Defenses to Foreclosure

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.

Summary of Potential Foreclosure Defenses

Some of the most common defenses to foreclosure include:

• the loan owner or mortgage servicer didn't follow the foreclosure procedures that state law requires
• the loan owner or mortgage servicer didn't follow federal mortgage servicing laws
• the foreclosing party can't prove it owns the loan (it lacks "standing")
• the servicer made a serious mistake when handling your loan account
• you're a military servicemember on active duty, and federal law protects you from foreclosure
• the loan owner or servicer violated federal law, such as the Truth in Lending Act or Real Estate Settlement Procedures Act
• the statute of limitations has passed, and
• the servicer used a defective affidavit or declaration in the foreclosure process.

A foreclosure attorney can often raise one or more different types of defenses. Below is a description of some common foreclosure defenses and how you can raise them in court.

The Loan Owner or Servicer Didn't Follow State Law

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 can 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 lender 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 with the lender, gotten refinancing, or taken advantage of state rules permitting reinstatement of the mortgage.

The Loan Owner or Servicer Didn't Follow Federal Mortgage Servicing Laws

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:

• the servicer informs you that you're not eligible for any loss mitigation option and any appeal has been exhausted
• you reject all loss mitigation offers, or
• you fail to comply with the terms of a loss mitigation option, such as a trial modification.

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—then 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.

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

Only the loan holder (the current loan owner or someone acting on the owner's behalf) may conduct a foreclosure. 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 initiating 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 the exception.

The Mortgage Servicer Made a Serious Mistake

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

• the servicer credited your payments to the wrong party, so you weren't, in fact, delinquent to the extent asserted
• the servicer dual-tracking your loan (continued with a foreclosure at the same time that a loan modification or another foreclosure avoidance option, like a short sale or deed in lieu of foreclosure, was pending) in violation of federal law or maybe state law, if applicable
• the servicer charged you excessive fees or fees that the loan contract doesn't authorize, or
• the servicer substantially overstated the amount you must pay to reinstate your mortgage.

Mistakes about the amount you must pay to reinstate your mortgage are especially serious. An overstated amount might rob you of the main remedy to keep 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.

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 against foreclosure. 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 (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.

Truth in Lending Act and Real Estate Settlement Procedures Act Violations

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.

Loan Ownership Notices Under TILA

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).

Notice of Servicing Transfer Under RESPA

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).

The Statute of Limitations Expired

If a significant amount of time goes by after you stop making mortgage payments and when the lender 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.

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.

Defective declarations can be an issue in nonjudicial foreclosures.

Judicial Foreclosure Affidavits

Typically, in a judicial foreclosure, the loan owner 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 charged
• the amount of interest owed, and
• the loan's balance.

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, must review the loan documents and sign the affidavit. At least, that's how it's supposed to work.

If an affidavit that a lender 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.

Declarations in Nonjudicial Foreclosures

Some states require specific declarations, which are similar to affidavits, 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 unsworn (meaning, not given under oath).

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.

What Are Some More Common Foreclosure Defenses?

Here are a few more often-used foreclosure defenses:

• You didn't receive a breach letter from the servicer notifying you of the default, which is a violation of the mortgage or deed of trust's terms.
• You have an FHA-insured, VA-guaranteed, 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. So, the foreclosure shouldn't have started.

How to Raise a Defense to Foreclosure

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.

Talk to a Lawyer

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 local lawyer 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.