A lot of homeowners in Texas and elsewhere in the country have been fed through a foreclosure ringer over the past few years. And it's no secret that a lot of those actions were the result of bank foreclosure abuses. The relegation of procedures to third-party operations and the practice of robo-signing have all been well documented in the wake of the housing market crash, the resulting foreclosure flood and rise in bankruptcies.
Equally well known is the fact that last year, major banks came to a $26 billion settlement with state and federal regulators to compensate victimized homeowners for the suffering they endured. So it might come as a big surprise to many that an effort to dole out some of that cash has run into a snag because of insufficient funds.
According to reports, some 1.4 million people were slated to begin receiving payments last week from a $3.6 billion account under the administration of Rust Consulting, the firm designated to handle the distribution. About one fourth of them were cut, but when homeowners tried to cash them, many banks refused to honor them.
Following a scramble of activity it was discovered that while Rust had collected the money from the paying banks, it had failed to transfer the money to the account that had been set up to make the payments. Checks were drawn, but there was no money to back them.
Rust claims it only was aware of 12 instances when recipients were unable to deposit their funds. But housing advocacy groups across the country and regulators say they've been inundated with complaints. A representative for one Web-based foreclosure abuse organization says he received 15 emails about bounced checks on just one day last week alone.
Since the latest debacle, the Federal Reserve says it has worked with Rust and the issues have been resolved, but they're keeping an eye on things to make sure no more problems crop up. Meanwhile, officials say homeowners who have checks in hand are being urged to submit them to their banks again.
Source: The New York Times, "Mortgage Relief Checks Go Out, Only to Bounce," Jessica Silver-Greenberg and Ben Protess, April 17, 2013