It’s easier and less expensive to jump into an existing lawsuit with a judicial foreclosure than it is to challenge a nonjudicial foreclosure. If your foreclosure is nonjudicial, which means it proceeds outside the court system, you’ll have to file a lawsuit to challenge the process.
While every foreclosure case is unique and different states have their own procedures, here's a summary of how you might go about challenging each type of foreclosure, with more details on the procedures below.
To contest a judicial foreclosure, you have to file a written answer to the complaint (the lawsuit). You'll need to present your defenses and explain the reasons why the lender shouldn’t be able to foreclose. You might need to defend yourself against a motion for summary judgment and at trial.
If you have strong evidence that the lender or servicer made an error in the foreclosure procedures, like by failing to send you a breach letter, initiating the foreclosure too soon, or not following state foreclosure procedures, you might be able to force it to start the foreclosure over. Or you might get enough leverage to work out a way to save your home, like with a loan modification.
With a nonjudicial foreclosure, the process happens outside of a court's supervision, so you’ll have to file a lawsuit to get a judge’s attention. And you’ll have the burden of proof because you want the judge to stop a proceeding (the foreclosure) that's already authorized by the mortgage or deed of trust you signed with you took out the loan.
In a judicial foreclosure, the foreclosing party (the "lender") must file a lawsuit to get the foreclosure started. You'll be notified of the foreclosure case when papers called a summons and complaint (or petition) are delivered to (served on) you.
The documents will advise you of the lawsuit and give you a limited amount of time to respond if you choose to contest it. And, significantly, the lender will have the burden of proving to the judge that the foreclosure is justified under the mortgage terms.
The proof will typically consist of the documents you signed when taking out or refinancing your loan, like a mortgage (or deed of trust) and a promissory note. The paperwork might also include:
Generally, if you don’t point out errors or omissions in the paperwork or procedures, the court will accept them as sufficient evidence, award the lender a default judgment, and order a foreclosure sale.
If you decide to respond to the suit, you can tell a judge why you think the foreclosure isn't warranted. You must present your objections to the foreclosure by filing an “answer” with the court by a specific deadline.
The deadline is usually between 20 and 30 days after service, though it varies. Check the summons you received along with the complaint to find out how much time you have to file an answer in your case.
You must prepare your answer in the proper format, including responses to each of the claims made by the lender and any defenses you might have. For each numbered paragraph in the complaint, you should admit, deny, or say you don’t have sufficient information to admit or deny (and so you deny) the allegations contained in that particular paragraph.
You may also ask that the lender prove its claims, like how many payments it says you've missed and the fees it claims you owe. Be aware that if you admit an allegation, the lender doesn’t have to prove it. (Denying something that a complaint says doesn’t necessarily mean you’re saying it didn’t happen. Instead, you’re saying that the lender must prove it. Sometimes, it's a good idea to deny a “fact” that seems correct, usually because you might be able to make a legal argument about the way the fact is stated.)
You’ll also need to raise any defenses and affirmative defenses in your answer, such as the lender doesn’t have the right to foreclose (called "standing"), as well as any counterclaims, like the servicer violated federal mortgage servicing laws, if applicable.
If you don't file an answer by the deadline, the lender's attorney will likely ask for a default judgment. To get the court to set aside (annul) a default judgment, you'd have to file a motion and show good cause for not filing an answer. Getting a court to set aside a default judgment is very difficult.
In addition, if you don't file an answer, you aren't entitled to get notifications about what's happening in your foreclosure case. The court may proceed with the foreclosure without your involvement or notifying you about the proceedings.
You also will likely lose the right to assert any defenses you could have against the foreclosure. If you don't include particular defenses or counterclaims in an answer, you might not be able to bring them up later on in the foreclosure.
Of course, you shouldn't file a frivolous answer. Otherwise, you might get stuck paying the costs and expenses of the opposing parties, including their attorneys' fees.
The lender might then file a summary judgment motion, asking the judge to decide the case without a trial. You get the right to oppose the motion by submitting your arguments and evidence in a response to the motion. You need to serve your response to the other parties, and the court may then hold a hearing.
If the court determines that you don’t have evidence supporting a defense, the lender will win the motion, get a judgment of foreclosure, and be able to go forward with a foreclosure sale. If the judge denies the lender’s motion, the court will allow the case to proceed to trial.
Before the trial, "discovery" will take place. This process is when you and the lender ask each other for facts, documents, and other information before the trial. In a foreclosure, each side may ask the other to provide certain information (through a demand for the production of documents, interrogatories, and depositions) that might help prove or disprove the right to foreclose.
Borrowers sometimes make discovery demands in their answer or when opposing a motion for summary judgment on the basis that discovery is necessary to expose specific facts about the case or facts that the lender claims are true. But you’ll have to show that discovery might lead to relevant evidence or that the facts you need to justify your opposition to the foreclosure are exclusively within the lender's knowledge and control. Otherwise, the court might go ahead and grant summary judgment.
At the trial, the lender must try to prove it has the right to foreclose. Then, you must show that the lender shouldn't be permitted to foreclose.
You'll both present your cases, sometimes through witnesses who can be questioned by the judge and cross-examined by the other side. For example, if you and the lender disagree about how many payments you've missed, both you and a representative who works for the loan servicer would testify, and the judge would decide which of you is most likely telling the truth.
At the end of the trial, the judge will either:
Because nonjudicial foreclosures proceed outside of court, you’ll have to file a suit in court to get a judge to review the matter. And you’ll have the burden of proof because you want the judge to stop a proceeding (the foreclosure) that's already authorized by the mortgage contract.
You'll need to include a motion for a temporary restraining order (TRO) and preliminary injunction to enjoin (stop) a foreclosure sale while your claims are being litigated. Usually, homeowners also ask the court for a permanent injunction.
In your application for a TRO, you'll have to show the judge that you’ll suffer “irreparable injury” if the foreclosure happens. Courts often agree that losing your property to foreclosure causes irreparable harm.
Courts sometimes grant TROs without a formal notice or hearing, so the lender might not have much time to respond. The judge will probably grant the TRO if the lender doesn’t respond to your motion.
However, you might have to post a bond to protect the lender from economic harm if you eventually lose the case. A bond could be expensive, but you might, in some circumstances, get the bond requirement waived, like if you don't have much income or if the court decides that the lender’s interest is adequately protected.
Some courts have said that bonds aren't required in foreclosures, especially in cases where the property value exceeds the amount the borrower owes, because the lender has a secured interest in the property and can eventually foreclose if the borrower loses the case. Or, you could suggest paying the bond by making payments, such as at your regular monthly mortgage payment amount or in an amount that would offset any expense the lender might incur during the process, or in a minimal (de minimus) amount.
A temporary restraining order usually lasts until a court hearing in which you'll try to get a preliminary injunction stopping the foreclosure pending a full trial.
The court will review each party’s documents at the preliminary injunction hearing. (The documents are usually the same type of paperwork that's used in judicial foreclosures.)
You'll have to prove your case, like by showing that the lender didn't follow state or federal foreclosure laws or the terms of the deed of trust. You’ll have to convince the judge at this preliminary injunction stage that the foreclosure should be put on hold until you can produce your full case at trial. You might use declarations or affidavits from you and other witnesses to establish the facts you believe should stop the foreclosure.
At this hearing, the court must look at whether:
If the judge decides for the lender, the TRO will end, and the court will deny your motion for a preliminary injunction. While you can still proceed with your lawsuit, the foreclosure will likely go ahead because an injunction isn't in place to prevent it. While it’s a long shot, you might be able to ask a higher court to overrule the denial.
But if you're able to convince the judge to halt the foreclosure until you can present your full case at trial, the judge will issue a preliminary injunction. The lender might then try to settle with you, give up on the current foreclosure and start over, or meet any conditions the court sets and then ask the court to lift the injunction. Otherwise, you'll go to trial. The preliminary injunction enjoins the foreclosure pending the trial.
If it’s clear that the lender failed to follow the law and, as a result, you were deprived of an important right, it might be worth it to fight the foreclosure in court. After all, if you could get the foreclosure dismissed or significantly delayed, you might be able to stay in your house much longer than you would otherwise. Or you might gain leverage that could help you in working out a way to keep it.
You might have a decent shot at stopping or at least delaying a foreclosure if you have a strong defense, for example:
Sometimes, though, filing an answer in a judicial foreclosure or starting a suit to fight a nonjudicial foreclosure isn’t the best option. Say you’re facing a judicial foreclosure and you have an argument that requires you to file another type of pleading to preserve your rights. Filing an incorrect response might cause you to lose an important right.
For instance, if the lender made an error, like failing to properly serve you with the foreclosure lawsuit, you can dispute the court’s jurisdiction by filing a motion to dismiss. If you win, the foreclosure has to start over. But if you file an answer, you likely stipulate (agree) that the court has the right to hear the case, and the foreclosure goes ahead.
Litigation is complicated, and most people fare better after getting help from an attorney.
You’ll most likely need to hire an attorney to fight a judicial or nonjudicial foreclosure successfully. Any given foreclosure or legal situation has many potential claims and defenses, so it's a good idea to seek the advice of a local lawyer or a legal aid organization to explore all possible options available in your particular situation.
Unless the lawyer thinks you have a very good case, you might want to look into alternatives, like trying to get a loan modification or giving up your home through a short sale or deed in lieu of foreclosure.
If you want to learn about possible ways to avoid a foreclosure, like with a loan modification, short sale, or deed in lieu of foreclosure, consider also talking to a HUD-approved housing counselor.
]]>Good foreclosure attorneys have special skills developed over three years of law school and many years of practical experience, as well as extensive knowledge about the complicated area of foreclosure law. Only an experienced foreclosure attorney will be aware of all the possible defenses in your situation and know the proper way to use them to fight a foreclosure in court.
If you want to defend against a foreclosure successfully, it's best to hire a lawyer. But if you can't afford one and you want to fight the foreclosure on your own—called representing yourself "pro se"—the way you go about it depends on whether the process is judicial or nonjudicial. Here are the basics that you’ll need to know.
"Foreclosure" is the legal process that the lender (or a subsequent owner of the loan) uses to sell a home and pay off the debt if the homeowner doesn’t make the mortgage payments. Depending on the state you live in and your circumstances, the lender must either:
To learn the foreclosure process in your state, see our Summary of State Foreclosure Laws article with links to each state's foreclosure procedures.
In a judicial foreclosure, the lender files a lawsuit in state court. You'll receive a foreclosure complaint, petition, or similar document, along with a summons. The summons will notify you about your rights and say how many days you have to formally respond in writing, called filing an "answer," to the complaint, usually 20 or 30 days.
An answer, which you must file with the court and serve to the foreclosing party, should include the following.
If you don’t file an answer, the lender will ask the court for a default judgment, which means you automatically lose the case. If the court grants a default judgment, the lender will be able to sell your home at a foreclosure sale.
Depending on the laws of your state, the lender might also be able to get a deficiency judgment.
On the other hand, if you file an answer, the lender can't get a default judgment. Depending on the strength of the answer, the lender might then file a motion for summary judgment.
In a motion for summary judgment, the lender asks the court to rule in its favor without a trial or any further legal proceedings because there's no dispute about the important facts of the case, or your defense lacks merit, or you haven't shown any wrongdoing by the lender.
At this point, you’ll need to file your formal written response to the motion for summary judgment, or the lender will win the case. The response must contain your legal argument based on statutes and case law.
