Citigroup has begun negotiating financial settlements of wrongful foreclosure claims; in fact, Citigroup has been quietly doing this for several months now.  In its analysis of reporting published by Bloomberg last week, Propublica points out that Citigroup has been forking up the money to cover the homeowner’s legal expenses along with agreeing to a lower interest rate on the mortgages — and sometimes, Citigroup is even cutting the amount of the note itself.  Sweet, right?

Of course, Citigroup has its own incentives to make deals rather than facing continuing litigation of these foreclosure fraud lawsuits.  Settling with homeowners and wiping the slate clean, loan by loan, may be the fastest and safest way for the banks to avoid bigger, longer, and more complex exposure over time.  After all, we’re seeing cases coming down from incensed judges (see our earlier post on two cases with national impact coming out of Massachusetts) that may have tremendous impact upon these financial institutions.

Settlements mean that banks can keep their bad acts confidential, and not part of a lawsuit or court order for all the world to see.   Through private negotiations, the bad acts (like robosigning) are hoped to be fixed, one case at a time.   For example, Bloomberg reports on one case where a mortgage debt of approximately $400,000 was settled, after serious loan assignment issues were revealed, to the tune of cutting around $30,000 off the mortgage note, cutting the interest rate in half, and paying the mortgage holder’s legal fees.  This settlement allowed the bank to clear things up on a messy title issue while never having to admit it had done anything wrong.

Here’s the big question; does a bank have the right to settle like this, and essentially escape legal responsibility for the illegal acts that happened to make the foreclosure wrongful and fraudulent in the first place?  In other words, do these settlements allow the banks to proclaim no harm, no foul?

And the answer may be yes, because confidential settlement agreements of contractual disputes happen every day, in all sorts of situations, (these examples are pre-foreclosure and resale cases) without any member of the public knowing anything about them, at all.   Then again, it’s not outside the realm of possibility that a really angry judge may see these bank tactics as more sinister bad acts, and seek to find ways to still hold these banks liable for their blatant disregard for state and local laws on such a massive scale.

Still, if you are behind on your note and facing a foreclosure and your bank suddenly wants to talk settlement, it may well be in your best interests to listen.  Just make sure you have competent legal guidance when you do.