New Options for Homeowners Facing Foreclosure?

The proliferation of false affidavits, and the subsequent media attention, means that an ever-greater number of homeowners will be able to challenge foreclosures in court. In addition, the robo-signing fiasco provides more leverage for homeowners to negotiate with banks, and it may allow some homeowners to stay in their homes longer due to freezes or delays in processing paperwork.

Challenging a Foreclosure Based on a Faulty Affidavit

Because the robo-signing mess has called into question the integrity of lender paperwork, courts will be more likely to scrutinize bank foreclosure affidavits and documentation and be more willing to entertain homeowner claims that documentation is faulty or false. If you want to challenge the foreclosure of your home based on a faulty affidavit, the process depends on whether you live in a state where foreclosures go through court or not. A third option is to challenge the foreclosure in a Chapter 13 bankruptcy.

Judicial foreclosure states. In about half the states, the foreclosures go through court -- called "judicial foreclosures." In these states, to challenge a foreclosure based on a fraudulent affidavit you simply raise the issue in court at the first opportunity -- in a summary judgment proceeding or at the actual trial, if the more expeditious summary judgment procedure fails.

Non-judicial foreclosure states. In states where foreclosures are completed without going to court (called "non-judicial foreclosures"), the process is not as easy -- the homeowner must file a lawsuit in court to stop the foreclosure. In a number of these non-judicial foreclosure states, a bank cannot foreclose without recording the appropriate documents accompanied by an affidavit attesting to their truth, so the ground for challenging the foreclosure would be similar to that used in judicial foreclosure states.

To find out if there is an affidavit requirement for foreclosure in your state, check your state's statute regarding the foreclosure process. (Look for a requirement that the lender must submit a statement under oath or an affidavit as part of the paperwork.) To learn how to research your state law, see Nolo's Legal Research Center. Also, see Nolo's Best Foreclosure Websites for a list of helpful foreclosure websites. A number of these sites summarize state foreclosure statutes.

Chapter 13 bankruptcy. Homeowners may also challenge foreclosures in Chapter 13 bankruptcy. In Chapter 13 bankruptcy, creditors (including mortgage lenders) must file a claim in order to secure payments on their mortgage under the debtor's Chapter 13 repayment plan. As with all other creditor claims, a homeowner in Chapter 13 may oppose the claim based on the lender's inability to provide the correct documents establishing the debt and sworn testimony to their truth. (To learn more about what happens to your home in Chapter 13 bankruptcy, see Nolo's article Your Home in Chapter 13 Bankruptcy.)

Delays in Processing Foreclosures

As mentioned above, the robo-signing mess has forced some banks to temporarily freeze all foreclosures. And even if the foreclosing bank hasn't stopped foreclosures, or has resumed foreclosures, the process may be delayed. Banks are scrambling to gather the correct documentation, and going forward it will take longer to get a foreclosure affidavit signed if banks can no longer use robo-signers and, instead, must require bank officers to actually spend time reviewing the property file, loan papers, and other documents before signing the affidavit. And, despite what some banks have said, this is not a mere technicality. There are many instances of demonstrably false or legally faulty paperwork being submitted, and it may be that the banks will simply not be able to demonstrate the veracity of the necessary documents.

Opportunities to Negotiate

Because of the mounting evidence of robo-signing and sloppy bank paperwork, courts may be more inclined to believe that foreclosure paperwork in any given case is faulty. As a result, if a homeowner is able to cast uncertainty regarding the required foreclosure paperwork, banks may be more willing to go further than they have in negotiating some type of mortgage modification -- such as reducing principal, interest rates, or payments -- rather than risk having to prove the accuracy of their documents in court.

Of course, if you can point out a defect in the paperwork, your leverage will increase. But even if you can't find a defect, you may still get the lender to negotiate by raising the possibility of faulty paperwork. The lender may discover that its paperwork is less than stellar or that it would rather negotiate with you than prove the opposite in court.

More Bad News for Mortgage Lenders: Class Actions and Criminal Prosecutions

The robo-signing scandal may bring more bad news to the mortgage lending industry in the form of class action lawsuits and even criminal prosecutions. Attorneys general in all 50 states have launched investigations to see what laws, if any, have been broken. In addition, people whose home foreclosures were based on false affidavits may be able to get their homes back if those homes are still in the possession of the foreclosing bank.

Getting Help

Challenging a foreclosure in court in a judicial foreclosure state, bringing a lawsuit to stop a foreclosure in a non-judicial foreclosure state, or even alleging documentation problems in an effort to negotiate with a lender can be tricky. You may want to talk with an attorney about your case -- especially an attorney who has experience in foreclosure law. You can use Nolo's Lawyer Directory to locate and talk to a foreclosure attorney in your area.

To learn about the ins and outs of foreclosure, including how bankruptcy can help, how to challenge a foreclosure in court, and options for negotiating with your lender, get The Foreclosure Survival Guide, by Stephen Elias (Nolo).

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