In a case that likely sets an interesting and complex precedent for lenders, servicers and investors alike, the U.S. Bankruptcy Court on Wednesday approved a settlement between Massachusetts Attorney General Martha Coakley’s Office and 10 different mortgage lenders and servicers that had funded or serviced loans used in a foreclosure rescue scam. Coakley's office had argued that the lenders' various loans "facilitated fraudulent foreclosure rescue transactions" by Brockton, Mass-based attorney Alec Sohmer, who ran a foreclosure rescue scam before filing for Chapter 7 bankruptcy protection himself. The settlement covers 26 residential properties involved in Sohmer's bankruptcy case, and is designed to put homeowners into the original financial position they were in prior to the equity stripping scam. The settlement will also provide an opportunity for Sohmer’s victims to reacquire the legal title to their homes, as well, Coakley's office said. "These fraudulent foreclosure rescue transactions never would have occurred without the orchestration by Sohmer and the closing attorney who represented mortgage lenders," said Attorney General Coakley. "By agreeing to the settlement, these mortgage companies are helping to solve the serious problems caused by Sohmer and his affiliates. We appreciate that they have chosen to be part of the solution to the problem, instead of ignoring their responsibility." Under the terms of the settlement, the lenders and servicers will provide restitution to the homeowners victimized by Sohmer’s fraudulent scheme, by reducing the outstanding mortgage liens on the homeowner’s properties, and in many instances allowing the homeowners to apply to assume the loans. As a result of the foreclosure rescue scheme, 26 homeowners had transferred the titles of their homes to Sohmer. The original homeowners can now reclaim their property by paying a reduced mortgage obligation instead of the inflated mortgage loan arranged by Sohmer, and by refinancing the loans. The mortgage lien will be reduced to the lower of the actual amount paid for prior mortgage loans on the property, subtracting any beneficial payments to the homeowners; or 80 percent of the current value of the properties. In total, the settlement will provide approximately $1.8 million in reduced mortgage obligations. It's a case that could have telling repercussions in other jurisdications, sources suggested to HW; equity stripping scams are among the most common frauds perpetrated on troubled homeowners. "Does this mean that other jurisdictions are now going to look to actively require that servicers bear the burden of the fraudulent activity?" asked one source, an attorney in the creditor's rights field. "It opens up a really slippery slope, especially given the current legislative climate." The mortgage lenders and servicers that have signed onto today’s agreement include First Horizon Home Loans; Countrywide Home Loans; EMC Mortgage Corporation; Select Portfolio Services; Aurora Loan Servicing, LLC; America Brokers Conduit; Option One Mortgage Corp.; America’s Servicing Company; Ocwen Mortgage; and, Sallie Mae Home Loans, Inc. Wells Fargo Bank, N.A.also agreed to settle the state's concerns regarding some, but not all, of the transactions in which it was involved, Coakley said.