A multi-billion-dollar foreclosure settlement besot with setbacks suffered another debacle this week when restitution checks to an unknown number of borrowers bounced.
More than one million checks were mailed out Friday in the first wave of payouts in the $3.6 billion program meant to penalize banks for foreclosure-related wrongdoing.
But when some borrowers tried to claim their bounty _ payments range from $300 to $125,000 _ they were told there was “insufficient funds” to cash the checks.
Minneapolis-based Rust Consulting, which issued the checks, said late Tuesday it was working to fix the problem and confirmed there was money available to make the payments.
By Wednesday morning, the Federal Reserve said early problems with the payouts had been corrected and that 207,287 checks worth more than $200 million had been cashed or deposited.
“We apologize to anyone who experienced problems trying to cash their checks,” said James Parks, senior vice president for Rust Consulting in a statement. “We are working hard and communicating with the banking regulators, the servicers, and other banks to ensure those issues are not repeated.”
The payouts are going to 4.2 million borrowers nationwide who were in foreclosure during 2009 and 2010. The settlement between the Office of the Comptroller of the Currency and Board of Governors of the Federal Reserve with 13 lenders replaced the failed Independent Foreclosure Review.
Hundreds of thousands of Floridians are eligible for the payout, including about 50,600 in Palm Beach County.
Critics of the program, which is awarding money, regardless of the situation, to everyone that was in foreclosure during the two-year time period with those 13 lenders, said the check glitch is typical of how the plan has worked from the beginning.
When the case was originally settled in April 2011, banks were supposed to hire independent auditors to review foreclosure cases and compensate borrowers who suffered harm because of bank mistakes or fraud. But few people applied to have their cases reviewed and concerns arose about who was conducting the reviews and how reviewers were trained.
“What insult to injury,” said South Florida foreclosure defense attorney Roy Oppenheim about the check problem. “A cruel joke.”
Consumer advocates have feared that homeowners, already under assault by daily foreclosure-related mailings, would throw away the checks thinking they were junk mail.
That’s what nearly happened to Boynton Beach homeowner Katrina Turner. She did throw away a postcard sent out in March alerting borrowers that a check was forthcoming. She didn’t realize what the postcard was until she saw a notice posted online by West Palm Beach-based DebtHelper.com.
Her check arrived Monday, but she said she’s still unclear about why she got one or how the amount was decided.
“I was floored by the amount,” said Turner, who didn’t want to reveal her exact award amount. “I would have been impressed with $300 or anything.”
Turner said she struggled for three years to get a loan modification, faxing and refaxing documentation only to be accepted, then denied, then accepted again.
“I would be eligible for one modification this quarter and then not eligible the next quarter,” she said. “I jumped through every hoop they asked.”
Award amounts can be based on different categories. People receiving the maximum $125,000 are mostly borrowers who had their homes repossessed despite being protected by the Servicemembers Civil Relief Act.
About 2.3 million borrowers will receive the minimum $300. Borrowers who had a home repossessed after successfully completing a trial loan modification could get $50,000.
Like Turner, Riviera Beach resident Dorothy Meriweather was wary that the program was a scam. She held onto her postcard after verifying it was real, but she’s still not convinced. She hadn’t received her check as of Wednesday.
“I’ve been looking forward to it, but it hasn’t come yet,” she said. “Before I got that card, I’d heard nothing about a refund or rebate and I haven’t heard anything since.”