Foreclosure Defenses: Failure to Comply With Procedural Requirements

If the servicer or lender doesn't follow procedural requirements, you might be able to force them to start the process over.

Because a foreclosure ultimately results in someone losing a home, courts take the process very seriously. If the servicer or current holder of the mortgage loan (called the "lender" in this article) doesn't strictly follow state law and act in accordance with the terms of the mortgage or deed of trust, you might be able to stop the foreclosure.

Read on to learn more about typical foreclosure requirements, which types of errors could provide grounds to stop the foreclosure, and how you can challenge the foreclosure if the servicer or lender doesn’t comply with all of the procedural requirements.

Typical Foreclosure Requirements

In most foreclosures, the servicer and lender must do some or all of the following to properly foreclose. (Although, the actual procedure will vary depending on the state and whether the foreclosure is judicial or nonjudicial.)

Foreclosing Party Must Meet Preforeclosure Loss Mitigation Requirements

During the foreclosure crisis, several states enacted preforeclosure loss mitigation requirements. Typically, under these laws, the servicer or lender must:

  • inform the homeowner about mediation options
  • provide contact information so the homeowner can explore options to avoid foreclosure, and/or
  • refer the homeowner to housing counseling agencies and legal services programs.

For example, California law requires the servicer to personally contact the homeowner by phone or in person 30 days before recording a notice of default (the official start to the foreclosure process in that state) to assess the homeowner's financial situation and explore options to avoid foreclosure. If the servicer can't reach the borrower, it has to satisfy specific attempt requirements. Federal law also has specific preforeclosure loss mitigation requirements.

A lender’s failure to comply with preforeclosure loss mitigation requirements might serve as a basis for challenging the foreclosure.

Mortgages and Deeds of Trusts Often Require a Breach Letter

Mortgages and deeds of trusts often contain a clause that requires the lender to send a notice, commonly called a breach letter or demand letter, informing the borrower that the loan is in default before it can accelerate the loan and proceed with foreclosure. (The acceleration clause in the contract permits the lender to demand that the entire balance of the loan be repaid if the borrower defaults on the loan.)

The breach letter generally must specify:

  • the default
  • the action required to cure the default
  • a date (usually not less than 30 days from the date the notice is given to the borrower) by which the default must be cured, and
  • that failure to cure the default on or before the date specified in the notice may result in acceleration of the debt and sale of the property.

Because mortgages and deeds of trust are contracts, the lender must strictly comply with the terms to properly foreclose. If the lender or servicer neglects to send the breach letter and you raise this issue with the court, they might have to start the process over.

The Lender Must Follow State Procedures

Based on state law, the servicer or lender must provide appropriate and timely notice of the foreclosure. As part of the foreclosure, the lender or servicer might be required to:

  • mail you a notice of default in a nonjudicial foreclosure
  • serve you with a copy of the complaint in a judicial foreclosure
  • record certain documents in the local land records office
  • serve you with a notice of foreclosure sale, and
  • publish notice of the foreclosure sale in the appropriate place or manner (usually for a certain number of weeks in a newspaper in the county where the property is located).

These notices all have specific time limits and specific content requirements. For example, the notice might have to describe the property that's being foreclosed, include the amount due, state the amount necessary to cure the default, and provide information about the person who you can contact to discuss the notice.

What are "Regularities of Sale"?

When a court looks at the regularities of the foreclosure sale process, it conducts an examination to determine whether proper procedures were followed or whether there was some defect in the sale. Whether the court does this in all or most cases, or only under certain circumstances, depends on state law and foreclosure procedure.

In Georgia, for example, most foreclosures are nonjudicial but the court must confirm the sale if the lender wants to pursue a deficiency judgment against the borrower. As part of the hearing to confirm the foreclosure sale, the court will routinely evaluate the regularity of the sale. At the hearing to confirm the sale, the court will review whether or not the lender followed proper foreclosure procedures by looking at things such as:

  • the notices that the lender sent to the borrower
  • the foreclosure sale advertisement that the lender published, and
  • whether there was any fraud or other irregularities in the sale.

If the foreclosure sale was not proper, the court may order a resale of the property.

If a lender doesn't comply with all of the state-specific requirements, you might be able to force the lender to go back and re-do the foreclosure, or at least correct the defect, which can provide you with valuable time to try to work out an alternative.

Some Errors Are More Serious than Others

Major violations of the law, like if the lender failed to send you a notice of default as required by state law or a breach letter as required by the deed of trust, will probably cause the lender to have to start the foreclosure over. In this type of situation, a court will usually require a restart because, if you don’t receive proper notice, the foreclosure can come as a complete surprise. You might have little time to try to cure the default or work out a deal to avoid foreclosure. In general, courts aren't likely to allow errors that deprive you of valuable time to resolve the problem.

But if the error is minor and doesn't cause you any harm, then it probably won’t stop the foreclosure. For example, violations such as the misspelling of a name are almost always considered inconsequential in the eyes of the court. In fact, some state statutes even specifically state that certain trivial procedural errors will not affect the foreclosure.

How to Fight the Foreclosure

If you think the lender committed a procedural error and want to fight the foreclosure, the way you go about it depends on whether the process is judicial or nonjudicial.

Judicial foreclosure. In a judicial foreclosure, the lender files a lawsuit in state court. You will receive a foreclosure complaint, petition, or similar document, along with a summons. In this type of foreclosure, you will have the opportunity to raise defenses and counterclaims in an answer to the foreclosure complaint. (To learn more, read our article How to Fight a Foreclosure in Court: Judicial Foreclosure.)

Nonjudicial foreclosure. With a nonjudicial foreclosure, the foreclosure is typically completed completely outside of the court system. There usually isn't a court hearing or other opportunity for you to raise defenses or counterclaims so you'll need to file your own lawsuit to bring up any procedural errors committed by the lender. (To learn more, read our article How to Fight a Foreclosure in Court: Nonjudicial Foreclosure.)

Hiring an Attorney

Lenders and servicers often make procedural errors in the foreclosure process, yet most of the time these errors go unchallenged by the homeowner. If you're facing foreclosure and think that the lender or servicer has not complied with legal requirements, you should speak to a qualified attorney who can advise you about what to do in your circumstances.

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