In the past, successful defenses against foreclosure were relatively rare. But since the foreclosure crisis and great recession, many homeowners have successfully challenged foreclosure actions.
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.