Be aware that motions for summary judgment can be difficult to beat without the help of a knowledgeable attorney. If the court grants summary judgment, then the foreclosure will proceed. But if the court doesn't grant the lender's motion for summary judgment, the case will go to trial.
"Discovery" is the process where the parties ask for information and documents from each other before the trial through depositions and interrogatories, for example. During discovery, you may ask the lender to provide documents or other evidence that you need to back up your case.
But you must do so within the proper time frames and in the correct format. You might have to respond to the lender's discovery requests as well. Discovery can also lead to other motions and court hearings if you and the lender disagree about what should be provided.
Borrowers sometimes make discovery demands in their answer or when opposing a motion for summary judgment on the basis that discovery is necessary to expose specific facts about the case or facts that the lender claims are true. But you’ll have to show that discovery might lead to relevant evidence or that the facts you need to justify your opposition to the foreclosure are exclusively within the knowledge and control of the lender. Otherwise, the court might go ahead and grant summary judgment.
At trial, you’ll have to show the court why the lender should not be allowed to foreclose based on the reasons you've raised. In all likelihood, the trial will involve questioning witnesses and presenting evidence in court. You must comply with the formal rules of evidence and court procedures. The judge will then either:
With a nonjudicial foreclosure, the foreclosure will not go through the court system, so you won't receive a complaint or have an opportunity to file an answer. To fight a nonjudicial foreclosure, you will need to file your own lawsuit asking a court to stop the foreclosure.
Ultimately, if you decide to proceed on your own in court, prepare to devote a significant amount of time to the case. You’ll have to do quite a bit of research to have any chance of success. The rules and procedures that you must follow are different in each state and sometimes in each court. Your research must cover not only foreclosure statutes and relevant court decisions but also rules of civil procedure (the detailed rules on what should be in your complaint, how to file it, when and how to file motions), rules of evidence, and more.
State and court rules also set forth deadlines that you must meet, which means you might have to complete your research (on possible defenses, for example) and learn how to properly lay them out in your answer or other court documents in a fairly short amount of time.
Again, you’ll most likely need to hire an attorney to successfully challenge a foreclosure in court. If you can't afford to hire a lawyer to represent you throughout the entire foreclosure, consider scheduling a consultation to learn more about options in your particular circumstances. If you can’t afford a lawyer at all, you may contact a legal services program in your area to find out if you qualify for free legal help. You can find a list of various legal aid programs on the Legal Service Corporation's website.
]]>If a significant amount of time lapses between when you stop making mortgage payments and the lender initiates a foreclosure, or restarts one against you, the action might violate the statute of limitations.
When applicable, the statute of limitations can be a strong defense against a foreclosure.
In some states, the statute of limitations for foreclosure is six years, based on the right to enforce a promissory note under the Uniform Commercial Code (UCC). In others, the statute of limitations for written contracts applies. But other states have a specific statute of limitations for foreclosure. And in other places, the relevant statute of limitations is the one for enforcing a security interest in land, like one created by a mortgage or deed of trust. In these states, a lender may foreclose even if the statute of limitations for the underlying note has passed.
So, exactly how long the limitations period lasts is quite different among the states. Again, in some states, it's six years, but in others, the period could be ten to twenty years, or shorter or longer.
Sometimes, you can quickly locate the statute of limitations for a foreclosure in your state by browsing your state’s statutes, which are often available online at your state legislature's website. But foreclosure statute-of-limitations laws can be tough to find, and how courts interpret and apply the laws can vary.
Ask an attorney if you need help determining the statute of limitations that applies to your situation.
Determining the length of a statute of limitations is sometimes challenging, but determining when it starts can also be an issue. Sometimes, the statute-of-limitation clock for an unpaid installment begins when the default, like a missed payment, occurs. Some courts treat each missed payment as a new default that restarts the clock. Or the statute of limitations might start to run when the loan becomes due (on the loan's maturity date, say 30 years after the first installment is due).
The limitations period can also commence when the lender accelerates the loan after the borrower defaults. Once the loan is accelerated, the full outstanding balance becomes due. The lender can begin a foreclosure if the borrower doesn't pay off the debt. After acceleration, the loan changes from an installment contract to a debt that's due in a single, lump-sum payment.
Again, the law varies from state to state, so talk to a lawyer if you need help figuring out when the statute of limitations for a foreclosure begins to run in your state.
If the lender starts foreclosure proceedings after the statute of limitations has expired, it doesn't have the right to foreclose.
The statute of limitations is an affirmative defense to foreclosure, which means the borrower must bring up the issue in the foreclosure. You must raise this defense before a judge, which is easier in a judicial foreclosure than a nonjudicial one.
If you don't address the statute of limitations, the defense is waived, and the lender can continue the process.
If the statute of limitations runs out during the foreclosure, then you can't raise it as a defense to the action. So, in this scenario, even if a foreclosure takes years to complete, you don't have a defense to the foreclosure based on the statute of limitations.
Example. Say your lender filed a foreclosure lawsuit in June 2024, but the statute of limitations runs out in December 2024 while the foreclosure is still pending. In this situation, a statute-of-limitations defense isn't available. To comply with a statute-of-limitations law, the lender only needs to start the foreclosure before the deadline expires.
If the lender stops the foreclosure, which might happen if the lender discovers a procedural error or if a court dismisses the action and then refiles the case after the statute of limitations has expired, you might be able to raise this defense. So long as the lender didn't revoke the loan's acceleration (called "decelerating" the loan), if the lender restarts the case, it must do so within the statute-of-limitations period.
Continuing with the example above, if the foreclosure was dismissed in October 2024, the lender would need to restart the foreclosure before December 2024 to meet the statute of limitations. But if you make a payment in the interim, this payment would usually reset the statute of limitations.
Also, the statute of limitations generally restarts if the lender decelerates the loan by giving clear notice that it's canceling the acceleration and permitting you to keep making payments. However, state law on this matter varies.
Entering into a repayment plan or considering a borrower for loss mitigation, like by accepting loan modification trial payments, doesn't necessarily decelerate the loan. Once again, state law differs on what constitutes deceleration of a loan.
The laws on statutes of limitations and foreclosures are complicated and are different from state to state. You’ll most likely need an attorney to help you review your ability to raise a defense based on the statute of limitations and argue it in court if you decide to go this route.
Also, remember that any given foreclosure or legal situation has many potential claims and defenses. So, consider consulting with local counsel or a legal aid organization to explore all possible defenses available in your particular situation.
]]>In some states, the bank has to file a lawsuit to foreclose, called a "judicial foreclosure." In others, the bank can choose to foreclose without going to court, a "nonjudicial foreclosure."
In a judicial foreclosure, the bank must file a lawsuit to start the process. A judicial foreclosure typically takes several months or more, giving you time to look for another place to live and save money for the future.
Another advantage is that you can raise any legal defenses to the foreclosure in court without filing your own lawsuit.
With some exceptions, foreclosures go through court in the following states:
Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana (executory proceeding), Maine, New Jersey, New York, North Dakota, Ohio, Oklahoma (nonjudicial foreclosures allowed, homeowner can request judicial foreclosure), Pennsylvania, South Carolina, South Dakota (nonjudicial foreclosures allowed, homeowner can request judicial foreclosure), Vermont, and Wisconsin.
Foreclosures are usually judicial in the District of Columbia, Hawaii, and New Mexico. Nonjudicial foreclosures are allowed in those states, but that process is rarely used.
Here's how a typical judicial foreclosure might proceed.
Under federal law, in most cases, the bank must wait until you're more than 120 days delinquent in payments before starting a foreclosure. (12 C.F.R. § 1024.41).
In many cases, as the loan contract requires, the bank sends a "breach" letter informing you that a foreclosure will begin unless you make up the missed payments, plus costs and interest. The letter may be sent during the 120-day preforeclosure period.
After the servicer (the company that manages your loan account on behalf of the bank) refers the file to an attorney for foreclosure, the attorney will prepare a "complaint" or "petition" for foreclosure and file it with the court, usually in the county where the property is located. The lawsuit will ask the court for a judgment authorizing a foreclosure sale.
If state law allows it, the complaint might also ask the court to grant a deficiency judgment if selling the property won’t fully pay off the debt. (In some states and circumstances, a deficiency judgment is also allowed after a nonjudicial foreclosure.)
If the bank gets a deficiency judgment against you, you remain responsible for the outstanding balance left on the loan after the foreclosure sale. However, some states don't allow deficiency judgments under certain circumstances.
The sheriff or a process server will serve you with a summons and a copy of the complaint for foreclosure.
The summons gives you a deadline by which you must respond to the complaint if you choose to contest or argue the lawsuit, usually between 20 and 30 days. Whether you file a response is up to you.
If you don’t respond, the bank will ask the court for a default judgment and (most likely) automatically win the suit. The court then issues a default judgment authorizing the bank to sell your home.
If you answer the suit, you'll have the opportunity to tell a judge why you think you have a legal right to keep your house and that foreclosure isn't warranted. You can raise procedural and substantive defenses.
Your answer must be in the format that local court rules require. For example, you’ll probably have to create a caption at the top of the first page, which includes the names of the people and businesses involved in the suit, the name and address of the court, and the case number. In your answer, you must include responses to each of the claims made by the bank and any defenses you might have.
The foreclosure might be halted or significantly delayed if you have strong defenses. If you file an answer but are in default and don't have a legal defense, the bank will still get a judgment, and the court will allow it to proceed with a foreclosure sale.
In some cases, filing an answer isn’t in your best interests. You might need to file a different kind of pleading to preserve your rights, and filing an answer to the foreclosure might cause you to lose an important right.
For example, a court must have “jurisdiction” (authority) to hear a case. If the bank made an error, such as failing to properly serve you the lawsuit, you could dispute the court’s jurisdiction by filing a motion to dismiss. If the court agrees and dismisses the foreclosure, the bank must start the process over. But if you file an answer, you “stipulate” (agree) that the court has the right to hear the matter, and the foreclosure goes ahead.
Litigation is complex, and most people do better by getting help from a lawyer.
The better your defenses, the longer the process will drag out in court. Even if you win, though, it might be a temporary victory if the bank can fix whatever problem caused it to lose this time.
If your answer raises issues the court must decide, the suit will probably move to the discovery stage. In this phase, you and the bank get to learn about the evidence in the other’s possession.
You and the bank can ask for information using discovery tools, including:
After discovery, or perhaps before, the bank might file a “summary judgment” motion, which asks the court to decide the case without a trial. The bank will make arguments and provide evidence in its motion.
You can fight the motion by responding to it and submitting your arguments and evidence. If the court decides you don’t have a defense, the bank will win the motion, get a judgment, and be able to hold a foreclosure sale. If the judge denies the bank's motion, the court will allow the case to proceed to trial.
If the court decides in favor of the bank (either as part of a default judgment or summary judgment or after a trial), it will enter a judgment ordering the sale of your property to satisfy the debt. Once the court grants the bank a judgment of foreclosure, a notice of the sale might be published, depending on state law. The foreclosure sale will take place on the designated time and date, and the property will be sold to the highest bidder.
At the sale, the foreclosing bank can credit bid up to the total amount of the debt, plus foreclosure fees and costs, while any other parties must bid in cash or a cash equivalent, like a cashier's check. In the majority of cases, the bank will be the high bidder at the foreclosure sale and get ownership of the property.
A few states give a foreclosed homeowner some time after the foreclosure auction to redeem the property and recover ownership of the home by reimbursing the successful bidder or paying off the entire mortgage debt. To find out if your state's laws provide a post-sale redemption period, check our Key Aspects of State Foreclosure Law: 50-State Chart.
