The Bank of America settlement resolved claims that the bank mishandled loan modifications during the foreclosure crisis

In 2016, Bank of America reached a settlement with the U.S. Department of Justice and state attorneys general over how it handled mortgage loan modifications between 2009 and 2014. The bank had agreed to modify loans for homeowners facing hardship, but borrowers reported that the bank lost documents, made repeated requests for the same paperwork, denied modifications without clear reasons, and sometimes started foreclosure while a modification was still being reviewed.

If you were a homeowner with a Bank of America mortgage during that period and applied for a loan modification, you may have been part of the group affected by these practices. The settlement created a process for people to receive compensation or loan principal reduction if they could show they were harmed by the bank's conduct.

Key Takeaways

  • The settlement covered homeowners who applied for loan modifications between January 2009 and December 2014 and were denied or received a modification that did not reflect the terms they were promised.
  • Affected borrowers could receive cash compensation, principal reduction on their mortgage, or both, depending on what happened to their loan.
  • The settlement required Bank of America to review denied modifications and reconsider them using the correct standards, which sometimes resulted in approvals years after the original denial.
  • You had to submit a claim form with documentation showing you applied for a modification and were harmed; the important date to file claims has now passed, but some remedies continued through 2017 and beyond.
  • If you received a modification or compensation through this settlement, it may affect your tax situation and should be reported to the IRS.

Who was covered by the settlement

The settlement applied to homeowners with Bank of America mortgages who submitted a loan modification request between January 1, 2009, and December 31, 2014. You had to be in financial hardship at the time you applied—meaning you were behind on payments, at risk of falling behind, or facing a life event like job loss or medical emergency.

The bank had to have either denied your modification request, approved it but then failed to honor the terms, or lost your documents and failed to process your request in a timely way. You also had to have suffered a concrete loss—such as being foreclosed on, paying more than you should have, or losing your home—because of the bank's conduct.

Not every homeowner who applied for a modification may have access to. The settlement did not cover people whose loans were sold to other servicers before the modification was processed, or people who were denied for legitimate reasons under the bank's stated guidelines at the time.

How much compensation was available

The settlement fund totaled approximately $3 billion, though the exact amount varied depending on how many claims were filed and approved. Compensation took several forms: cash payments to borrowers, principal reduction on mortgages that were still active, and loan modifications that should have been granted in the first place.

Cash payments ranged from a few hundred dollars to tens of thousands, depending on the harm documented. A borrower who was foreclosed on after an improper denial might receive more than someone whose modification was delayed but eventually approved. Principal reduction meant the bank lowered the amount owed on the mortgage itself, which reduced monthly payments going forward.

The bank also agreed to review thousands of denied modifications and reconsider them using the correct underwriting standards. Some of these reviews resulted in approvals years after the original denial, though by that point many borrowers had already lost their homes or refinanced with other lenders.

The claims process and important date

To receive compensation, you had to submit a claim form to the settlement administrator within the filing important date. The important date to file new claims closed in 2016, but the settlement continued to process claims and distribute funds through 2017 and into 2018 for some borrowers.

The claim form required you to provide your loan number, the dates you applied for modification, copies of correspondence with the bank, proof of financial hardship, and documentation of the harm you suffered—such as a foreclosure notice, a deed showing the home was sold, or evidence of payments made under an incorrect modification agreement.

If you missed the important date to file a claim, you generally could not receive compensation through this settlement. However, if you had an active lawsuit against Bank of America related to loan modifications, that case may have proceeded separately or been consolidated with the settlement.

What happened after approval

If your claim was approved, the settlement administrator notified you of the decision and the amount or type of remedy you would receive. For cash payments, the bank issued a check or arranged a direct deposit. For principal reduction, the bank reduced the balance on your mortgage note and sent you updated loan documents showing the new amount owed.

For borrowers whose modifications were reconsidered and approved, the bank sent new modification agreements with the corrected terms. Some of these approvals came years after the original process, and by then the borrower's financial situation had changed or the home had been lost to foreclosure. In those cases, the modification might not have been useful, but the borrower could still pursue a separate claim for damages.

Any compensation you received may have tax consequences. Cash payments and principal reduction on a mortgage can be treated as taxable income by the IRS, depending on the circumstances. You should have received a tax form (1099) from the settlement administrator or Bank of America if the amount was large enough to require reporting.

What to do if you think you were affected

If you had a Bank of America mortgage between 2009 and 2014 and applied for a loan modification that was denied or mishandled, you can search the settlement administrator's records to see if a claim was filed in your name. The settlement information was posted on the settlement website, which may still be accessible through an archive or by contacting Bank of America directly.

If you did not file a claim before the important date and your home is no longer in foreclosure, you may still have other options. Some borrowers pursued separate lawsuits against the bank, and some state attorneys general continued to investigate loan modification practices. You can also contact a lawyer who handles mortgage disputes to review your specific situation.

If you received compensation but did not report it on your taxes, you should consult a tax professional about whether you need to file an amended return. The IRS has specific rules about how to treat mortgage principal reduction and settlement payments, and getting this right protects you from penalties later.

How this settlement relates to other Bank of America actions

The 2016 loan modification settlement was one of several major enforcement actions against Bank of America related to mortgage servicing. The bank also faced separate settlements over robo-signing (signing foreclosure documents without reviewing them), improper fees, and other servicing violations.

Some borrowers were covered by more than one settlement, and compensation from different settlements was sometimes combined or offset. If you received money from another Bank of America mortgage settlement, that may have affected how much you could receive from the loan modification settlement.

The loan modification settlement was also distinct from the Home Affordable Modification Program (HAMP), which was a federal program that encouraged banks to modify loans. Some borrowers applied for modifications through both HAMP and directly with the bank, and the outcomes were sometimes different.

Frequently Asked Questions

Can I still file a claim if I missed the important date?

The important date to file claims in the settlement has passed. If you did not file before the important date, you cannot receive compensation through this particular settlement. However, you may be able to pursue a separate lawsuit against Bank of America if you believe you were harmed by their loan modification practices. A lawyer who handles mortgage disputes can review your situation.

What if I received a modification but the terms were wrong?

If Bank of America approved a modification but the terms did not match what you were promised—such as a higher interest rate or payment amount than discussed—that was one of the harms covered by the settlement. You would have needed to file a claim with documentation showing the promised terms and the actual terms you received.

Do I have to pay taxes on the settlement money I received?

It depends on the type of compensation. Cash payments for emotional distress or wrongful conduct may not be taxable, but principal reduction on a mortgage is usually treated as taxable income. You should have received a tax form from the settlement administrator. Consult a tax professional if you are unsure whether you reported it correctly.

What if my home was foreclosed on after I applied for a modification?

Foreclosure after a modification process was one of the main harms the settlement addressed. If you could show that Bank of America improperly denied your modification or failed to process it while the foreclosure proceeded, you could claim compensation for the loss of your home. This required documentation of the modification process and the foreclosure timeline.

Does this settlement affect my current mortgage with Bank of America?

If you still have a Bank of America mortgage and received principal reduction through the settlement, that reduction is permanent and reflected in your current loan balance. If you received a modification approval through the settlement review process, that modification is now in effect on your loan. Any cash compensation you received does not change your mortgage terms.