Two States Threaten Lawsuit If Foreclosure Settlement Falls Through

by Simon Lindsay on Foreclosure Crisis

As we reported earlier this week, the foreclosure settlement over robosigning and other scandals is heating up. The federal government, state governments, and five major banks have been in discussions for months now regarding the banks and their role in the foreclosure crisis. Previous talks included the possibility of a hefty, multi-billion dollar fine, and a principal reduction or writedown plan involving current homeowners.

Now, at least two states have announced that they will sue these major lenders if a settlement does not go through and falls through the cracks.

Attorneys-general from Illinois and North Carolina informed the banks today that if an agreement isn’t reached – more than likely one calling for pretty stiff penalties and concessions from the banks – the states will take the banks to court as originally intended before settlement talks began.

We’re not sure how likely this is to occur; the head attorney-general for the states, Iowa AG Tom Miller, said that the negotiations were progressing but didn’t reveal any specific information. But one thing is certain: With the widespread animosity today towards these major lenders – including JPMorgan Chase, Bank of America Corp, Ally Financial, Citibank, and Wells Fargo – the pressure for some kind of consequences for these lenders is pretty high. Therefore, it’s likely that the banks will have to pay up one way or the other.

The most likely course of action is that the banks agree to a settlement and prevent themselves from being exposed to a litany of high-dollar lawsuits from homeowner advocate groups, class-action groups, and the states themselves.

Homeowners and investors who wonder what to make of this should take heart. It is likely that this settlement will make it more likely, not less, that banks will work to sell homes properly and keep better documentation. This makes things ultimately easier for you, so it is something you should follow with interest over the next few months.