Banks' settlement will mean $400,000 for UI clinic to help homeowners, tenants

A government settlement with five of the nation's largest banks over their role in the foreclosure crisis will fund a University of Illinois legal clinic that helps homeowners and tenants affected by foreclosure.

Illinois Attorney General Lisa Madigan visited the UI on Tuesday to announce a $403,271 grant to the College of Law's Community Preservation Clinic.

Established in fall 2011, the clinic provides legal help to homeowners facing foreclosure in McLean County and tenants living in foreclosed properties in Champaign County.

The money comes from a $25 billion settlement in March 2012 between the federal government and 49 state attorneys general and the country's five largest mortgage loan servicers: Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., Wells Fargo & Co. and Ally Financial Inc.

The banks were accused of fraudulent practices, such as "robo signing" foreclosure documents, telling homeowners to stop making payments to qualify for loan modifications, and repeatedly losing documentation, Madigan said. The settlement created strict new standards for banks to follow, she said.

"The settlement at its heart is about holding banks accountable for years of inept, callous and illegal treatment of homeowners in distress," Madigan said.

The settlement will provide an estimated $1 billion of relief to Illinois homeowners in the form of refinanced loans or other modifications. A state-appointed monitor estimates about $800 million has been provided so far, Madigan said.

The state also received $100 million to counteract the effects of the foreclosure crisis, and the most effective way is to provide legal advocates for homeowners, she said.

Her office set aside $20 million for groups that provide legal services, including $4.5 million over three years to each of the three Legal Services Corp. offices across the state. One is the Land of Lincoln Legal Assistance Foundation, which takes in Champaign and Vermilion counties.

Other money has gone to nonprofit groups, including Equal Justice Works, which recently said it will fund a fellowship at the UI Community Preservation Clinic.

Clinic director Stacey Tutt said the $403,271 announced Tuesday will help support that fellowship position, allowing the clinic to expand services.

The clinic runs two programs, one working with homeowners in McLean County's Mandatory Foreclosure Mediation Program. So far the clinic has provided free legal representation to 100 clients through the program, helping homeowners reduce or modify their loans or achieve a "graceful exit" through short sales when needed, she said.

In Champaign County, law students at the clinic represent tenants caught up in disputes with landlords on the verge of foreclosure. Of the 59 tenant cases the clinic has handled so far, it's achieved positive results in 56, officials said.

"We have law students who are helping to save people's homes," Madigan said, while gaining legal experience helping real clients.

Madigan said having a lawyer more than doubles a homeowner's chances for a positive outcome in a foreclosure case. Yet the vast majority of homeowners don't get legal representation and end up losing their homes or paying more than they have to, she said.

Statewide, the number of foreclosures is still "very large," Madigan said. In 2012, there were almost 500 in McLean County and more than 200 in Champaign County, Tutt said.

Tutt said the clinic's efforts have reduced the costs of foreclosures for lenders, borrowers and taxpayers; reduced the number of foreclosure court cases and expedited the legal process; kept families in their homes; and addressed vacant and blighted properties that hurt property values and thus reduce tax revenue.

The new fellowship and additional funding for the clinic will allow it to train more law students, tackle more complex litigation and increase neighborhood canvassing efforts to reach tenants and homeowners who need help, she said. This semester, 11 law students are working at the clinic.

"Foreclosure touches on those most basic needs — safety, shelter, community," said College of Law Dean Bruce Smith. "Protecting homeowners and preserving community are worthy goals."

Afterward, Madigan turned aside questions about her gubernatorial aspirations, saying she enjoys serving as attorney general but is considering whether there are "additional ways to serve the public of this state. It is not a question I have finished answering."