A deadline nears for former owners seeking foreclosure refunds

A Jan. 18 deadline looms for about 2 million homeowners who lost their homes to foreclosure between the start of 2008 and the end of 2011. Five lenders could give each of those borrowers as much as $2,000.

Q. We filed an application for a refund through the national Independent Foreclosure Review program that you recently wrote about before the program’s Dec. 31 deadline. Now we have received a final notice that we have to file a claim form to take part in the National Mortgage Settlement by Jan. 18 of this year if we want a partial reimbursement because we lost our home to foreclosure in 2011. Is there a difference between the two?

A. Yes. The Independent Foreclosure Review program and the National Mortgage Settlement are two separate plans that require separate applications. But while the application deadline for the former passed last month, the cutoff for the latter is Jan. 18 — less than two weeks away.

The National Mortgage Settlement was reached last February between 49 states and the nation’s five largest mortgage lenders and loan-servicers — Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo. (Oklahoma didn’t agree to the settlement terms, so homeowners in The Sooner State can’t take part.)

The settlement was reached after it was determined the five institutions may have illegally foreclosed on millions of homeowners between Jan. 1, 2008, and Dec. 31, 2011. Common problems involved improper review of foreclosure documents, failure to have key papers signed in front of a notary, and sometimes even downright abuse of the mortgage and foreclosure processes.

Only borrowers who had loans that were issued or serviced by those five companies are eligible to share in proceeds from the settlement. It required the banks to set aside about $20 billion to help current homeowners refinance their loans, reduce the outstanding balance of their mortgage, or get other types of relief that could help save their homes.

In an interesting twist, though, it also earmarked $1.5 billion to reimburse an estimated 2 million people — like you — whose homes were foreclosed upon by any of the five banks between Jan. 1, 2008, and Dec. 31, 2011. The payments are expected to range anywhere from $800 to perhaps more than $2,000, based largely on how many of those former homeowners file the simple claim form by the upcoming Jan. 18 deadline.

There is no fee to file the application, and federal regulators are discouraging consumers from paying for help from con men who offer to complete the easy paperwork for them.

The best place to get more information is from the government-run nationalmortgagesettlement.com Internet website. An alternative is to call the offices of the National Mortgage Settlement Administrator toll-free, (866) 430-8358.

Q. A local bank has been advertising an upcoming “absolute auction’’ of its foreclosed properties that promises that “all homes will be sold, regardless of bids.” What does this mean? Is an absolute auction different from a conventional auction?

A. Yes, there’s a big difference. In a typical auction, the seller can set a minimum price — called a “reserve” — that it will accept. If bidding doesn’t reach the reserve price, the seller can yank it from the auction block.

Conversely, in an “absolute” auction, there is no reserve price. That means the property must be sold to the highest bidder, even if the bidding is tepid and offering prices don’t get close to what the seller had expected.

It’s rather unusual for banks to hold an absolute auction. Instead, they typically prefer a reserve or “lender-confirmation” auction, which gives them the right to reject the top bid if, say, it isn’t enough to pay off the outstanding balance of the loan plus the lender’s marketing and legal expenses.

Q. My brother received a notice from his lender, stating that he may face foreclosure proceedings because he hasn’t been able to pay his homeowner’s insurance for the past two months even though the mortgage payments are up-to-date. Would that be legal?

A. Yes, it would be legal. A typical mortgage contract contains a clause that requires the borrower to buy and maintain an up-to-date homeowner’s insurance policy. If the borrower doesn’t do so, the bank can either purchase the coverage on the owner’s behalf and then bill the customer for it — an expensive process that’s called “force-placing” an insurance policy — or instead begin foreclosure proceedings.

Tell your brother to call the insurer and explain why he hasn’t been able to make the payments. There’s a good chance the company might be willing to restructure the policy, such as raising deductibles or eliminating unnecessary bells-and-whistles coverage, in order to lower the periodic bills to a level he can afford. The bank might have some ideas, too.

He also should contact his state’s Department of Insurance. Regulators there may have more suggestions and also can explain his legal rights. Most states also operate programs that offer basic property coverage, often at below-market rates, though some limit such programs only to those who can’t get coverage elsewhere.

Real estate trivia: Exactly 75 percent of sellers today think their home is worth more than their agent’s recommended list price, but 63 percent of buyers believe that properties are still overvalued, according to a survey conducted by realty services giant HomeGain.com.

Ÿ For the booklet “Straight Talk About Living Trusts,” send $4 and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.

© 2012, Cowles Syndicate Inc.