. As judges reviewed the cases, they found mortgages that had been improperly recorded and assigned.
In many cases, Ice says, there's an unanswered, nagging question: "Who is the real owner of the note? Who is entitled to the home at the end of the day?"
This settlement, Ice says, doesn't unravel that question. It does, however, set new federal standards aimed at eliminating the problem in the future.
For those who have already lost their home, Ice says this settlement does little. Divided among 750,000 potential claimants, the settlement provides about $2,000 for robo-signing victims who have lost their homes.
Nicole DuPuy also thinks that part of the settlement falls short. She's from Cape Coral, Fla., and lost her home to foreclosure in 2010, even though her bank had approved a mortgage modification and she was making monthly payments.
"It's an insult — $2,000 generally doesn't even provide enough money to get into a rental property, because you have to do first and last [month's rent] and a security deposit," DuPuy says.
The largest — and most significant — part of the settlement is some $17 billion set aside to reduce loan principal for homeowners who owe more than their house is worth.
What's New With This Program
Ice expects the problem here will be the same as with previous loan modification programs. Because of loan securitization, mortgages often are held by many institutions. Ice has found it's often difficult to find someone who has the authority to modify the loan.
"They either don't know who the real owner is, they're hidden behind the curtain, or if you find the real owner, it's a trust," he says. "And a trust doesn't have the power to negotiate the loan."
DuPuy thought an earlier federal loan modification program was the answer to her problems. She was disappointed with that one and expects little this time as well.
"To me, it's just more rhetoric," she says. "If you continue to do the same thing over and over again, but you don't change how you're doing it, it's still the same program."
The settlement announced on Thursday — and the principal reduction program that's part of it — is different, however. For one thing, it's mandatory — billions of dollars set aside by the largest mortgage lenders to settle a serious legal case. Also, how it's administered will be overseen and followed up on by federal and state officials.
Challenges For The Banks
Kevin Jursinski is a lawyer in the epicenter of Florida's foreclosure crisis: Lee County on the Gulf Coast. He represents both homeowners and mortgage companies in cases where there's no conflict.
He likes this settlement. He thinks the principal reduction program will be much more successful than earlier loan modification efforts, but agrees it may present problems for the banks.
"They're going to have to do this," Jursinski says. "They're going to have to force it on themselves and go back to all the securitized loans they have and say, 'Look, we have to get together and identify. We're going to [do] this principal reduction. We've got to put so much money in.' "
Defense lawyers say homeowners who don't accept payouts under this settlement can still take their cases to court where questions about robo-signing and fraudulent documents will still have to be answered.