If it’s clear that the foreclosing party failed to follow the law and that as a result, you were deprived of an important right, it may be worth it to go to court and contest the foreclosure. After all, if you could get the foreclosure lawsuit dismissed or significantly delayed, you may be able to stay in your house much longer than you would otherwise. And that, of course, could have significant financial and emotional benefits.
This section lists the most common circumstances in which you may want to contest a foreclosure in court. But there are others. Over the years, attorneys have come up with a panoply of theories to contest foreclosures, drawing on the common law—law fashioned in cases decided by our courts. None of these theories are widely used; however, it’s possible that one might be useful in your case.
For example, you might be able to block foreclosure by arguing that your loan terms are unconscionable—that is, so unfair that they shock the conscience of the judge. In one case, for example, the borrower spoke very little English, was pressured to agree to a loan that he obviously couldn’t repay, was not represented by an attorney, and was unaware of the harsh terms attached to the loan (such as an unaffordable balloon payment).
Check Foreclosures, by John Rao, Odette Williamson, Tara Twomey, Geoff Walsh, Andrew G. Pizor, Diane E. Thompson, Margot Saunders, and John W. Van Alst (National Consumer Law Center), for more information on these common law defenses.
If you’re on active military duty, and you took out your mortgage before going on active duty, you have some special protections under the Servicemembers Civil Relief Act (SCRA). For example, you can postpone the foreclosure by making a request in writing. Also, if a foreclosure is completed against you while you’re on active duty, or one year thereafter, the sale is invalid unless a court approved it before the sale or you agreed to the foreclosure by waiving your rights. The waiver must be in writing and be executed while you are on active duty or afterwards. The right to a judicial foreclosure can’t be waived beforehand. (See our article on special protections for active duty service members for more detail on these rules.)
Because every foreclosure means that someone loses a home, many courts require the foreclosing party to strictly follow state law and respect the terms of the mortgage or deed of trust. If they don’t, you can call them on it.
But if the foreclosing party makes a trivial violation of the rules, the judge will probably let it go. Virtually all judges overlook errors that are inconsequential, such as the misspelling of a name. And the statutes of some states specifically provide that certain procedural errors (often failure to provide required notices) will not affect the right of the foreclosing party to obtain the foreclosure.
Similarly, if the foreclosing party’s error doesn’t actually cause you any harm, it’s probably not worth fighting over. Most courts will overlook a violation that is technical in nature and doesn’t deprive you of a fair procedure, on the principle of “no harm, no foul.” For example, say the lender failed to record the notice of default in the local land records office (a typical requirement) on time, but you got your required notice on time. The court might well decide that the failure to record didn’t harm you and allow the foreclosure to proceed.
More serious violations will get a more serious response from the court. For example, if the lender failed to send you a notice of default as required by state law, the lender might have to start over, because the lack of adequate notice deprived you of valuable time to resolve the problem. (You might have negotiated with the lender, gotten refinancing, or taken advantage of state rules permitting reinstatement or redemption of the mortgage.)
In most states, the foreclosing party must take one or more of the following steps, depending on the state and the type of foreclosure (judicial or nonjudicial). If the lender missed a step, you may able to contest the foreclosure. Typically, in a nonjudicial foreclosure, the lender must:
In a judicial foreclosure, the lender typically must:
All of these notices have time limits and specific content requirements. For instance, a notice might have to describe the property, the amount due on the mortgage, the amount necessary to reinstate the mortgage including costs and interest, and information on the person you can contact to discuss the notice. (See our Summary of State Foreclosure Laws to find out what your state requires for foreclosure notices.)
In federal courts and some state courts, only the mortgage holder (the owner or someone acting on the owner’s behalf) may bring a foreclosure lawsuit.
If your mortgage, like many, has traveled across the world and been owned by many different entities, proving just who owns it can be difficult for the last holder in the chain of title. Because mortgages are frequently bought and sold electronically, the only proof of ownership is a chain of assignments from one owner to the next. These assignments might never have been put down on paper, but rather kept in computer databases. The original mortgage document that you signed is stored somewhere, but it can be difficult for a foreclosing party to actually come up with it, or even a copy of it.
Some attorneys representing homeowners have been successful in delaying or derailing foreclosures brought in federal court on the ground that ownership has not been satisfactorily established. The legal theory involves a concept called “standing”—that is, who has the right to bring a lawsuit in the federal court. To have standing to sue about a contract, you must have an ownership interest in the contract and have suffered some loss. In several recent cases in federal courts, the foreclosing parties were unable to establish these facts, and so the courts dismissed the foreclosure complaints.
Because these cases were decided in federal court, there is currently no good information on what type of proof of ownership would be acceptable in state courts, which frequently have different rules about standing to sue. For example, in Ohio and many other states, the Uniform Commercial Code (UCC) gives a long list of persons connected with a loan the right to sue to enforce its terms. In those states, it would be hard to get a foreclosure thrown out by arguing that the wrong party brought it.
These cases can be difficult to bring and argue, and you may not get very far if you try to do it yourself. On the other hand, some federal courts are friendlier to self-represented people than are state courts, and Nolo has an excellent book on representing yourself under the federal rules of civil procedure. See Represent Yourself in Court, by Paul Bergman and Sara Berman (Nolo).â