Sometimes homeowners aren't aware that a foreclosure sale has been scheduled until after it's completed. Even if your home has been sold, you might, in rare circumstances, be able to invalidate (set aside) the sale.
Generally, to set aside a foreclosure sale, the homeowner must show:
Still, it's best to raise any problems about a foreclosure before the process is complete, either as part of a judicial foreclosure, by filing a lawsuit to contest a nonjudicial foreclosure, or in a Chapter 13 bankruptcy. Successfully getting a court to set aside a foreclosure sale after it happens is very rare. If you're facing a foreclosure and think you have a defense, it's best to talk to an attorney as early as possible in the foreclosure process.
State statutes lay out the procedures for a foreclosure. If the foreclosure process had irregularities, meaning the foreclosure was conducted in a manner not authorized by the state's foreclosure laws, the sale could potentially be invalidated.
Some examples of irregularities in the foreclosure process are:
You'll have to prove that the foreclosure had significant irregularities, the process had major flaws, or that you suffered some harm because of, for example, a defective foreclosure notice. 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 might 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 mortgage contract terms, this failure might constitute sufficient reason to set aside a foreclosure sale. For example, many mortgages and deeds of trust require the lender or servicer to 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 and, as a result, the borrower loses out on time to get caught up on the overdue amounts, this omission could provide a basis 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. But it's difficult to get a sale set aside based on this argument.
Usually, to get a sale invalidated for inadequacy of sale price, you'll also need additional circumstances that warrant voiding the sale. For instance, courts are more likely to set aside a sale if an inadequate sales price is combined with:
Some courts are hesitant to void a sale unless the violation resulted in actual prejudice to the homeowner.
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. Talk to a lawyer to learn the specifics in your state.
If the property was foreclosed nonjudicially, the homeowner must usually file a lawsuit in state court to void the sale. It might also be possible, in some instances, to file bankruptcy and ask that the sale be set aside as part of the bankruptcy case.
A few nonjudicial foreclosure states 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 the property sold for fair market value at the foreclosure sale, and the court won't review other issues.
If the foreclosure sale is set aside as void, the title to the property is typically returned to the homeowner while the mortgage and other liens generally are re-established. But if the property has already been resold to another party, 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.
Some states give a foreclosed borrower a post-sale right of redemption. If you get the right to redeem the property, you can reclaim the home after a foreclosure sale by paying the price paid at the sale or the mortgage balance, plus foreclosure fees and costs. Some borrowers can redeem by refinancing the loan or curing the arrearage through a bankruptcy.
State laws vary in how significant a violation must be before a court will set a sale aside, and the procedures for invalidating a foreclosure sale are complicated and differ based on state law. Again, you might be limited to monetary damages, especially if a third party, particularly a bona fide purchaser, bought the property at the foreclosure sale.
If you're considering trying to set a foreclosure sale aside, you'll most likely need an attorney to help you through the process and ensure you fully understand your rights under the law.