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. 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.
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 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.
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 (the legal right) 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 actually 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.
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 a standing argument; though, your case might be the exception.
Mortgage servicers 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:
Mistakes on the amount you must pay to reinstate your mortgage are especially serious. 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).
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.
Here are a few more common foreclosure defenses:
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.
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.