If you don't leave the property when your legal right to remain in the home ends, you'll receive an official notice to leave the property. Exactly when you need to move out depends on state law. You might need to move out after the sale, after the redemption period expires, or after some other event happens, like confirmation of the sale.
If you're facing a foreclosure and want to learn about potential defenses, whether you're likely to face a deficiency judgment, or how to avoid a foreclosure by working out an alternative, like a loan modification, consider talking to a foreclosure attorney.
Contacting a (free) HUD-approved housing counselor is also a good idea.
]]>Not all states allow a nonjudicial foreclosure process. The following states permit nonjudicial foreclosures:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Georgia, Hawaii, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico (nonjudicial process rarely used), North Carolina, Oklahoma (nonjudicial allowed, homeowner can request judicial), Oregon, Rhode Island, South Dakota (nonjudicial allowed, homeowner can request judicial), Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming.
The exact steps in a nonjudicial foreclosure vary from state to state. The state statutes set out the specifics of the nonjudicial foreclosure process, including how much notice you get, how the property will be sold (typically at a public auction), and what rights, if any, you have to reinstate the loan before the foreclosure sale or redeem the home after it's sold.
If you're facing a nonjudicial foreclosure, it's important to understand the procedures and timeline. While nonjudicial foreclosure procedures differ from state to state, here's how the process generally works.
Under federal law, in most cases, the servicer must wait until you are more than 120 days delinquent in payments before starting a foreclosure. During these 120 days, you'll get information about various loss mitigation options that might be available.
If the loan contract requires it, the lender sends a "breach" letter informing you that a foreclosure will begin unless you make up the missed payments, plus costs and interest. The letter may be sent during the 120-day preforeclosure period.
Depending on what state law requires, you might get:
For the specific procedures in your state, check out the link to your state in our Summary of State Foreclosure Laws.
State law often provides a right to reinstate the loan by catching up on what you owe, plus fees and costs, by a particular deadline before the sale. The deed of trust might also provide a reinstatement deadline before a foreclosure sale. With some exceptions, however, once the sale occurs, your house is gone.
If you don't reinstate the loan, the home will be sold at an auction. The foreclosing lender can credit bid up to the total amount of the debt, plus foreclosure fees and costs, while any other parties must bid in cash or a cash equivalent, like a cashier's check.
The lender will usually be the highest bidder at the foreclosure sale. The property is then known as "Real Estate Owned" (REO).
Some states provide a redemption period following a nonjudicial foreclosure sale. A "redemption period" is a specific amount of time foreclosed borrowers get to buy back, or "redeem," their property.
To find out if your state's laws provide a post-sale redemption period, check our Key Aspects of State Foreclosure Law: 50-State Chart.
Once the property is sold at a foreclosure sale, the property's ownership is transferred to the new owner. If you haven't already vacated the home, an eviction will start to remove you from the property. Although, in some states, the homeowner gets the right to live in the home during a post-sale redemption period.
If allowed by state law, the lender might later file a suit against you to get a deficiency judgment if the proceeds from the foreclosure sale didn't fully pay off the debt. If the court grants a deficiency judgment against you, you remain responsible for paying the deficiency after the foreclosure sale.
But some states don't allow deficiency judgments under certain circumstances.
A nonjudicial foreclosure might take a few months (sometimes less) to complete once officially started. In fact, in some states, nonjudicial foreclosures are extremely quick.
Talk to a local foreclosure attorney or a HUD-approved housing counselor to estimate the timeline in your area and your particular situation.
Because you don't have the opportunity to raise defenses to the foreclosure in court as part of a nonjudicial foreclosure, you'll have to file a lawsuit if you want to contest the foreclosure. In the suit, you ask the court to temporarily stop the foreclosure so that you can resolve the legal issues in court.
In this kind of lawsuit, you typically ask the court for three things in the following order:
Once in court, you can raise the same defenses you would have raised in a judicial foreclosure proceeding.
If you're facing a foreclosure and want to learn about potential defenses that you could raise in court, whether you're likely to face a deficiency judgment, or how to avoid a foreclosure by working out an alternative, like a loan modification, consider talking to a foreclosure attorney.
Contacting a HUD-approved housing counselor is also a good idea.
]]>If you're a homeowner facing foreclosure and the lender sold your loan to a new owner but didn't complete a proper assignment of mortgage, you might be able to challenge the foreclosure in court.
If you took out a loan to buy your home, you most likely signed a mortgage, deed of trust, or another security instrument and a promissory note. (This article uses the term "mortgage" to cover deeds of trust and other similar documents.)
The purpose of the mortgage is to provide collateral for the debt created by the promissory note.
When a lender, bank, or mortgage company sells a home loan to another entity, the seller usually takes the following steps.
Assignments typically have the following information:
An assignment of mortgage serves as proof of the loan's transfer from one party to another. Courts have dismissed some foreclosure cases when the foreclosing party couldn't produce an assignment.
Depending on state law, if the lender doesn't have an assignment or didn't record it properly, you might be able to challenge the foreclosure on the grounds that the foreclosing party doesn't have the right to foreclose or didn't follow proper procedures.
In Wyoming, for example, the assignment must be recorded prior to the start of the foreclosure. (Wyo. Stat. Ann. § 34-4-103).
However, some states don't allow borrowers to challenge the legality of assignments. For example, the West Virginia Supreme Court has said only the parties to assignments of mortgages have standing to challenge their validity. Borrowers don't have standing because they're not parties to the assignments or intended third-party beneficiaries. (See Pavone v. NPL Mortgage Acquisitions, LLC.)
Also, some states follow the general rule that “a mortgage follows the note.” So, the absence of an assignment of mortgage won't necessarily stop a foreclosure. If the foreclosing party is clearly entitled to enforce the promissory note, the court may allow a foreclosure to proceed—even if a valid assignment doesn't exist.
Whether a written, recorded assignment is needed depends on state law. Talk to a local foreclosure attorney to learn the laws and legal requirements regarding mortgage assignments in your state.
Mortgage Electronic Registration System, Inc. (MERS) is a company that the mortgage banking industry created to simplify the assignment process.
In many mortgage transactions, the mortgage will designate MERS as a nominee for the lender. In other cases, the loan might be assigned to MERS (solely as a nominee for the loan owner) at some point later in its life cycle after the loan closes.
MERS then acts as an agent for the loan owner but doesn't actually possess a beneficial interest in the note. Instead, MERS simply tracks the mortgage as it's transferred from owner to owner. Once a loan has been assigned to MERS, it can be bought and sold any number of times later without recording assignments.
Don't be surprised if you find out that your mortgage was assigned to MERS at some point. In most cases, the loan will have to be assigned out of MERS’ name before a foreclosure can begin.
Learn how to find out who owns your mortgage and who services it.
Get information on what happens if your mortgage is sold to a new owner or the servicer changes.
Find out if foreclosures are on the rise.
If you're facing a foreclosure and think the chain of assignments has a gap, speak to a qualified attorney who can advise you about what to do in your circumstances.
Keep in mind that any given foreclosure or legal situation has many potential claims and defenses. Talk to local counsel or a legal aid organization to explore all possible defenses that might be available in your particular circumstances.
]]>Some of RESPA's requirements can help people facing foreclosure who believe their servicers have made mistakes in servicing their accounts. Specifically, RESPA sets forth requirements for qualified written requests, which require servicers to correct errors or provide information to borrowers who ask for it.
A qualified written request can be especially helpful when facing a nonjudicial foreclosure.
If your home is in foreclosure and you're having difficulty getting information about your account from your loan servicer, you can make a qualified written request. A "qualified written request" is a letter written to the servicer to:
A borrower can force the servicer to provide detailed information about the account by making a qualified written request.
Under amendments to Regulation X, which implements RESPA, that went into effect January 10, 2014, your inquiry will be categorized as a “request for information” or a “notice of error.” These categorizations expand on the previous qualified written request requirements.
Depending on the type of request you send, different time frames apply to when the servicer must respond to you.
The servicer must acknowledge a request for information within five business days and respond within 30 business days. The servicer can usually extend the 30-day response period by 15 business days if it tells you about the extension within the 30-day period and explains the delay. But if you want to know the identity, address, or other contact information for the owner of your mortgage loan, the servicer has to give you that information within ten business days. (12 C.F.R. § 1024.36).
Your servicer must acknowledge a written request that asserts a particular error, like failing to properly apply payments or certain errors about loss mitigation, within five business days. It must correct the error, provide notice about the correction, and provide contact information for you to follow up (or let you know that no error occurred along with the reasons for this determination):
The 30-day time frame can be extended for an additional 15 days if the servicer notifies you within the 30-day period of the extension and gives you the reasons for the delay. However, the servicer can’t get the extension if the notice of error pertains to a payoff statement request or certain errors pertaining to loss mitigation and foreclosure. (12 C.F.R. § 1024.35).
Sometimes, the servicer doesn't have to comply with your error resolution or information request, like if the notice of error or request for information is essentially the same as one you previously sent or your request is overbroad. However, it must notify you within five business days after making that determination and provide the basis for its determination.
To make a qualified written request, you must send a letter to the servicer with the following information:
You don't have to use a specific format when making a qualified written request, but the letter should:
You can find sample letters on the Consumer Financial Protection Bureau's website. Follow the “sample letter” links.
You may send a request for information and a notice of error in the same letter or separately. Send the letter via certified mail, return receipt requested, so you can confirm that the servicer received the letter. Or, again, you might be able to submit your notice online.
If the servicer fails to comply with the law, a borrower may recover:
The statute of limitations (when you must sue) for violations is three years. (12 U.S.C. § 2614).
The lender or servicer may generally initiate or continue a foreclosure even if a qualified written request is outstanding. But it can't hold a foreclosure sale while the request is pending if you send a notice of error based on certain loss mitigation errors, like an error based on the 120-day preforeclosure waiting period or dual-tracking restrictions.
Then, the issue must be resolved before the foreclosure sale or within 30 days, whichever is earlier, so long as the servicer receives the notice of error more than seven days before a foreclosure sale. For a request submitted seven or fewer days before a foreclosure sale, the servicer must make a good faith attempt to respond to the borrower, orally or in writing, and either correct the error or state why the servicer has determined that no error has occurred. (12 C.F.R. § 1024.35).
Qualified written requests can be a particularly useful tool in a nonjudicial foreclosure, where the lender doesn't have to go through state court to foreclose. Because a nonjudicial foreclosure doesn't go through the court system, a judge won't order the servicer to produce information about the account for you to review unless you file your own lawsuit.
So, a qualified written request presents an excellent opportunity for you to get information about your account. To find out if your state primarily uses a judicial or nonjudicial foreclosure process, check our Summary of State Foreclosure Laws.
If you're facing foreclosure and think the servicer has made errors in servicing your account, a qualified written request is just one way to deal with the matter. If the servicer doesn’t respond to your notice of error or request for information, disagrees that it made an error, or refuses to provide certain information, consider consulting with a lawyer.
Talk to an attorney immediately if you're facing an imminent foreclosure sale. Sending the servicer a notice of error or request for information is very unlikely to stop a foreclosure sale. An attorney can advise you about what to do and help you enforce your rights.
It's also a good idea to talk to a HUD-approved housing counselor if you're having trouble with your mortgage payments or facing a foreclosure.
]]>In a judicial foreclosure, the foreclosing party must bring a lawsuit to start the foreclosure. You will be notified of the foreclosure lawsuit when papers called a "summons and complaint" are served (delivered) to you. The paperwork will advise you of the lawsuit and give you a deadline to respond if you decide to contest the action.
