Legal aid benefits from settlement

September 10, 2014

A financial boost for legal aid is expected to come from one of the banks that contributed to the 2008 economic collapse. The money will bring much-needed funding to the state’s pro bono districts which have been crippled by dwindling revenues and growing client lists.

While the money will help, some say it should have come sooner.

The influx of funds is coming from the $16.65 billion settlement agreement between Bank of America and the U.S. Department of Justice. As part of the historic settlement, the financial institution will appropriate a minimum of $30 million to Interest on Lawyers’ Trust Account programs in all 50 states plus the District of Columbia and the Virgin Islands.

charles dunlap Dunlap

Charles Dunlap, executive director of the Indiana Bar Foundation, which administers the state’s IOLTA program, estimated the Hoosier state will receive $600,000 from the settlement. This amount is double the annual revenue IOLTA currently receives.

IOLTA money is distributed to Indiana’s 12 pro bono districts which provide legal assistance to lower-income residents.

Exactly how much settlement money Indiana will receive, when the funds will arrive, and what restrictions will be placed on the use of the money are all unanswered questions and may remain unanswered for the next couple of years. Still, Dunlap said the money will provide significant help.

“There’s nothing bad about this,” Dunlap, who is also president of the National Association of IOLTA Programs, said. “It’s all good news; it’s just a matter of how good is it.”

The appropriation to the IOLTA programs across the country is included in the $7 billion consumer relief section of the Bank of America settlement. This section is designed to assist homeowners, borrowers and communities harmed by the bank’s actions.

In Indiana, pro bono districts are still seeing fallout from the foreclosure crisis. The problems have shifted from confusion as to which bank owned the mortgage to homeowners not able to make payments because of a drop in their income.

At the Notre Dame Law School, Professor Judith Fox leads the school’s Economic Justice Clinic which has helped troubled homeowners and was among the first agencies in the U.S. to spot the banks’ practice of robo-signing documents.

Fox conceded she is cynical of settlements like the one with Bank of America, especially since the bank is getting credit for doing things it has to do anyway. Moreover, if these funds had arrived at the height of the foreclosure crisis, she said, many of the problems Indiana has now with abandoned homes and shadow inventory could have been avoided.

“If we get that much, it would help a lot,” Fox said of the potential $600,000. “Any amount would help. It’s just frustrating it took this long.”

Hearing Fox’s assessment, Judy Stanton, pro bono district administrator in Hobart, had a one-word response – “Amen.”

The recession unleashed a flood of foreclosures in northwest Indiana which Stanton said created an “economic and humanitarian crisis.” Many homes reclaimed by the banks are still empty and have not been properly maintained, leaving some neighborhoods devastated.

Foreclosure response

The language of the settlement says the IOLTA appropriation must be applied to legal assistance for foreclosure prevention and community redevelopment. Dunlap said NAIP will look to the Justice Department for guidance.

“You could argue it could be interpreted pretty broadly, that almost any sort of income challenge a person has could affect their housing,” Dunlap said. “At least the IOLTA community would like to have a broad interpretation of that so that there are more opportunities to help people.”

Timothy Peterson, pro bono district administrator in Lafayette, said money used to keep people in their homes is money well spent.

When homeowners first started arriving in his office with foreclosure notices, he said he did not know what to do. Now, after training and years of navigating the foreclosure process, he said he can “keep the wolves away” and reach a settlement with the banks on behalf of the homeowners 90 percent of the time.

“The whole experience is something we need to take to the community and say, ‘This really worked well. If we had a little more money, we could help a lot more people,’” Peterson said.

In southwestern Indiana, Beverly Corn, pro bono district administrator in Evansville, estimated that homeowners who are working and come to the settlement conferences prepared are able to get a loan modification 75 percent of the time.

But Stanton is not seeing similar results. Her district is having problems finding attorneys willing to take foreclosure cases. As a result, homeowners are dealing with mortgage holders on their own in settlement conferences.

Settlement details

The Great Recession landed a hard blow to Indiana’s IOLTA fund. In seven years, the program has watched its revenues drop from $3 million per year to the current $300,000.

The program has been able to maintain an $800,000 total base of annual appropriation to the pro bono districts by cobbling money from a variety of sources. It has been drawing from its $2.5 million reserves, but by the end of 2014 that money will be gone.

The program also got a welcomed $650,000 from the national settlement in the junk-faxing class-action lawsuit, Cooper v. Lifequotes of America, Inc., out of Washington state.

To make up for the loss of reserves, the program will rely on an increase in civil filing fees, which has generated just over $745,000 for the program in two years. Indiana’s IOLTA is also expecting about $325,000 per year from the new appropriations from attorney registration fees.

From the Bank of America settlement, each IOLTA program will initially receive $200,000. Then the remaining money, nearly $20 million, will be divided among the programs nationwide based on the poverty population of each state.

Dunlap said Indiana’s poverty rate could result in an additional $400,000, which would bring the total Bank of America appropriation to $600,000. Although the financial institution has until Aug. 31, 2018, to pay out the funds, Dunlap anticipates the money will arrive within the next 12 months.

In addition, Dunlap pointed to provisions in the settlement that could mean more funds for Indiana. Specifically, 75 percent of any funds left over in the consumer relief’s $7 billion pot will be turned over to IOLTA programs. Likewise, 75 percent of any funds remaining in the $490 million tax-relief payment account will go to IOLTA programs.

The Indiana IOLTA program could also receive funds from a settlement between Citigroup and the Justice Department. That includes a minimum of $15 million for IOLTA. But that language, Dunlap said, is more nebulous, and there is some question on what amount, if any, Indiana will receive.

The Bank of America funds, Corn said, will provide a respite from the budget challenges with which pro bono districts have struggled. Even knowing the money is coming will help re-energize the programs.

“I just don’t think it’s too late,” Corn said of the appropriation. “I think it’s coming at just the right time.”•


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