Sometimes homeowners are not aware that a foreclosure sale has been scheduled until after it has already been completed. Even if your home has been sold, there are some instances where you might be able to have the foreclosure sale invalidated, though this is uncommon. Read on to learn how to set aside a foreclosure sale and the circumstances that might warrant it.
(Learn more about foreclosure, options to avoid it, defenses to foreclosure, and more, in Nolo's Foreclosure topic area.)
Generally, to set aside a foreclosure sale, the homeowner must show:
State statutes lay out the procedures for a foreclosure. If there are irregularities in the foreclosure process—meaning, the foreclosure is conducted in a manner not authorized by the statute—the sale can potentially be invalidated.
Some examples of irregularities in the foreclosure process are:
Example. In U.S. Bank v. Ibanez, the Massachusetts Supreme Judicial Court invalidated two foreclosure sales where the mortgages were assigned to the lender after the completion of the foreclosure sale. The court decided that the foreclosures were void because the lenders lacked legal authority to foreclose.
However, in some states, courts are reluctant to set aside a foreclosure sale based upon violations of foreclosure statutes unless the violation resulted in actual prejudice (harm) to the homeowner. For instance, the homeowner may have to show that the lender’s failure to follow the statutory requirements chilled the bidding at the foreclosure sale and, as a result, the homeowner was liable for a larger deficiency judgment.
If the lender or servicer fails to comply with the terms of the mortgage contract, this may constitute sufficient reason to set aside a foreclosure sale.
Example. Many mortgages and deeds of trust require that the lender or servicer send the borrowers a breach letter giving them 30 days to cure the default before starting a foreclosure. If the servicer doesn't send a breach letter, this may provide grounds for invalidating the foreclosure.
Inadequacy of sale price might justify setting aside a foreclosure sale if the price is so low that it "shocks the conscience" of the court. It is often difficult to get a sale set aside on this basis. Usually to get a sale invalidated for inadequacy of sale price, you will also need additional circumstances that warrant voiding the sale.
For instance, courts are more likely to set aside a sale if there is an inadequate sales price combined with:
Though keep in mind that some courts might be hesitant to void the sale unless the violation resulted in actual prejudice to the homeowner.
The procedures to set aside a foreclosure sale depend on whether the sale was judicial (where the lender forecloses through the state court system) or nonjudicial (which means the lender does not have to go through state court to get one).
To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?
Attempting to invalidate the sale in a judicial foreclosure can typically be done in the following ways, depending on state law:
The actual process is generally determined by statute, rule, or case law.
If the property was foreclosed nonjudicially, the homeowner will usually have to file a lawsuit in state court to void the sale. It may also be possible in some instances to file bankruptcy and ask that the sale be set aside as part of the bankruptcy case.
There are a few nonjudicial foreclosure states that require a court to confirm the sale. In those states, the homeowner can sometimes raise objections to the sale in the confirmation process. However, in some states the confirmation process is limited to determining whether or not the property sold for fair market value at the foreclosure sale and the court will not review other issues.
If the foreclosure sale is set aside as void, title to the property is typically returned to the homeowner while the mortgage and other liens generally are re-established. However, if the property has been resold to another party following an invalidated sale, some state statutes provide that the subsequent sale to a good faith purchaser eliminates the foreclosed homeowner’s right to challenge the sale on procedural grounds. In these types of cases, the homeowner might be able to seek damages against the lender or servicer.
The reasons that justify, as well as the procedures for, invalidating a foreclosure sale are complicated. So, if you are considering trying to set aside a foreclosure sale, you'll most likely need an attorney to help you through the process and ensure that you fully understand your rights under the law.
(To learn more about challenging foreclosures, see Fighting Foreclosure in Court.)