Whether you respond to a foreclosure lawsuit is up to you. Either way, the mortgage lender must prove that the foreclosure is legal. Although, if you don’t respond to the suit, the chances are excellent that the foreclosure will go through.
The proof the lender uses typically consists of a thick bundle of documents purportedly containing various papers you signed when obtaining or refinancing your mortgage, like a mortgage (or deed of trust) and a promissory note. The lender will also likely include copies of notices, signed agreements, accountings of payments, and written statements under oath (declarations) or statements sworn before a notary public (affidavits) from the lender or servicer's employees.
Generally, if you don’t respond by the deadline, the court will accept the papers as evidence supporting a foreclosure judgment and order for sale. If you respond, you can tell a judge why you think the papers are wrong and that foreclosure is not warranted.
To contest the foreclosure, you must file an “answer” in most places. In the answer, you state your factual and legal arguments for opposing the foreclosure.
If you have evidence to support your position, you can file your own sworn statements. For example, if the foreclosing party claims that you missed five payments, but you can prove—typically with canceled checks—that you missed only one, you would submit a statement under oath and attach your canceled checks.
After you file your answer with the court, the foreclosing party may file a motion for summary judgment, which you must respond to, and the court will hold a hearing on the matter. The court will grant judgment in favor of the foreclosing party if no dispute exists regarding the critical facts of the case.
But if the court denies summary judgment, the case will proceed toward a trial.
Before the trial, discovery will take place. In the discovery process, you and the foreclosing party ask each other for facts, documents, and other information before the trial. Each side may ask the other to provide certain information that might help prove or disprove the right to foreclose through a demand for the production of documents, interrogatories, and depositions.
At the trial, the foreclosing party must prove it has the right to foreclose to prevail. For you to win the case, you must prove that the foreclosing party shouldn't be permitted to foreclose. You will both present your cases, sometimes through witnesses who can be questioned by the judge and cross-examined by the other side.
At the end of the trial, the judge will either:
You’ll likely need to hire an attorney to challenge a foreclosure in court successfully. So, to fight a judicial foreclosure, consider talking to a foreclosure attorney who can advise you about what to do in your particular circumstances.
]]>Sometimes, however, a lender in a state where foreclosures are ordinarily nonjudicial might elect to foreclose through the courts instead.
All states allow a lender to foreclose judicially, but certain states require this process for residential properties.
In states with a judicial foreclosure process, the lender must file a lawsuit to foreclose. The court will attempt to determine the circumstances surrounding the default through in-court hearings and documents that the lender, and sometimes the homeowner, file.
If the court determines that the foreclosure is proper and the homeowner doesn't qualify for a loss mitigation option to stop the process, the court will enter a judgment against the homeowner. A foreclosure sale will follow.
The judicial foreclosure process can be lengthy, frequently lasting several months or even years in some cases.
The court system usually isn't involved in states that permit a nonjudicial foreclosure process. However, some states require minimal judicial involvement.
A trustee typically handles a nonjudicial foreclosure. The lender designates the trustee in the deed of trust that the borrower signs when buying the home. But more often than not, the lender substitutes a different trustee later on to handle the foreclosure.
Nonjudicial foreclosure procedures differ widely from state to state.
In some states, the trustee gives the homeowner a notice of default. This notice informs the homeowner that the trustee intends to foreclose on the home. The homeowner is then given time to get current on the loan or negotiate a way to prevent a foreclosure.
The trustee might also have to send a notice with details about the sale.
Depending on state law, the lender might:
If the homeowner can’t cure the default or otherwise find a way to avoid foreclosure, the trustee sells the home at a foreclosure sale.
The nonjudicial foreclosure process is generally quicker and less expensive (for the lender) than the judicial process, often lasting just a few months or less.
A lender that otherwise could go forward with a nonjudicial foreclosure under state law might choose to foreclose through the courts in any of the following situations.
After you sign a mortgage or deed of trust, the lender records it in the land records to establish lien priority. Priority determines who gets paid first from the proceeds after a foreclosure sale.
But if the mortgage or deed of trust isn’t recorded, the lender will likely have to foreclose judicially to establish its priority.
Similarly, if the land records aren’t clear about which lien has priority (say a first mortgage was inadvertently recorded after a second mortgage), the lender might file a lawsuit to foreclose. The court will then determine the correct priority.
If the mortgage or deed of trust contains an incorrect legal description for the home, the lender usually files a lawsuit so a court can ensure that the correct property is being foreclosed.
If the property’s boundaries changed after the deed of trust or mortgage was recorded, the lender might file a lawsuit so a court can clear up the matter.
If the lender accidentally released or reconveyed the mortgage or deed of trust (say, the loan wasn’t actually paid off), it will have to foreclose through the courts. (Generally, a lender files a document called a “release” or “reconveyance” in the land records after the borrower pays off the loan to clear the lien off the official record.)
If the lender forgot to include a junior lienholder in the nonjudicial foreclosure, it might have to file a suit to eliminate that lien.
In some places, like Hawaii and the District of Columbia, changes in the nonjudicial foreclosure laws (specifically, a law requiring the lender to offer foreclosure mediation to borrowers) drives lenders to opt for the judicial process.
That way, the lender can avoid the mediation requirements under the state’s nonjudicial foreclosure laws.
In some states, like Washington, if the lender chooses a judicial foreclosure rather than a nonjudicial one, it can get a deficiency judgment against the borrower.
If you’re behind in your mortgage payments and want to find out if an upcoming foreclosure is likely to be judicial or nonjudicial in your situation, talk to an attorney. You should also consider contacting a lawyer if you’ve already received notice that the lender has started a foreclosure and you want to learn about potential defenses or get specific information about foreclosure laws in your state.
If you want to learn more about different alternatives to foreclosure, including loan modifications, short sales, and deeds in lieu of foreclosure, make an appointment to talk with a HUD-approved housing counselor.
Also, be aware that states sometimes have different laws and procedures if the property being foreclosed is a commercial property, multifamily home, timeshare, or undeveloped land rather than a single-family residence.
]]>The purpose of the FDCPA is to:
The FDCPA is usually used to fight the abusive tactics of aggressive debt collection agencies. But homeowners in foreclosure sometimes bring FDCPA claims to fight the action.
Generally, a "debt collector" under the FDCPA is someone who regularly collects debts owed to others, including collection agencies and attorneys who collect debts regularly (see Heintz v. Jenkins, 115 S.Ct. 1489 (1995)), or whose main business is collecting debts, including debt buyers, in some instances. Usually, original creditors are excluded.
So, the term "debt collector" generally includes debt collection agencies, collection attorneys, and debt buyers. The FDCPA applies to mortgage servicers only if they obtained the loan servicing rights after the borrower was in default. A loan servicer that gets the servicing rights on a debt before the borrower’s default isn't covered by the FDCPA. (15 U.S.C. § 1692a(1)(F)).
The FDCPA prohibits certain types of abusive and deceptive conduct when attempting to collect a debt, such as:
Historically, courts have been split on whether the FDCPA extends to firms conducting foreclosures.
Courts in some jurisdictions have held that an attorney or any other person or entity who pursues foreclosure on behalf of the creditor and who also demands payment or otherwise attempts to collect the debt, like by seeking a deficiency, is a covered debt collector and is subject to the FDCPA.
So, courts sometimes view judicial foreclosures as subject to the FDCPA because creditors can generally get deficiency judgments (money) in addition to foreclosing the security interest.
Other courts have found that the FDCPA doesn't cover foreclosure activity. This view is based on the premise that mortgage foreclosure involves the enforcement of security interests, which isn't necessarily the same as collecting a debt.
On March 20, 2019, the U.S. Supreme Court unanimously decided that the FDCPA doesn't broadly apply to firms pursuing nonjudicial foreclosures. (See Obduskey v. McCarthy & Holthus, LLP​, No. 17-1307 (March 20, 2019)). The Obduskey case held that a business engaged in no more than nonjudicial foreclosure proceedings is not a debt collector, except for the limited purpose of a particular FDCPA section (15 U.S.C. § 1692f(6)), which generally prohibits taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if the debt collector has no present right or intention to do so.
Concerning judicial foreclosures, the Court said, “whether those who judicially enforce mortgages fall within the scope of the primary definition [of a debt collector] is a question we can leave for another day.” But based on the holding in this case, there's a strong argument that the FDCPA wouldn't apply to firms handling judicial foreclosures that result in only in rem judgments (judgments against the property) without an in personam deficiency judgment.
Following this line of reasoning, on June 20, 2020, the U.S. Court of Appeals for the Ninth Circuit in Barnes v. Routh Crabtree Olson, P.C. held that a judicial foreclosure proceeding is not a form of debt collection when the proceeding doesn't include a request for a deficiency judgment.
If the FDCPA is applicable, the foreclosing party must comply with the law's notice requirements and restrictions. This means the firm, if it qualifies as a debt collector, must send a timely letter within five days of its first communication with the debtor containing:
What this means for homeowners facing foreclosure is that if the FDCPA applies, you have the right to dispute the debt and ask for a verification of the existence and amount of the outstanding indebtedness. Just be sure to do so within 30 days after receiving the notice. If any amounts not permitted under the mortgage contract or applicable law are included in the outstanding indebtedness, that’s a violation of the FDCPA. If they never send you the notice, that's a violation too.
Also, if you dispute the debt, the debt collector must cease its attempts to collect the debt or the disputed portion of the debt until it mails verification of the debt to you.
Leading up to the foreclosure crisis, many lenders offered “piggyback” or "80/20" mortgages. With an 80/20 mortgage setup, a first mortgage covered 80% of the purchase price, and a second mortgage covered the remaining 20%.
Lenders often didn't pursue homeowners for payment on these second mortgages when the borrowers defaulted. Instead, they charged off the defaulted loans and sold them loans to debt collectors, usually for pennies on the dollar.
During the foreclosure crisis, many homeowners with these piggyback loans faced foreclosure but were able to save their properties by modifying the first mortgage or taking some other action, such as filing for bankruptcy. The second mortgages were basically forgotten. The homeowner assumed the loan was paid off as part of or included in the modification, discharged in bankruptcy, or forgiven.
However, years later, and often without any notices or periodic statements from the loan owners in the interim, these second mortgage holders (again, usually debt collectors) began demanding the mortgage balances, plus years of interest and fees, and threatening foreclosures if homeowners didn't pay.
These mortgages are called "silent second mortgages" or "zombie mortgages." If a debt collector contacts you about a mortgage you haven’t heard about in years, you might have a zombie mortgage.
Because of the amount of elapsed time on zombie mortgage loans, some are likely time-barred under state law. (A "time-barred" debt has an expired statute of limitations.)
On April 26, 2023, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion saying that a debt collector bringing or threatening a foreclosure action to collect a time-barred mortgage debt might be violating the FDCPA. The CFPB's advisory opinion says:
So, if a debt collector covered by the Fair Debt Collection Practices Act brings or threatens to bring a state court foreclosure action to collect a time-barred mortgage debt, that action probably violates the FDCPA. And in most states, if the applicable statute of limitations has expired, you can raise this issue as an affirmative defense in a foreclosure action, preventing a debt collector from recovering on the debt using a judicial process.
Even if a debt collector threatens a nonjudicial foreclosure action, that collector might still be subject to the FDCPA, which generally prohibits taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if the debt collector has no present right or intention to do so.
In the case of any FDCPA violation, the consumer may recover:
FDCPA violations can also sometimes be raised as a defense to foreclosure.
