The Foreclosing Party Can't Prove It Owns the Mortgage
Only the mortgage holder (the loan owner or someone acting on the owner's behalf) may bring the action. If your mortgage, like many, has been sold and bought by many different banks, lenders, and investors, proving just who owns it can be difficult for the last holder in the chain. Appropriate documentation of who owns the mortgage must be presented, and this is often difficult for the foreclosing party to do.
The Mortgage Servicer Made a Serious Mistake
Mortgage servicers (entities who contract with banks and other lenders to receive and disburse mortgage payments and enforce the terms of the mortgage) make mistakes all the time when they're dealing with borrowers. A study by law professor Katherine M. Porter showed that in 1,700 Chapter 13 bankruptcy cases, a majority of the claims submitted by mortgage owners had errors. (Misbehavior and Mistake in Bankruptcy Mortgage Claims, Texas Law Review 2008.)
You may be able to challenge the foreclosure based on mistakes such as:
- crediting your payments to the wrong party (so you weren't, in fact, delinquent to the extent asserted by the foreclosing party)
- imposing excessive fees or fees not authorized by the lender or owner, or
- substantially overstating the amount you must pay to reinstate your mortgage.
Mistakes on the amount you must pay to reinstate your mortgage are especially serious. This is because an overstated amount may deprive you of the main remedy available to keep your home. For example, if the mortgage holder says you owe $4,500 to reinstate (perhaps because it imposes unreasonable costs and fees), when in fact you owe only $3,000, you may not have been able to take advantage of reinstatement (say you could have afforded $3,000, but not $4,500).
The Original Lender Engaged in Unfair Lending Practices
You may be able to fight your foreclosure by proving that your lender violated a federal or state law designed to protect borrowers from illegal lending practices. Two federal laws protect against unfair lending practices associated with residential mortgages and loans: the Truth in Lending Act (TILA) and an amendment to TILA commonly termed the Home Ownership and Equity Protection Act (HOEPA).
Lenders violate TILA when they don't make certain disclosures in the mortgage documents, including the annual percentage rate, the finance charge, the amount financed, the total payments, the payment schedule, and more.
In the case of loans covered by HOEPA, lenders must comply with various notice provisions and are prohibited from using certain mortgage terms, such as prepayment penalties if the loan is a high-cost home loan.
The right to rescind the loan. TILA and HOEPA provide a number of remedies for the borrower if these laws are violated. However, the key remedy in foreclosure actions is the borrower's ability to retroactively cancel or rescind the loan under certain circumstances if the violation is "material" (that is, significant or substantial). This is referred to as the right to an "extended rescission."
State-law remedies for "high-cost" loans. A few states have special protections for people facing foreclosure on "high-cost" mortgages. If your state is one of these, and the lender has violated any of its provisions, you might be able to raise that violation as a defense in your foreclosure case.
To learn more about these defenses, and other ways to avoid foreclosure, get The Foreclosure Survival Guide, by Stephen Elias (Nolo).
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