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Homeowners seeking debt relief in foreclosure case underpaid

In a story that readers of this blog may be familiar with, there recently were payments sent out to many homeowners who had gone through the foreclosure process and faced errors from lenders. In addition, we said that debt relief from those payments may be hard because initially some checks bounced but also because many of them were simply so small that they wouldn't make much difference for Tennessee homeowners struggling to eliminate debt. For some people however, they may be entitled to a second check.

The news recently came out that about 96,000 homeowners were underpaid if they had received payments from Goldman Sachs Group Inc. and Morgan Stanley & Co. This allegedly stemmed from a clerical error, and the other 217,000 payments that were sent out May 3 were said to be correct. The amount the checks were deficient has not been disclosed. The checks were issued to borrowers who had their loans managed by former subsidiaries of the two large banks, Litton Loan Servicing, a former subsidiary of Goldman Sachs and Saxon Mortgage Services, a former subsidiary of Saxon Mortgage Services. The checks were distributed in lieu of conducting a review of all foreclosures performed in 2009 and 2010.

For any borrowers who are facing financial challenges, it is unlikely that even these additional payments will help much. If a homeowner has reduced income, unexpected bills or needs a fresh start for some other reason, a consumer bankruptcy is still likely the best way to get the much needed help. Filing for bankruptcy can bring the much needed debt relief, as well as prevent foreclosure if a homeowner happens to be facing that challenge. A Chapter 13 bankruptcy is usually the best route to go to prevent foreclosure, while a Chapter 7 bankruptcy is best for someone who simply has too much debt and no significant assets.

Trying to get a fresh start for many people is often a difficult process. Seeking out assistance to do so is often necessary to be able to finally eliminate debt.

Source: Los Angeles Times, "Fed: Some borrowers shortchanged in foreclosure settlement," E. Scott Reckard, May 9, 2013

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