Additionally, many states have debt collection practices statutes with a broader scope than the FDCPA.
Talk to a lawyer to determine if the FDCPA applies to your foreclosure. Also, remember that any given foreclosure or legal situation has many potential claims and defenses.
If you think you've been the victim of an FDCPA violation or multiple violations, you should speak to a qualified attorney who is knowledgeable about the FDCPA, as well as foreclosure defenses generally, and can advise you on what to do in your particular situation.
]]>To get your day in court to challenge a nonjudicial foreclosure, you must file a lawsuit against the foreclosing party. In the lawsuit, you ask the court to enjoin (stop) the foreclosure proceedings until a judge can hear your reasons why the foreclosure shouldn’t proceed.
With this kind of lawsuit, you typically ask the court for three things, in this order:
Your application for a temporary restraining order (TRO) must convince the judge that you will suffer “irreparable injury” if the judge doesn’t stop the foreclosure immediately. Because you will lose your home if the foreclosure is allowed to proceed, most courts accept that a foreclosure causes irreparable injury.
TROs are typically granted without a formal notice or hearing, meaning the foreclosing party might have only a day or two of notice to prepare a response. If no response is filed, the judge might grant the TRO but require you to post a bond to protect the foreclosing party from economic harm if you lose the case. A bond can be costly, assuming you can get one at all.
You might be able to get the bond requirement waived if your income is low enough. The court may grant a waiver if any of the following is true:
Whether or not you’ll be able to get the bond requirement waived depends largely on if the court believes your claims have any merit.
The TRO will typically last until the date set for a hearing on whether the court should issue a preliminary injunction—which would stop the foreclosure until a full trial on the matter can happen.
The court will review each party’s paperwork at the preliminary injunction hearing. At this hearing, the court must decide whether:
If the judge decides these issues in favor of the foreclosing party, the TRO will end, and your motion for a preliminary injunction will be denied. While you're technically allowed to continue with your lawsuit, the foreclosure will likely proceed in the absence of a preliminary injunction. Your only remedy at this point—and it’s a considerable long shot—would be to ask a higher court for an order (called a “writ”) overruling the lower court’s denial of the preliminary injunction.
But if the judge decides these issues in your favor, then the judge will issue a preliminary injunction. The preliminary injunction may order the foreclosing party to take corrective action—for example, by issuing a new payoff statement and giving you a chance to reinstate the mortgage. Or it might simply keep the TRO in effect.
Because it often takes a very long time to bring a case to trial on a permanent injunction, getting a preliminary injunction is pretty much equivalent to a victory for you. Typically, the foreclosing party will either attempt to reach a settlement with you, like by giving you a loan modification, drop the current foreclosure and begin from scratch, or meet any conditions laid down by the court and then go back into court to ask that the injunction be lifted.
The burden is on you to prove that the foreclosing party doesn't have the right to foreclose, like by showing it didn’t comply with state foreclosure laws or the mortgage terms. You meet this burden with the documents you file—typically, declarations or affidavits from you and various witnesses that establish the facts you believe entitle you to stop the foreclosure. For example, if you contest the accuracy or legality of the fees the foreclosing party required you to pay to reinstate the mortgage or other fees, you would attach a sworn statement to your application for a TRO or preliminary injunction, setting out the facts as you know them.
If the foreclosing party produces documents that contradict yours, you'll need to convince the judge at the preliminary injunction stage that you deserve to have the foreclosure put on hold until you can produce your full case at trial. Because most preliminary injunction hearings don’t involve witnesses, your paperwork might have to carry the day.
You’ll likely need an attorney to fight a nonjudicial foreclosure. Unless the lawyer thinks you have a very good case, it might not be worth the expense and effort.
So, if you might want to fight a nonjudicial foreclosure in court, consider talking to a foreclosure attorney who can advise you about what to do in your circumstances.
]]>Generally, to set aside a foreclosure sale, the homeowner must show:
Still, it’s best to raise any problems about a foreclosure before the process is complete, either as part of a judicial foreclosure, by filing a lawsuit to contest a nonjudicial foreclosure, or in a Chapter 13 bankruptcy. Successfully getting a court to set aside a foreclosure sale after it happens is very rare. If you're facing a foreclosure and think you have a defense, it’s best to talk to an attorney as early as possible in the foreclosure process.
State statutes lay out the procedures for a foreclosure. If the foreclosure process had irregularities, meaning the foreclosure was conducted in a manner not authorized by the state's foreclosure laws, the sale could potentially be invalidated.
Some examples of irregularities in the foreclosure process are:
You'll have to prove that the foreclosure had significant irregularities, the process had major flaws, or that you suffered some harm because of, for example, a defective foreclosure notice. In some states, courts are reluctant to set aside a foreclosure sale based upon violations of foreclosure statutes unless the violation resulted in actual prejudice (harm) to the homeowner. For instance, the homeowner might have to show that the lender’s failure to follow the statutory requirements chilled the bidding at the foreclosure sale and, as a result, the homeowner was liable for a larger deficiency judgment.
If the lender or servicer fails to comply with the mortgage contract terms, this failure might constitute sufficient reason to set aside a foreclosure sale. For example, many mortgages and deeds of trust require the lender or servicer to send the borrowers a breach letter giving them 30 days to cure the default before starting a foreclosure. If the servicer doesn't send a breach letter and, as a result, the borrower loses out on time to get caught up on the overdue amounts, this omission could provide a basis for invalidating the foreclosure.
Inadequacy of sale price might justify setting aside a foreclosure sale if the price is so low that it "shocks the conscience" of the court. But it's difficult to get a sale set aside based on this argument.
Usually, to get a sale invalidated for inadequacy of sale price, you'll also need additional circumstances that warrant voiding the sale. For instance, courts are more likely to set aside a sale if an inadequate sales price is combined with:
Some courts are hesitant to void a sale unless the violation resulted in actual prejudice to the homeowner.
The procedures to set aside a foreclosure sale depend on whether the sale was judicial or nonjudicial.
Attempting to invalidate the sale in a judicial foreclosure can typically be done in the following ways, depending on state law:
The actual process is generally determined by statute, rule, or case law. Talk to a lawyer to learn the specifics in your state.
If the property was foreclosed nonjudicially, the homeowner must usually file a lawsuit in state court to void the sale. It might also be possible, in some instances, to file bankruptcy and ask that the sale be set aside as part of the bankruptcy case.
A few nonjudicial foreclosure states require a court to confirm the sale. In those states, the homeowner can sometimes raise objections to the sale in the confirmation process. However, in some states, the confirmation process is limited to determining whether the property sold for fair market value at the foreclosure sale, and the court won't review other issues.
If the foreclosure sale is set aside as void, the title to the property is typically returned to the homeowner while the mortgage and other liens generally are re-established. But if the property has already been resold to another party, some state statutes provide that the subsequent sale to a good-faith purchaser eliminates the foreclosed homeowner’s right to challenge the sale on procedural grounds. In these types of cases, the homeowner might be able to seek damages against the lender or servicer.
Some states give a foreclosed borrower a post-sale right of redemption. If you get the right to redeem the property, you can reclaim the home after a foreclosure sale by paying the price paid at the sale or the mortgage balance, plus foreclosure fees and costs. Some borrowers can redeem by refinancing the loan or curing the arrearage through a bankruptcy.
State laws vary in how significant a violation must be before a court will set a sale aside, and the procedures for invalidating a foreclosure sale are complicated and differ based on state law. Again, you might be limited to monetary damages, especially if a third party, particularly a bona fide purchaser, bought the property at the foreclosure sale.
If you're considering trying to set a foreclosure sale aside, you'll most likely need an attorney to help you through the process and ensure you fully understand your rights under the law.
]]>So, you can challenge improper fees and costs in response to a foreclosure.
If your mortgage payment is late, your servicer may charge you a late fee.
Most prime, conventional loan contracts allow the loan servicer to assess a late fee equal to 5% of the payment due. However, state law may limit the fee to, say, only 4%. If the loan documents and state law allow for different late fees, the servicer can only charge the maximum state law allows.
Late fees are often limited by:
Servicers sometimes incorrectly assess late fees, either inappropriately or in the wrong amount, which can add hundreds of dollars on to the amount you owe on the mortgage loan.
The servicer assesses a late charge during the grace period. Most mortgage contracts include a “grace period” of around ten or fifteen days. If you make your payment late, but during the grace period, the servicer shouldn’t charge you a late fee.
The servicer delays posting your payment to your account. If the loan servicer delays posting your payment to your account until after the grace period ends, it can also result in an improper late fee.
The servicer assesses an incorrect late charge amount. Late fees can only be assessed in the amount that the loan contract specifically authorizes. The late charge amount is usually found in the promissory note.
The servicer illegally “pyramids” late fees. In some cases, servicers charge borrowers late fees on full payments that were made on time because the borrower didn’t include a payment for a previously unpaid late charge. “Pyramiding” occurs when the loan servicer takes the assessed late fees from the regular payment and leaves part of the scheduled payment overdue, which results in the assessment of another late charge. When the servicer does this, more and more late fees accumulate.
Federal regulations, state law, and mortgage contracts usually prohibit this practice. According to the Federal Trade Commission, pyramiding of late fees is unfair to consumers. Regulation Z, which implements the Truth in Lending Act (TILA), also prohibits the pyramiding of late fees for mortgages that TILA covers.
The servicer assesses post-acceleration late charges. In most cases, the servicer is prohibited from assessing late charges after the loan has been accelerated.
If you default on your mortgage payments, your loan servicer can usually assess specific charges to your account. Default-related fees typically include:
Some states limit the amount of fees that can be charged pursuant to a default. For instance, charges might be limited to reasonable expenses, including costs and fees.
Most mortgage contracts allow the servicer to take necessary steps to protect the lender's rights in the property, including conducting property inspections to determine the physical condition or occupancy status of the mortgaged property. Inspections are generally ordered automatically once the loan goes into default. The charges for the inspections are then added to the total mortgage debt.
The amount charged for each inspection, which is generally drive-by in nature, is typically minimal ($10 or $15). However, inspections might be performed monthly or more often, so the charges can add up quickly.
Some courts have found that repeated inspections when the servicer is in contact with the homeowner, knows the property is occupied, and has no reason to be concerned about the condition of the property, aren't necessary.
The loan servicer may also assess costs for preserving the property's value. For example, property preservation costs might include fees the servicer advanced to:
Most courts have held that such fees must be reasonable to be collectable from the borrower.
Generally, foreclosure costs must be reasonable and actually incurred before they're recoverable against the borrower. Acceptable foreclosure costs include, among others:
Most mortgages require the borrower to pay the lender’s foreclosure attorneys' fees as well. To be collectable, attorneys' fees must be reasonable and actually incurred. Additionally, some states limit attorneys' fees in foreclosures.
Corporate advances are expenses the servicer paid, which it can recover from the borrower. Corporate advances might include bankruptcy fees or force-placed insurance costs, for example.
If undefined corporate advances appear on your account, contact your loan servicer for an explanation to ensure they're appropriate for inclusion in the total amount owed.
Borrowers may raise any number of defenses regarding improper late fees or other incorrect default-related fees in defense to a foreclosure. While some of these issues might constitute a full defense to the foreclosure, others will reduce the amount owed on the debt, thereby potentially decreasing any deficiency the borrower owes to the lender following the foreclosure.
A few of the defenses that could potentially be raised are:
If you want to challenge the fees the servicer is charging in a foreclosure action, speak to a qualified attorney who can advise you what defenses are available for your particular situation. Loan servicing records can be difficult to interpret and reconcile, so be sure the attorney is familiar with how to read loan servicing communication logs and payment histories.
