Defenses to Foreclosure

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:

• the foreclosing bank didn't follow the required state procedures
• the foreclosing party can't prove it owns the loan (it lacks "standing")
• the mortgage servicer made a serious mistake when handling your loan
• you're a servicemember on active duty and protected by the Servicemembers Civil Relief Act
• the statute of limitations has passed, and
• the servicer used a defective affidavit or declaration.

Here are details about these defenses, and others, and how you can raise them in court.

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 Bank Didn't Follow State Procedures

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.

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

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.

The Mortgage Servicer Made a Serious Mistake

Mortgage servicers often make mistakes when they're dealing with borrowers and their accounts. You might be able to challenge the foreclosure based on errors like:

• crediting your payments to the wrong party (so you weren't, in fact, delinquent to the extent asserted)
• 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.

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.

You're a Servicemember on Active Duty Protected By the Servicemembers Civil Relief Act

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.

The Statute of Limitations Has Passed

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.

Defective Affidavits and Declarations

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.

Judicial Foreclosure Affidavits

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:

• the number of months the homeowner is behind in payments
• that the lender owns the mortgage and note
• the fees and costs of the foreclosure
• the amount of interest owed, and
• the principal balance of the loan.

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.

Declarations in Nonjudicial Foreclosures

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:

• personally contacted the homeowner to discuss options to avoid foreclosure, or
• has met the due diligence requirements for attempting to contact the homeowner.

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.

More 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.
• The servicer violated federal mortgage servicing laws.
• You have an FHA, VA, or USDA loan, and the lender didn't follow federal regulations related to loss mitigation before starting the foreclosure. Specific laws govern loss mitigation when it comes to these kinds of loans.
• You're making payments on a loan modification plan, and therefore the foreclosure shouldn't have been initiated.

How to Raise a Defense to Foreclosure

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.

Hiring an Attorney

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.