If it’s clear that the foreclosing party failed to follow the law and that as a result, you were deprived of an important right, it may be worth it to go to court and contest the foreclosure. After all, if you could get the foreclosure lawsuit dismissed or significantly delayed, you may be able to stay in your house much longer than you would otherwise. And that, of course, could have significant financial and emotional benefits.
This article lists the most common circumstances in which you may want to contest a foreclosure in court. But there are others. Over the years, attorneys have come up with a panoply of theories to contest foreclosures, drawing on the common law—law fashioned in cases decided by our courts. None of these theories are widely used; however, it’s possible that one might be useful in your case.
For example, you might be able to block foreclosure by arguing that your loan terms are unconscionable—that is, so unfair that they shock the conscience of the judge. In one case, for example, the borrower spoke very little English, was pressured to agree to a loan that he obviously couldn’t repay, was not represented by an attorney, and was unaware of the harsh terms attached to the loan (such as an unaffordable balloon payment).
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. (See our article on special protections for active duty service members for more detail on these rules.)
Because every foreclosure means that someone loses a home, many 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 lender failed to record the notice of default 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.
More serious violations will get a more serious response from the court. For example, if the lender failed to send you a notice of default as required by state law, the lender 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 of the mortgage.
In most states, the foreclosing party must take one or more of the following steps, depending on the state and the type of foreclosure (judicial or nonjudicial). If the lender missed a step, you may able to contest the foreclosure. Sometimes, in a nonjudicial foreclosure, the lender must:
mail you a notice of default, telling you how much time you have to reinstate the mortgage
In a judicial foreclosure, the lender typically must:
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, the amount necessary to reinstate the mortgage including costs and interest, and information on the person you can contact to discuss the notice.
A mortgage loan consists of two basic parts: a promissory note setting out the terms of the loan and a security agreement—a mortgage or deed of trust—making the real estate collateral for the loan and setting out the terms under which a foreclosure may occur in case of a default. When the loan changes hands, the promissory note is indorsed (signed over) to the new owner of the loan. In some cases, the note is indorsed 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 indorsements or assignments. The legal theory involves a concept called “standing”—that is, who has the right to foreclose. However, now lenders 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 may be the exception.
If you have equity in your house or can afford to continue making your monthly mortgage payment (ideally, both), you might want to fight to keep your home.
When you bought your house, presumably it was worth more than the amount you borrowed to buy it. If your house is still worth at least as much as you owe on it, it may make sense to oppose the foreclosure or maybe to sell it and get out from under the loan.
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. If you do decide to represent yourself, Nolo has an excellent book on this topic. See Represent Yourself in Court, by Paul Bergman and Sara Berman.