For more information on challenging a foreclosure in court, see our article Should You Fight Your Foreclosure in Court?
]]>The actual foreclosure procedures will vary depending on the state and whether the process is judicial or nonjudicial. But generally, if the servicer or lender skips any of the required steps, you might have a defense that could save your home.
In most foreclosures, the servicer and lender must do some or all of the following.
Many states have preforeclosure loss mitigation requirements. Typically, under these laws, the servicer or lender must inform the homeowner about mediation options, provide contact information so the homeowner can explore options to avoid foreclosure, and refer the homeowner to housing counseling agencies and legal services programs.
For example, California law requires the servicer to personally contact the homeowner by phone or in person 30 days before recording a notice of default (the official start to the foreclosure process in that state) to assess the homeowner's financial situation and explore options to avoid foreclosure. If the servicer can't reach the borrower, it has to satisfy specific attempt requirements.
A lender’s failure to comply with preforeclosure loss mitigation requirements might serve as a basis for challenging the foreclosure.
Federal mortgage servicing laws protect homeowners when it comes to foreclosure. In most cases, the servicer has to:
If the servicer doesn't comply with these requirements, you might have a defense to the foreclosure.
Mortgages and deeds of trusts often contain a clause that requires the lender to send a notice, commonly called a "breach letter" or "demand letter." This letter informs the borrower that the loan is in default and that the lender will accelerate the loan if the debt isn't brought current.
The breach letter generally must specify the following:
Because mortgages and deeds of trust are contracts, the lender must strictly comply with the terms. If the lender or servicer neglects to send the breach letter and you raise this issue with the court, the court might order the lender to start the foreclosure over.
Based on state law, the servicer or lender must provide appropriate and timely notice of the foreclosure. As part of the foreclosure, the lender or servicer might be required to:
These notices all have specific time limits and specific content requirements. For example, the notice might have to describe the property that's being foreclosed, include the amount due, state the amount necessary to cure the default, and provide information about the person who you can contact to discuss the notice.
If a lender doesn't comply with all of the state-specific requirements, you might be able to force the lender to go back and re-do the foreclosure or at least correct the defect, which can provide you with valuable time to try to work out an alternative.
Major violations of the law, like if the lender failed to send you a notice of default as required by state law or a breach letter as required by the deed of trust, will probably cause the lender to have to start the foreclosure over. In this type of situation, a court will usually require a restart because, if you don’t receive proper notice, the foreclosure can come as a complete surprise. You might have little time to cure the default or work out a deal to avoid foreclosure. In general, courts aren't likely to allow errors that deprive you of valuable time to resolve the problem.
But if the error is minor and doesn't cause you any harm, then it probably won’t stop the foreclosure. For example, violations such as the misspelling of a name are almost always considered inconsequential in a court's eyes. Some state statutes even specifically say that specific trivial procedural errors won't affect the foreclosure.
If you think the lender committed a procedural error and want to fight the foreclosure, the way you go about it depends on whether the process is judicial or nonjudicial.
Judicial foreclosure. In a judicial foreclosure, the lender files a lawsuit in state court. You will receive a foreclosure complaint, petition, or similar document, along with a summons. In this type of foreclosure, you will have the opportunity to raise defenses and counterclaims in an answer to the foreclosure complaint.
Nonjudicial foreclosure. With a nonjudicial foreclosure, the foreclosure is typically completed outside of the court system. (Although, some states require minimal court involvement in the process.) So, you'll need to file your own lawsuit to bring up any procedural errors that the lender or servicer committed.
Challenging a foreclosure based on procedural violations could buy you more time to live in the home and give you a better opportunity to work out a loss mitigation option.
Lenders and servicers often make errors in the foreclosure process. Yet, most of the time, errors go unchallenged by the homeowner. If you're facing foreclosure and think the lender or servicer hasn't complied with legal requirements, you should speak to a qualified attorney who can advise you about what to do in your circumstances.
]]>Most states require that the foreclosing party (called “the lender” in this article) serve one or more notices to the borrower before holding a foreclosure sale. In a nonjudicial foreclosure, borrowers sometimes receive a Notice of Default and a Notice of Sale, depending on state law.
If the lender fails to comply with the procedural notice requirements under state law, you might have a foreclosure defense. The most common grounds for challenging a foreclosure in this way are claiming that the lender failed to:
Depending on state law, a nonjudicial foreclosure process sometimes begins when a Notice of Default (NOD) is recorded at the county recorder's office. The NOD serves as public notice that the borrower is in default.
The NOD often contains:
If the borrower does not “cure” the default by bringing the payments up to date, including late charges and foreclosure fees, the trustee might (again, depending on state law) then prepare and file a Notice of Sale for the property.
Most state foreclosure laws, judicial and nonjudicial, require that the lender serve a notice of the foreclosure sale date on the borrower. State laws also usually require the lender to publish the sale date, typically in a local newspaper.
The Notice of Sale (NOS) generally states:
The NOS might be recorded in the county land records, mailed to the borrower, published in a newspaper of general circulation in the county where the home is located, and posted on the property and in a public place.
While you might get both a Notice of Default and a Notice of Sale as part of the nonjudicial foreclosure process where you live, foreclosure procedures and the documents you’ll receive vary widely from state to state.
You might get:
For an overview of the foreclosure laws in your state, click on the link to your state in our Summary of State Foreclosure Laws article.
Often, state law requires the lender to send the borrower the required foreclosure notices by mail. State law might require the servicer to send the notice in a particular way, such as by certified mail and first-class mail. Generally, in most states, it is presumed that you received the notice if the lender can prove that it mailed a properly-addressed notice, such as with postal records or a certified mail receipt.
But if the lender can only produce a copy of a notice—but not proof of mailing—that failure might lead a court to believe that the lender didn’t actually mail the notice. If the lender failed to mail a required notice, this failure could provide a strong defense to a foreclosure.
Whether sending an electronic notice, such as by email, is legal depends on applicable federal laws, such as the E-Sign Act (applicable when a lender seeks to satisfy a requirement for a written notice with an electronic record) and on state laws. For example, if a state statute requires a particular foreclosure notice to be sent in writing or by a certain mail-delivery option, the servicer must mail it.
As of January 1, 2023, the standard Fannie Mae and Freddie Mac security instruments (mortgages and deeds of trust) say, "Unless another delivery method is required by Applicable Law, Lender may provide notice to Borrower by e-mail or other electronic communication." But the federal E-Sign Act requires foreclosure notices to be in writing. So, if you sign a mortgage or deed of trust that has this language, a foreclosure notice that was served electronically wouldn't be valid if your state's laws required the notice to be delivered in writing. But the E-Sign Act doesn't prohibit states from enacting laws authorizing the use of electronic notices in foreclosures.
This area of law is complicated. Talk to a lawyer to find out what communications (if any) may be sent to you electronically during a foreclosure.
The lender’s failure to send a required foreclosure notice typically prevents the continuation of the foreclosure process. But you’ll have to raise this issue in court.
Even if your lender served you a particular foreclosure notice, a court might find the notice invalid for some reason. Most courts require lenders to strictly comply with foreclosure statutes and contractual requirements for foreclosure notices, especially in nonjudicial foreclosures, because of the absence of court oversight.
Courts have found notices of default and notices of sale invalid when they failed to correctly identify the information that state law requires (such as the lender or another party that the law requires to be designated in the notice.) Notices sent that violate state timing requirements have also been declared invalid.
The terms of your mortgage loan documents might set additional requirements for a notice of default or notice of sale beyond those in your state’s statutes. The lender's failure to comply with these contractual terms might provide you with a defense against a foreclosure.
In most cases, you must raise a defense of noncompliance with notice requirements in court before the foreclosure is complete. If the foreclosure sale has already happened, you might be limited to monetary damages.
Still, whether you can have a foreclosure sale set aside depends on the facts and the laws in your state. You might have to show significant irregularities in the foreclosure, other flaws in the process, or that you suffered some harm because of the defective notice.
If you're facing a foreclosure and want to learn the specific procedures and what notices are required in your state, as well as about your rights during the process and whether you have any potential defenses to the foreclosure, talk to a local foreclosure attorney as early in the process as possible.
]]>Foreclosure works differently in different states. In some states, the lender will use a judicial procedure. In others, it can foreclose without going through the court system, using a "nonjudicial" foreclosure.
The chart below provides an overview of judicial and nonjudicial foreclosure processes and lists which states commonly use each process.
Judicial Foreclosure |
Nonjudicial Foreclosure |
|
States that predominantly use this type of foreclosure |
Connecticut, Delaware, District of Columbia, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico*, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Vermont, and Wisconsin |
Alabama, Alaska, Arizona, Arkansas, California, Colorado**, District of Columbia (sometimes), Georgia, Hawaii (judicial also common), Idaho, Maryland**, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming |
Process |
Lender files a lawsuit in state court. |
Lender follows specific state procedures. Generally, a notice is recorded and mailed to the borrower (though the requirements vary). |
Notice provided |
When the lender files the complaint in court, the borrower is served notice of the complaint in person, by mail, or by publication. Once the court issues a judgment, the lender may send a notice of sale. |
In a nonjudicial foreclosure, the borrower might receive: • a notice of default followed by a notice of sale • a combined notice of default and sale • a notice of sale stating that the property will be sold on a certain date, or • notice by publication in a newspaper and posting on the property or in a public place. |
Officials typically involved |
Courts |
County recorder |
Typical loan document |
Mortgage |
|
Timeline to complete a foreclosure |
Usually months |
|
Availability of foreclosure mediation |
Depends on the state |
Depends on the state |
Right to cure/reinstate |
Depends on the state |
Depends on the state |
Redemption period following sale |
Depends on the state |
Depends on the state |
Deficiency judgment available |
Depends on the state |
Depends on the state |
To learn more about your state's most common foreclosure process, check our Summary of State Foreclosure Laws.
*New Mexico’s Deed of Trust Act was amended in 2006 to remove the prohibition on powers of sale in residential deeds of trust. As a result, a nonjudicial foreclosure process may be used for post-2006 residential loans, though the practice is not widespread.
**Nonjudicial with some court supervision.
]]>After the bank fulfills all the legal requirements for foreclosure, the home is sold to a new owner at a public sale.
With judicial foreclosures, a sheriff’s sale is customarily used as this last step in the foreclosure process. The successful bidder at the sale becomes the new owner of the property.
A sheriff’s sale is usually an auction that local law enforcement conducts. The sale is open to the public. The sale typically either takes place in the sheriff’s office or at the county courthouse, frequently on the front steps. Some auctions are held online. Online foreclosure sales are becoming more and more common.
Once completed, a sheriff’s deed is issued, giving the home’s title to the high bidder, and the deed is recorded in the county records.
Homeowners generally get notice of a sheriff’s sale in the foreclosure paperwork or through a mailed notice of sale. Also, advertisements of foreclosure sales are normally published in newspapers of general circulation, typically four to six weeks before the sale.
Many county sheriffs also maintain a list in their office or on a website of the properties going to auction.
The foreclosing bank submits the first bid at the auction, which is a "credit bid." With a credit bid, the bank gets a credit in the amount of the borrower's debt.
The bank can bid the full amount of the debt, including foreclosure fees and costs, or it might bid less.
The bank is usually the winning bidder at the sale because no one else tries to buy the property. If the bank buys the property at the sale and gets title to the home, the property is considered “Real Estate Owned” (REO).
