Defenses to Foreclosure

In the past, successful defenses against foreclosure were relatively rare. Since the foreclosure crisis and Great Recession, though, many homeowners have successfully challenged foreclosure actions. This 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. (To learn what to do—and what not do—if you’re facing a foreclosure, see Foreclosure Do's and Don'ts).

Homeowners and their attorneys may take advantage of this change in judicial attitude and challenge foreclosure actions in many different ways. Here's a review of some of the most common defenses to foreclosure, and how to raise them in court.

How to Raise a Defense to Foreclosure

In order to raise a defense to a foreclosure action, you must bring the issue before a judge. This is automatic in about half the states, where foreclosures are judicial, which means the foreclosure is accomplished through a civil lawsuit.

In the other states, foreclosures typically take place outside of court—these are called 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. (Learn more about foreclosures in general.)

Common Foreclosure Defenses

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.

The Foreclosing Party Didn't Follow State Procedures

Each state has specific procedures for foreclosures. In some cases, the foreclosing party doesn't follow state procedural requirements for bringing a foreclosure action. If this happens, you might be able to challenge the foreclosure. If your challenge is successful, the court will issue an order requiring the foreclosing party to start over.

Virtually all judges will overlook errors that are inconsequential, like the misspelling of a name. Similarly, if the foreclosing party's error doesn't actually cause you any harm, it may not be worth fighting over. More serious violations will get a more serious response from the court.

The Foreclosing Party Can't Prove It Owns the Loan (It Lacks "Standing")

Only the mortgage holder—the loan owner or someone acting on the owner's behalf—may foreclose. When the foreclosure crisis started, attorneys representing homeowners sometimes successfully used a "produce the note" defense to stop foreclosures. This sometimes worked because producing the promissory note was often difficult. In many cases, the debt had been sold to different banks and investors—sometimes over and over again. Even in situations where the original note was available, the endorsements sometimes weren't in order.

These days, however, banks and investors are more careful about addressing any gaps in the paperwork before initiating a foreclosure. Also, courts all over the country have heard many cases on this issue (called "standing") and have decided against homeowners in many situations. It is now much more difficult to win your case based on a "produce the note" type of argument. Though, your case might be the exception.

The Mortgage Servicer Made a Serious Mistake

Mortgage servicers—companies that handle loan accounts—make mistakes all the time when they're dealing with borrowers and their accounts.

You might be able to challenge the foreclosure based on mistakes such as:

• crediting your payments to the wrong party (so you weren't, in fact, delinquent to the extent asserted by the foreclosing party)
• dual-tracking (pursuing a foreclosure at the same time a loan modification or other foreclosure avoidance option, like a short sale or deed in lieu of foreclosure, is pending) in violation of federal law or maybe state law, if applicable
• imposing excessive fees or fees not authorized by mortgage contract, or
• substantially overstating the amount you must pay to reinstate your mortgage. (Learn about common abuses and errors made by the mortgage servicing industry.)

Mistakes on the amount you must pay to reinstate your mortgage are especially serious. This is because an overstated amount may deprive you of the main remedy available to keep your home. For example, if the mortgage holder says you owe $4,500 to reinstate—perhaps because it imposes improper or unreasonable costs and fees—when in fact you owe only $3,000, you might not have been able to take advantage of reinstatement (say you could have afforded $3,000, but not $4,500).

You're a Servicemember on Active Duty

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.

More Common Foreclosure Defenses

Here are a few more common foreclosure defenses:

• You didn't receive a breach letter from the servicer notifying you of the default in violation of the terms of the mortgage or deed of trust.
• You have an FHA, VA, or USDA loan and you don't think that the lender followed federal regulations related to loss mitigation before starting the foreclosure. (There are specific laws governing loss mitigation when it comes to these kinds of loans.)
• You're making payments on a loan modification plan and therefore the foreclosure should not have been initiated. (To learn what to do—and what not do—in the loan modification process, read Do’s and Don’ts for Getting a Loan Modification.)

Hiring an Attorney

The foreclosure defenses mentioned in this article represent just a few of the options that might be available to you. There are, of course, others. To find out if you have one or more defenses to the foreclosure and how to raise those defenses in court, consider talking to a qualified attorney who can advise you what to do in your particular situation.