If it’s clear that the foreclosing lender (or subsequent loan owner, called an "investor") or the loan servicer failed to follow the law and, as a result, you were deprived of an important right, it might be worth it to go to court and contest the foreclosure. After all, if you could get the foreclosure dismissed or significantly delayed, you might be able to stay in your house much longer than you would otherwise. And that, of course, could have significant financial and emotional benefits.
Over the years, attorneys have come up with a panoply of theories to contest foreclosures. This article describes the most common circumstances in which you might want to contest a foreclosure in court.
In most states, the foreclosing party must take one or more of the following steps, depending on state law and the type of foreclosure (judicial or nonjudicial). If the lender skips a step, you might able to contest the foreclosure.
In a judicial foreclosure, the lender typically must:
In a nonjudicial foreclosure, the lender might have to:
All of these notices have time limits and specific content requirements. For instance, a notice might have to describe the property, the amount due on the mortgage loan, the amount necessary to reinstate the mortgage including costs and interest, and information on the person you can contact to discuss the notice.
Major violations will get a more serious response from the court. For example, if the servicer fails to send you a notice of default that's required by state law, it might have to start over because the lack of adequate notice deprived you of valuable time to resolve the problem. You might have modified the loan, gotten refinancing, or taken advantage of state rules permitting reinstatement or redemption.
Because every foreclosure means that someone loses a home, courts require the foreclosing party to strictly follow state law and respect the terms of the mortgage or deed of trust. If they don’t, you can call them on it. But if the foreclosing party makes a trivial violation of the rules, the judge will probably let it go. Virtually all judges overlook errors that are inconsequential, such as the misspelling of a name. And the statutes of some states specifically provide that certain procedural errors will not affect the right of the foreclosing party to obtain the foreclosure.
Similarly, if the foreclosing party’s error doesn’t actually cause you any harm, it’s probably not worth fighting over. Most courts will overlook a violation that is technical in nature and doesn’t deprive you of a fair procedure, on the principle of “no harm, no foul.” For example, say the servicer failed to record a notice in the local land records office—a typical requirement—on time, but you got your required notice on time. The court might well decide that the failure to record didn’t harm you and allow the foreclosure to proceed.
If you’re on active military duty, and you took out your mortgage before going on active duty, you have some special protections under the Servicemembers Civil Relief Act (SCRA). For example, you can generally postpone the foreclosure by making a request in writing. Also, if a foreclosure is completed against you while you’re on active duty, or one year thereafter, the sale is invalid unless a court approved it before the sale or you agreed to the foreclosure by waiving your rights. The waiver must be in writing and be executed while you are on active duty or afterwards. The right to a judicial foreclosure can’t be waived beforehand.
A home loan consists of two basic parts: a promissory note, which sets out the terms of the loan, and a security agreement (a mortgage or deed of trust), which makes the real estate collateral for the loan. The mortgage (or deed of trust) also sets out the terms under which a foreclosure may occur in case of a default.
When the loan changes hands, the promissory note is endorsed (signed over) to the new owner of the loan. In some cases, the note is endorsed in blank, which makes it a bearer instrument under Article 3 of the Uniform Commercial Code (UCC). This means that any party that possesses the note has the legal authority to enforce it. In practice, all states have adopted the UCC or some form of it. Similarly, the mortgage (or deed of trust) is “assigned” to the new owner. Assignments are typically recorded in the land records.
In the early days of the foreclosure crisis, attorneys representing homeowners were sometimes successful in delaying or derailing foreclosures on the grounds that ownership had not been satisfactorily established due to gaps in the chain of endorsements or assignments. The legal theory involves a concept called “standing”—that is, who has the right to foreclose. But now lenders and servicers are more careful about addressing any gaps before starting the foreclosure. Also, courts have heard this issue often and have decided against homeowners in many situations, making it harder to prevail on an argument based on standing. Still, your case might be the exception.
While this article has covered the most common circumstances in which you might want to contest a foreclosure in court, there are others. To learn about all potential defenses in your particular situation, consider talking to a foreclosure lawyer. Also, keep in mind that cases about the ownership of mortgages, deeds of trust, and promissory notes and the legality of foreclosure proceedings can be very difficult to argue. You’ll most likely need an attorney to help you review your ability to raise a foreclosure defense and argue it in court if you decide to go this route.