Sometimes homeowners aren't aware that a foreclosure sale has been scheduled until after it's already been completed. Even if your home has been sold, you might, in rare circumstances, be able to invalidate the sale.
Generally, to set aside a foreclosure sale, the homeowner must show:
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:
But 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 terms of the mortgage contract, this failure might constitute sufficient reason to set aside a foreclosure sale. For 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 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:
Though, 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 usually has to 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, 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.
The reasons that justify, as well as the procedures for, invalidating a foreclosure sale are complicated. If you're 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.