Bank of America Corp. has agreed to pay more than $6 million to a California couple whom a federal judge said had been harassed and illegally foreclosed upon by the bank's mortgage unit, ending an eight-year-long dispute.

The proposed settlement between the bank and Erik and Renee Sundquist would enable them "to end a long personal and legal nightmare that has impacted every facet of their and their sons' lives," according to court papers the couple filed to request that their 2014 lawsuit against the bank be dropped.

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The deal calls for Bank of America to pay a fraction of the fine of more than $46 million ordered by Judge Christopher Klein in March. In his ruling, the judge said the bank's mortgage modification process and mistaken foreclosure on the Sundquists' home in Lincoln, Calif., left them in "a state of battle-fatigued demoralization."

The exact amount that the bank will pay the Sundquists is confidential, according to documents filed Tuesday in U.S. Bankruptcy Court in Sacramento. The earlier order called for the bank to pay the couple nearly $6.1 million in damages.

The couple had stopped making mortgage payments in March 2009 after Bank of America officials said they wouldn't consider loan modifications for customers who were current on payments. In the following years, their roughly 20 loan-modification requests were "routinely either lost or declared insufficient, or incomplete or stale or in need of resubmission or denied without comprehensible explanation," the judge's ruling said.

The couple filed for bankruptcy in June 2010. Filings halt foreclosure sales, but the judge said the bank still improperly took over the home and gave them a three-day eviction notice. The couple moved out, and Ms. Sundquist was hospitalized with stress-related symptoms of a heart attack several weeks later.

Bank of America officials eventually reversed the sale. The couple moved back in several months later and received a $20,000 fine from their homeowner association for dead landscaping, the ruling said.

The 107-page court opinion included excerpts from Renee Sundquist's journal that documented harassing visits from bank-related officials and Mr. Sundquist's suicide attempt after the couple discussed their frustrations over the house.

The request this week to drop the lawsuit still needs approval from Judge Klein, who agreed to discuss the settlement at a Sept. 12 hearing.

"Their physical and emotional health deteriorates each day they are forced to endure the uncertainty of an outcome that will enable them to repair their lives and the lives of their children," their lawyer wrote in the request. "They do not have the ability to participate in further litigation and appeals without grave costs to their health and quality of life."

The settlement would enable the bank to avoid paying a court-ordered $40 million donation to five law schools associated with the University of California system and two consumer advocacy nonprofits, the National Consumer Law Center and the National Consumer Bankruptcy Rights Center. It's not clear whether the groups will receive any money from the confidential settlement.

A Bank of America spokesman declined to comment Thursday. Lawyers who represented the law schools and the nonprofits in the case did not respond to requests for comment.

At the time of the ruling, legal experts praised Judge Klein's mandatory donation, saying it could help other judges who struggle with how to issue a damages award large enough to make a corporate giant stop bad behavior but not to overcompensate plaintiffs. Outsize legal awards can often trigger an appeal for excessive damages.

In the ruling, Judge Klein said the fine was meant to be large enough that it wouldn't "be laughed off in the boardroom as petty cash or 'chump change.'"

In Tuesday's request, the Sundquists said they "support the court's message to the bank" but worried about what could happen to the damages amount during the appeals process.

"They also recognize that the court's intentions could backfire if an appellate court reduced the financial cost of the bank's stay violations, " their lawyer said in court papers.

Write to Katy Stech at katherine.stech@wsj.com

(END) Dow Jones Newswires

August 17, 2017 16:08 ET (20:08 GMT)