A joint federal and state investigation identified some questionable practices involving foreclosure of homes in Florida. A proposed settlement agreement among 49 state attorneys general and some of the country's largest mortgage servicers should result in around $8.4 billion for Florida homeowners.

The propensity of large banks and mortgage servicers to use improper methods, including the now infamous "robo-signing" technique, to foreclose on homes generated thousands of Florida lawsuits, many of which are stalled in the courts because of confusion. Five of the largest mortgage servicers in the U.S. have agreed to participate in the $25 billion settlement.

The proposed agreement will release all civil claims of impropriety, but provide no immunity from criminal charges that may come from states' attorneys general in the future. Individuals also may still sue lenders. Federal court in Washington, D.C. must still approve the settlement agreement. Fannie Mae and Freddie Mac mortgages, however, remain excluded from this agreement.

Florida homeowners could expect settlement payments to be distributed in the following fashion. $7.6 billion would be generated by loan modifications, e.g., principal reductions. Lenders would also contribute $309 million in refinancing "underwater" mortgages. These servicers would pay around $170 million to Florida homeowners who previously lost their homes via foreclosure from January 1, 2008, through December 31, 2011, if there is evidence of "servicing abuse." the state of Florida would also receive $350 million from these lenders, targeted to consumer protection initiatives.

This agreement and its programs would have a 3-year life. The settlement also requires that loan servicers modify their operations, giving homeowners contact information, eliminating improper fees and refraining from pursuing foreclosure and loan modification actions at the same time. Borrowers are encouraged to contact their lenders/servicers to learn of their eligibility to benefit from these programs.

Source: South Florida Business Journal, "Florida to get $8.4B from national mortgage settlement," Brian Bandell, Feb. 9, 2012