Many people have received notices to join in a class action against their mortgage company or servicers. A class action is basically a combination of multiple plaintiffs (in this example homeowners) from multiple states with the same complaint ( in this case fraud, misrepresentation) against the same defendant ( in this example your bank or servicer). The courts attempt to settle all of the complaints in one court in order to avoid different judgments from being created in different states. For many participants, a class action can allow a united front against the same defendant and an ability to pull resources and to provide for a better settlement. However, this does not necessarily hold true for homeowner class actions.
Homeowners have either received or will receive a notice of a class action due to well known documented fraud that has occurred in the banking and broker industries. The notice, perhaps the size of a post card, will inform the homeowner that they are part of a class and that they have to either “opt in” to the class action or “opt out” of the class. To “opt in” to the class homeowners must sign a consent form and to “opt out” the class member does not need to do anything to be part of the class. If the homeowner does not want to be part of the class he/she must actively request to be taken out. These class actions are usually based on violations of the Truth in Lending Act ( TILA), state unfair completion laws, breach of contract and breach of implied duty of good faith and fair dealings, fraudulent misrepresentation or omissions, fraud and violation of state and federal consumer laws. There are usually hundreds of thousands of class members in the class action against the bank and these suits have been settling out of court for millions of dollars. However, after the attorney fees and other expenses related to the case, class members usually receive on an average between $150.00 and $200.00. It is a hollow victory. Settlement agreements may provide for the possibility of the homeowner to be considered for modifications, after months of submitting and resubmitting documents. I would dare say that for most homeowners, misrepresentation, fraud and violations of numerous state and federal consumer laws should amount to more than $200.00 in your pocket.
I believe that the worst aspect about these settlements is that it denies the homeowner from seeking justice on the above claims or on claims that he/she may have and are not even aware of. Once you are part of a class and it settles, you are prevented from suing your bank and/or servicer on any federal or state violation. The examples that I have seen usually follow as such: the homeowner becomes part of a class action because they didn’t opt out. Years later, the homeowner falls behind on the mortgage and receives a notice for foreclosure. The homeowner files an answer and files counter claims arguing fraud, misrepresentation, etc. The bank will ask the court to disallow your answer and to provide them a judgment to foreclose on your home because you waived all of your rights to claim from the class action, years earlier, that provided you with $200.00. Please carefully consider participating in any class action against your mortgage company/servicer and seek legal advice. If you are part of a class, more than likely, you could achieve better results by suing on your own or at least preserve your defenses against foreclosure.