In the past, successful defenses against foreclosure were relatively rare. Since the foreclosure crisis and Great Recession, however, many homeowners have successfully challenged foreclosure actions. The rise in the number of successful defenses to foreclosure is due, in large part, to the unearthing of more and more evidence that the mortgage servicing industry has been rife with errors. Because of this evidence, courts that once rubber-stamped foreclosure actions have shifted their sympathies towards homeowners.
Homeowners and their attorneys may take advantage of this change in judicial attitude and challenge foreclosure actions in many different ways. Some of the most common defenses to foreclosure include:
Here are details about these defenses, and others, and how you can raise them in court.
A foreclosure attorney is often able to raise one or more different types of defenses. Below is a description of a few common foreclosure defenses.
Each state has specific procedures for foreclosures. In some cases, the foreclosing bank doesn't follow state procedural requirements for bringing a foreclosure action. In this scenario, you might be able to challenge the foreclosure. If your challenge is successful, the court will issue an order requiring the foreclosing bank to start over.
Be aware, though, that virtually all judges will overlook inconsequential errors, like the misspelling of a name. Similarly, if the foreclosing bank's mistake doesn't actually cause you any harm, it might not be worth fighting over. More serious violations will get a more serious response from the court.
Only the loan holder (the loan owner or someone acting on the owner's behalf) may foreclose. If the foreclosing party can't prove it owns the loan, then 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 to different banks and investors, sometimes over and over again. If the loan was bundled and securitized, determining if the foreclosing party owns it can be even more of a challenge. Even in situations where the original note is available, the endorsements sometimes aren't in order, or an assignment might be missing.
These days, banks and investors are pretty careful about addressing any gaps in their paperwork before initiating a foreclosure. Also, courts all over the country have heard many cases on standing and have decided against homeowners in many situations. It's now much more difficult to win your case based on a standing argument; though, your case might be the exception.
Mistakes on the amount you must pay to reinstate your mortgage are especially serious. An overstated amount might deprive you of the main remedy available to keep your home. For example, suppose the mortgage holder says you owe $4,500 to reinstate when, in fact, you owe only $3,000 (perhaps because it imposed improper or unreasonable costs and fees). In that situation, you might not have been able to take advantage of reinstatement. Say you could have afforded $3,000, but not $4,500.
If you're on active military duty, the Servicemembers Civil Relief Act (SCRA) provides you with special protections. Most importantly, if you took out your mortgage before you were on active duty, your foreclosure must take place in court even if foreclosures in your state customarily occur outside of court, unless the lender gets a waiver from you.
If a military member gets a mortgage after going on active duty, the SCRA provides certain foreclosure protections too.
If a significant amount of time lapses between when you stop making your mortgage payments and when 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.
Generally, when people think of defective foreclosure affidavits, the first thing that comes to mind is the robosigning scandal where loan servicers filed thousands of unverified, fraudulent affidavits in judicial foreclosures. But, defective declarations—which are similar to affidavits—can be an issue in nonjudicial foreclosures as well.
Typically, in a judicial foreclosure, the loan owner (the foreclosing party) must complete a written statement signed under oath, which is called an "affidavit," to get a final judgment of foreclosure.
The affidavit usually includes information like:
These affidavits are often called "affidavits of indebtedness." The affidavit information is supposed to be truthful, accurate, and adequately supported by file documentation. A person, usually a bank employee, reviews the loan documents and signs the affidavit. At least, that’s how it's supposed to work.
Some states require specific declarations, which are similar to affidavits, in nonjudicial foreclosures. A declaration is a formal statement of facts concerning the case. But unlike an affidavit, it is unsworn.
In a California or Washington foreclosure, for example, the lender 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 lender or servicer has:
When the foreclosure starts, the lender or servicer must include a declaration along with the notice of default that it has complied with these requirements. To get an overview of the foreclosure laws in your state and find out if your state ordinarily uses a judicial or nonjudicial foreclosure process, see our Key Aspects of State Foreclosure Law: 50-State Chart.
Here are a few more common foreclosure defenses:
To raise a defense to a foreclosure action, you must bring the issue before a judge. 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.
In the other states, foreclosures typically take place 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 have to file a lawsuit alleging that the foreclosure is illegal for some reason and asking 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 of the 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 local lawyer or a legal aid organization to explore all possible alternatives that might be 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.