The Common Scenario: In many cases, banks cut corners, but ultimately foreclosed on homes where borrowers were severely delinquent and were legitimately facing foreclosure. In most of these cases, the timeline was still longer than the law called for, as the huge flood of foreclosures overwhelmed banks and resulted in a slow process, even with banks skipping steps.
The Uncommon Scenario: In what's likely a very, very small handful of cases, some loan files got mixed up and banks foreclosed on some borrowers' home despite the fact that they were current on their payments. Considering how few accounts we have seen in the media of this sort of thing, the number of people wrongly foreclosed on must be quite low.
In each scenario, what do banks owe the borrowers? In the common scenario, banks probably owe these borrowers little to no damages whatsoever. According to Kenneth E. Scott, a law professor at Stanford who specializes in regulatory and securities law, if borrowers have defaulted on their loan, then banks will likely owe them nothing. Even if there was some damage inflicted on these borrowers, it would merely be subtracted from the debt they still owe the bank. For example, if a person's foreclosed home was auctioned off for $50,000 less than their mortgage balance and a judge awards the person $10,000 in a suit, then the result would merely be the litigant owing the bank $40,000 instead.
In the uncommon scenario, however, some damages could more easily result. Then, any costs or harm resulting from the foreclosure process could result in a monetary award. According to Scott, these damages would likely use the equity that the borrower had in their home at the time of foreclosure as a starting point. In a market where so many homes are underwater, however, it's hard to see how even these damages could be very high.
So in almost all cases (the "common scenario"), the damages that banks owe would be negligible. In a small handful ("the uncommon scenario"), they could be larger, but certainly no where near as large as the size of the mortgage.
Now let's look at the numbers and do some estimating. From 2006 through 2010, roughly 9 million foreclosures have occurred in the U.S., according to RealtyTrac. Now let's make some assumptions that vastly favor the state attorneys general. First, we'll assume all 9 million were through the five big banks. Next, let's say 100,000 borrowers were wrongly foreclosed on, which is roughly 1%. This is a very, very generous estimate, as the number of people whose home was seized by the bank despite being current on their loan is more likely in the hundreds or low thousands. Under these assumptions, $17 billion would amount to an average award of $170,000 per person. That's approximately the average home sale price in the U.S.