When the winning bid at the sheriff's sale is less than the borrower's total debt, the bank might be able to seek a deficiency judgment against the foreclosed homeowner. Whether the bank can get a deficiency judgment depends on state law.
After the bank makes its credit bid, another person or entity can submit a higher bid and win the auction. Unlike the bank, a third party will likely need to put down a money order or certified check for a percentage of the property price at the time of the sale. This requirement varies from place to place.
Some places require the winning bidder to pay a specified amount, say $10,000, immediately after the sale, with the balance due shortly after that. If the winning bidder doesn’t pay the balance within a set time frame, the deposit might become non-refundable, and the property could be re-listed. Or the purchaser might have to pay the full amount of the winning bid at the time of the sale.
The buyer then gets the property in "as is" condition.
If a third party is the high bidder at the auction, the proceeds repay the borrower's debt. But if the sale amount isn’t sufficient to pay off the total debt, the bank might be able to (again, if state law allows it) get a deficiency judgment against the foreclosed homeowner.
As a homeowner, you can take action to try to prevent a sheriff’s sale from happening and keep your home. You could potentially, depending on your circumstances, as well as state and federal law:
Depending on state law, you might also have options after the auction. If state law provides a post-sale redemption period, you can repurchase the home and keep it. Or state law might give you the right to live in the home during the redemption period, even if you don’t exercise your right to redeem. But if you don’t move out when your legal right to occupy the home ends, you’ll most likely get evicted.
Under limited circumstances, you might be able to challenge the sheriff’s sale by filing a motion to set aside (nullify) the sale. A court might set aside the sale if you can show that there was fraud, mistake, or irregularity in the conduct of the sale. For instance, if the bank failed to send you appropriate notice or the auction wasn’t properly advertised in the newspaper as required, these failings can be grounds for an objection to the sale.
As with any legal situation, the law has many nuances and complexities that vary from state to state. If you’re going through a foreclosure and have further questions about the process, consider talking to a local foreclosure lawyer.
If you want to learn about different alternatives to a foreclosure, like a modification or short sale, a HUD-approved housing counselor is an excellent resource that will help you at no cost.
]]>This rise in the number of successful defenses to foreclosure is due, in large part, to the unearthing of evidence that mistakes and noncompliance in the mortgage servicing industry have been widespread for years. Because of this evidence, courts that once rubber-stamped foreclosure actions have shifted their sympathies toward homeowners.
Homeowners and their attorneys can take advantage of this change in judicial attitude and challenge foreclosure actions in many different ways.
Some of the various defenses to foreclosure include the following.
Below is a description of these common foreclosure defenses and an explanation of how you can raise them in court.
Each state has specific procedures for foreclosures. If the loan owner or servicer didn’t follow state procedural requirements for bringing a foreclosure action, you could challenge the foreclosure. If your challenge is successful, the court will most likely dismiss the foreclosure, forcing the process to restart.
Be aware that virtually all judges overlook inconsequential errors, like the name misspelling. If the mistake doesn't actually harm you, it might not be worth fighting over.
More serious violations will get a more serious response from the court. For example, say the servicer fails to send you a notice of default that state law requires. A court could order the foreclosure to start over because the lack of adequate notice deprived you of valuable time to resolve the problem. You might have worked out an alternative arrangement, gotten refinancing, or taken advantage of state rules permitting reinstatement of the mortgage.
Foreclosure defense attorneys have been able to use servicer violations of federal laws as a tactic to delay foreclosures and get foreclosures dismissed.
For example, under federal law, if the servicer has already started a foreclosure and receives your complete loss mitigation application more than 37 days before a foreclosure sale, the servicer can't move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until:
If your attorney can show that you submitted your complete loan modification application to the servicer 38 days or more before the scheduled sale date, but the servicer didn't review it, the court might cancel the sale. The court will probably reset the sale for a different date, but this delay just might give you enough time to work out an alternative to foreclosure.
Be aware that the servicer generally doesn't have to review more than one loss mitigation application from you. But if you bring the loan current after submitting an application and then reapply, the servicer must consider your new application.
Only the loan holder (the current loan owner or someone acting on the owner's behalf) may foreclose. If the foreclosing party can't prove it owns the loan, it doesn't have "standing" to foreclose.
Banks sometimes have trouble producing the promissory note proving loan ownership. In many cases, the debt has been sold over and over again to different banks and investors. If the loan was bundled and securitized, determining if the foreclosing party owns it can be even more difficult. Even in situations where the original note is available, the endorsements sometimes aren't in order, or an assignment might be missing.
You can send the servicer a request for information to look for problems regarding loan ownership and possession of the relevant contract documents. If you spot an issue, depending on state law, you might be able to challenge the bank’s authority to foreclose. But these days, banks and investors are pretty careful about addressing any gaps in their paperwork before starting a foreclosure.
Also, courts all over the country have heard many cases on standing and have often decided against homeowners. It's now much more difficult to win your case based on a standing argument. Though, your case might be an exception.
Mortgage servicers often make mistakes when they're dealing with borrowers’ accounts. You might be able to challenge the foreclosure based on errors like:
Mistakes about the amount you must pay to reinstate your mortgage are especially serious. An overstated amount might prevent you from keeping your home.
For example, suppose that the servicer said in a foreclosure document that you need to pay $7,500 to get current on the loan and stop a foreclosure. But you owed only $5,000. Say you could have afforded $5,000 but not $7,500. In that situation, you missed out on the opportunity to reinstate the loan because the servicer overstated what you owed.
If you're on active military duty, the Servicemembers Civil Relief Act (SCRA) provides you with special protections against foreclosure. Most importantly, if you took out your mortgage before you were on active duty, your foreclosure must happen in court even if foreclosures in your state customarily occur outside of court (nonjudicial foreclosures), unless the servicer gets a waiver from you. (50 U.S.C. § 3953).
If a military member gets a mortgage after going on active duty, the SCRA also provides certain foreclosure protections.
You might be able to raise Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) claims against the bank or servicer.
For instance, if the bank or servicer didn’t send you a notice that it sold your loan or transferred the servicing rights. Mortgage lenders often sell the loans that they originate or transfer the right to service the loan, and failing to provide proper notice can deprive a borrower of a means to figure out their loan account’s status.
Under TILA, the new owner or assignee of a mortgage loan must inform the borrower about the loan’s transfer within 30 days after the sale, transfer, or assignment. The transfer of ownership notice must provide specific information, like the transfer date and the new creditor’s identity. (15 U.S.C. § 1641).
Under RESPA, your old servicer must provide you with a notice of servicing transfer not less than 15 days before the effective date of the transfer, and your new servicer must provide a servicing transfer notice not more than 15 days after the transfer date. Or the servicers might choose to send a combined notice not less than 15 days before the transfer. (12 C.F.R. § 1024.33).
This notice has to include specific information, too, like when the new servicer will begin to accept payments. (12 C.F.R. § 1024.33).
If a significant amount of time goes by after you stop making mortgage payments and when the foreclosing bank initiates a foreclosure (or restarts one against you), the foreclosure might violate the statute of limitations. A "statute of limitations" sets a deadline for filing a legal action, like a foreclosure.
The statute of limitations is an affirmative defense to foreclosure, which means the borrower must bring up the issue in the foreclosure. You must raise this defense before a judge, which is easier in a judicial foreclosure than a nonjudicial one.
If the foreclosure starts after the limitations period expires, and you raise this issue in front of a court, the court will dismiss the action.
Affidavits and declarations are often a required part of the foreclosure process. If the bank files an incorrect or robosigned affidavit or declaration, you might have a defense to the foreclosure.
When it comes to important decisions, relying on accurate information is essential. An "affidavit" (a written document signed under oath in front an individual authorized to take oaths, such as a notary public) does just that. It helps ensure the accuracy of information. In other words, an affidavit is useful when the veracity (truthfulness) of the information is important.
For instance, a couple might use an affidavit to disclose property in a divorce proceeding or a business owner could use an affidavit to disclose equipment included in a business sale. If it’s later discovered that the information was false, and the matter ends up in court, a judge will give an affidavit greater evidentiary weight than after-the-fact trial testimony.
Typically, in a judicial foreclosure, the loan owner must complete an affidavit of indebtedness (also known as an "affidavit of amounts due") to get a final judgment of foreclosure.
In this affidavit, the bank must state the amount due and owing on the mortgage loan. Typically, the affidavit will contain the following information:
The bank or servicer will appoint an employee familiar with the bank’s record-keeping practices as the “custodian” of records. Before signing an affidavit on behalf of the bank, the custodian must review the loan documents and verify the affidavit’s contents, including the principal balance, the amount of interest owed, and the costs of the foreclosure. Only then can the custodian attest to the affidavit’s accuracy by signing it under oath.
If an affidavit that a bank or servicer submits as part of a foreclosure is false, either because the affiant (the signer) doesn't have personal knowledge of the facts and figures contained in the document or because the affidavit has incorrect information, you can contest the foreclosure.
Banks and servicers normally review all foreclosure documents pretty carefully today. Still, mistakes can happen. You’ll want to look at any affidavit used in your foreclosure closely, including the figures in the affidavit, because the court will base its final judgment on those amounts. If you don’t catch any incorrect amounts, and your state allows deficiency judgments, you could end up paying more than what you owe.
Some states require specific declarations in nonjudicial foreclosures. A “declaration,” which is similar to an affidavit, is a formal statement of facts concerning the case. But unlike an affidavit, it's not sworn before a notary public or another officer authorized to administer oaths.
In a California or Washington foreclosure, for example, the foreclosing bank or servicer has to complete a loss mitigation declaration as part of the nonjudicial foreclosure process. The foreclosure can't start either by the issuance of a notice of default (Washington) or recording a notice of default (California) until the bank or servicer has:
When the foreclosure starts, the bank or servicer must include a declaration with the notice of default that it has complied with these requirements.
“Predatory lending” happens when a lender uses deception, fraud, or manipulation to convince a borrower to take out a mortgage with abusive or unfair terms. Federal and state laws prohibit lenders from using predatory tactics.
Generally, predatory mortgage lending means any unscrupulous practice in which a lender takes advantage of a borrower. With a predatory loan, the lender imposes unfair and abusive terms on the borrower, like a higher interest rate than normal, excessive fees, or terms that strip the borrower’s equity.
Basically, predatory lending is when a lender makes a loan to benefit the lender, not the borrower. Predatory lenders convince borrowers to get loans they don’t need or can’t afford.
Some examples of predatory lending include:
In some circumstances, it's possible to stop a foreclosure by raising claims related to the loan’s origination. The mortgage or deed of trust might not be valid or legally enforceable due to unfair lending practices, like fraud, or violations of federal or state law. Or the terms of the loan might be unconscionable. You might be able to rescind the mortgage transaction or be entitled to damages (money) or a setoff against the amount you owe on the loan.
Federal laws that prohibit predatory lending. Various federal laws protect borrowers against predatory lending practices.
State laws that prohibit predatory lending. Many states also have anti-predatory lending laws that restrict the terms or provisions of certain loans. State unfair and deceptive practices acts (UDAP) statutes, which generally prohibit unfair or deceptive business practices, might also be useful in challenging a foreclosure.
Here are a few more often-used foreclosure defenses:
You must bring the issue before a judge to raise a defense to a foreclosure action. In about half the states where foreclosures are judicial, which means the foreclosure is accomplished through a civil lawsuit, you automatically get a chance to tell your side of the story to a court by filing an answer to the suit.
In other states, foreclosures typically happen outside of court (nonjudicial foreclosures), and you have no automatic means to mount a legal challenge. To have your defenses ruled on by a judge in these states, you must file a lawsuit alleging that the foreclosure is illegal for some reason and ask the court to put the foreclosure on hold pending the court's review of the case.
The foreclosure defenses mentioned in this article represent just a few options that might be available to you. Any given foreclosure or legal situation has many potential claims and defenses, so it's a good idea to seek the advice of a foreclosure attorney or a legal aid organization to explore all possible alternatives available in your particular situation.
If you want to learn about possible ways to avoid a foreclosure, like with a loan modification, short sale, or deed in lieu of foreclosure, consider also talking to a HUD-approved housing counselor.
]]>During the Great Recession and simultaneous foreclosure crisis, homeowners were regularly able to successfully raise a "produce the note" defense to fight their foreclosure. This kind of defense is based on the legal principle of "standing"—that is, the right to foreclose.
In the produce the note defense, the homeowner demands that the foreclosing party come up with the original promissory note, or prove in some other way that it is the note's rightful owner, to show it has the legal right to enforce the debt by foreclosing.
While the produce the note defense is no longer particularly useful in most foreclosures, your case might be the exception.
When you took out your loan, you likely signed a mortgage or deed of trust and a promissory note. Homebuyers sometimes think of the mortgage or deed of trust as the contract they signed with the bank to borrow money. But it's the promissory note that contains the promise to repay the amount borrowed.
When the loan is sold to a new owner, the promissory note is endorsed (signed over) to that entity. The note owner or its representative is the only party that has the legal right to collect the debt if the borrower doesn't make payments.
In some cases, the note is endorsed in blank, which makes it a bearer instrument under Article 3 of the Uniform Commercial Code (UCC). So, any party that possesses the note has the legal authority to enforce it.
On the other hand, assignments transfer the mortgage or deed of trust and are typically recorded in the land records.
"Standing" generally is the right of a party to file a lawsuit in court. During the foreclosure crisis that happened around 2007-2012, attorneys representing homeowners were sometimes successful in delaying or derailing foreclosures on the grounds that standing hadn't been satisfactorily established due to gaps in the chain of endorsements or assignments.
But in a foreclosure, the issue of standing is complicated, and the law varies between states. In some courts, the foreclosing party must establish that it holds the note or is acting as the note holder’s authorized representative to have standing to foreclose.
When it comes to assignments of mortgages (or assignments of deeds of trust), many courts follow the general rule that "the mortgage follows the note." So, if the foreclosing party has the right to enforce the note, a recorded assignment of the mortgage might not be needed.
But other states require a valid assignment, or else the foreclosure can't go forward. Michigan law, for example, requires a valid assignment before a foreclosure may proceed. (Mich. Comp. Laws § 600.3204).
State foreclosure laws typically require the foreclosing party to include a copy of the promissory note with the complaint in a judicial foreclosure. In addition, the foreclosing party might have to produce the original note (the one the borrower actually signed) as part of the foreclosure process. In some cases, though, the court might accept a lost note affidavit (see below).
Because mortgages and deeds of trust are recorded in the land records, unlike promissory notes, they're part of the public record. So, the foreclosing party might not have to produce the original mortgage. A reference to that document, along with a copy, could be sufficient.
In the past, the produce the note defense frequently worked because coming up with the original note was usually difficult. Often, the debt had been sold many times. Or perhaps the loan was bundled along with thousands of other loans into a mortgage-backed security. The new loan owner sometimes didn't get the proper paperwork to show it owned the note and mortgage. Even in situations when the original note was available, the endorsements typically weren't in order.
These days, however, banks and investors are more careful about addressing any paperwork gaps before initiating a foreclosure. Also, courts all over the country have heard many cases on this issue and have decided against homeowners in multiple situations. Again, some courts allow a copy of the note or a lost note affidavit to suffice. It's now much more difficult to win your case based on a "produce the note" type of argument.
Still, your case might be the exception. While arguing that the bank lacks standing is less likely to be successful than it once was, homeowners are occasionally able to use this defense to stop a foreclosure—even if only temporarily.
For example, in a foreclosure case in late 2017, the Florida District Court of Appeal, Fifth District, found that the foreclosing party did not demonstrate proper standing at the time it started the foreclosure and reversed a final foreclosure judgment, and remanded the case for entry of an involuntary dismissal.
If the promissory note has been lost, destroyed, or is otherwise unavailable, the foreclosing party will frequently use a “lost note affidavit.” A lost note affidavit is a sworn legal statement in which the bank states the note is lost or destroyed, or something similar, but that it is the true and rightful owner of the note and has the right to foreclose.
Using this type of document often circumvents the problem of not having the original note.
Whether a lost note affidavit will be acceptable in any given foreclosure depends on the situation, jurisdiction, and court. In many cases, the court will find a lost note affidavit sufficient and allow the foreclosure to proceed.
So, unfortunately, it's often an uphill battle for homeowners to use a "produce the note" defense.
If you have reason to believe that the party that's foreclosing on your home isn't the actual loan owner and doesn't have the right to foreclose, but you don't challenge it, the court won't examine this issue as part of a judicial foreclosure. The same goes for a nonjudicial foreclosure; the foreclosure will simply proceed.
How to raise a standing defense in a judicial foreclosure. In a judicial foreclosure, the bank files a lawsuit in state court. You'll receive a foreclosure complaint, petition, or similar document, along with a summons. In this type of foreclosure, you can raise the issue of standing as part of that lawsuit.
How to raise a standing defense in a nonjudicial foreclosure. With a nonjudicial foreclosure, the bank can foreclose without going to court. So, you'll need to file a lawsuit to bring up this issue.
You’ll most likely need an attorney to help you review your ability to raise a defense based on standing and argue it in court if you decide to go this route. These days, you will most likely be setting yourself up for frustration if you just demand that the foreclosing party "produce the note."
Also, any given foreclosure or legal situation has many potential claims and defenses. You might be missing other legal claims that you could bring as a defense to the foreclosure action if you decide to proceed without an attorney's assistance.
Consider talking to local counsel or a legal aid organization to explore all possible defenses that could be available in your particular situation.
]]>In some states, the deed of trust or mortgage has a power of sale provision. A "power of sale provision" is a clause in the loan contract. In this clause, the borrower pre-authorizes the property's sale through a nonjudicial foreclosure process after a default. The sale proceeds pay off all or part of the loan balance.
With a power of sale foreclosure, also called a "nonjudicial" foreclosure, the lender can foreclose without court oversight. In a judicial foreclosure, on the other hand, the lender forecloses through the state court system.
State statutes establish the procedures for power of sale foreclosures. Each state has its own requirements. Generally speaking, after the borrower defaults by failing to make payments, the lender provides limited notice of the foreclosure, sometimes by taking one or more of the following actions:
Then, a trustee (a third party that typically handles the nonjudicial process) can sell the property at a foreclosure sale.
The lender must strictly follow the procedures and timeline of notifications, as well as waiting periods, set out in the state statutes when completing a power of sale foreclosure.
The states where power of sale foreclosures are allowed and generally used are Alabama, Alaska, Arizona, Arkansas, California, Colorado, the District of Columbia (sometimes), Georgia, Hawaii (sometimes), Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia, and Wyoming.
For borrowers, nonjudicial foreclosures have several advantages.
In some states, the lender is prohibited from seeking a deficiency judgment if the lender uses a power of sale foreclosure process.
While a power of sale foreclosure process has no court oversight (or very little), you can still get a court to hear your case if you file your own lawsuit.
The cons to nonjudicial foreclosure include the following.
A power of sale is generally a faster process, usually taking just a few months, when compared to a judicial foreclosure. So, you'll most likely lose your home sooner than if a judicial foreclosure happens.
Again, to get a court to hear your side of the case with a power of sale foreclosure, you'll have to file your own lawsuit to contest the foreclosure.
Depending on what state law requires, you might get a notice of default followed by a notice of sale, a combined notice of default and sale, just a notice of sale, or notice by publication and posting only.
Sometimes, even if the deed of trust or mortgage contains a power of sale provision, the lender may choose to pursue foreclosure through the court system.
Lenders often choose the judicial route if the title to the property has issues, the security instrument has a flaw, or to get a deficiency judgment because, in some states, it can't obtain a deficiency judgment unless it conducts a judicial foreclosure.
If you're facing a foreclosure and want to find out whether the process will likely be nonjudicial or judicial, as well as to learn specifics about foreclosure procedures in your state and get advice about ways to avoid a foreclosure, consider talking to a foreclosure attorney.
It's also a good idea to speak to a HUD-approved housing counselor.
]]>Because your actions are vitally important if you want to keep your home—or at least get through the process with as little anxiety as possible—you must learn the do's and don'ts when facing a foreclosure.
If you want to fight a foreclosure, consider hiring an attorney to represent you. If you can’t afford to hire an attorney to represent you throughout the entire process, consider at least scheduling a consultation with one who can help you decide what to do, tell you how foreclosure works in your state, and explain your legal rights and responsibilities.
]]>If your mortgage lender acted deceptively, unethically, unfairly, or in a fraudulent manner when you took out your loan, it might have engaged in unfair lending practices and you might be able to successfully challenge a foreclosure action.
The main protections for consumers against unfair lending practices associated with residential mortgage loans are found in the "Truth in Lending Act" (TILA), and in an amendment to TILA called the "Home Ownership and Equity Protection Act" (HOEPA).
Under TILA, lenders must make certain disclosures about the cost of borrowing in the loan documents, including the annual percentage rate, the finance charge, the amount financed, the total payments, and the payment schedule. Lenders that don’t provide accurate disclosures are in violation of this law.
For certain loans, HOEPA prohibits late fees greater than 4% of the past due payment and balloon payments are generally prohibited except under limited circumstances, among other things.
Both TILA and HOEPA permit you to sue for money damages, including a refund of any financing costs you paid. In some cases you might be able to rescind (cancel) your mortgage. With a rescission, the lender must give back closing costs and finance charges, and you must return the present balance of the mortgage.
Rescinding the mortgage will stop a foreclosure, but this tactic usually only works if you can arrange a refinance to return the remaining loan principal to the lender. A court might require you to demonstrate that you can actually complete a valid tender before allowing the rescission.
Creditor overreaching and predatory lending are two common types of misconduct that constitute unfair lending practices.
"Creditor overreaching" typically occurs in one or both of the following ways:
Both types of overreaching may be present in a single transaction. If so, a foreclosure might happen because the loan is most likely unsuitable and unsustainable for the borrower.
Some examples of creditor overreaching include:
Creditors that engage in these types of acts might have violated TILA and could also be subject to any number of other legal claims, including violations of state unfair and deceptive practices laws and fair lending laws.
"Predatory lending" is any type of unscrupulous lending practice where a lender takes advantage of a borrower. Low-income, older, or otherwise vulnerable people are often the target of this type of lending.
The following are a few examples of predatory lending:
A court will consider all of the circumstances of the transaction to determine whether the situation, taken as a whole, constitutes predatory lending. If a court determines that a loan was predatory, it could order the lender to modify the terms of the loan or cancel the debt, or take any other equitable action.
Unfair lending practices might ultimately cause a borrower to default on mortgage payments, which in turn generally leads to a foreclosure.
The unfair lending practices mentioned in this article represent just a few of the offenses that lenders have been known to commit. There are, of course, others. If you've been the victim of unfair lending practices and are facing foreclosure, you should speak to a qualified attorney who can advise you if you have a defense to a foreclosure and tell you what to do in your circumstances.
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