In the past, successful defenses against foreclosure were relatively rare. Since the foreclosure crisis however, many homeowners have successfully challenged foreclosure actions. This is due, in large part, to the unearthing of more and more evidence that the mortgage servicing industry has been rife with errors. Because of this evidence, courts that once rubber-stamped foreclosure actions have shifted their sympathies towards homeowners. Homeowners and their attorneys may take advantage of this change in judicial attitude and challenge foreclosure actions in many different ways.
Common Foreclosure Defenses
Each state has specific procedures for foreclosures. In some cases, the foreclosing bank doesn’t follow state procedural requirements for bringing a foreclosure action. If this happens, you might be able to challenge the foreclosure. If your challenge is successful, the court will issue an order requiring the foreclosing bank to start over. Virtually all judges will overlook errors that are inconsequential, like the misspelling of a name. Similarly, if the foreclosing bank’s error doesn’t actually cause you any harm, it may not be worth fighting over. More serious violations will get a more serious response from the court. Only the loan holder (the loan owner or someone acting on the owner’s behalf) may foreclose. If the foreclosing party can’t prove it owns the loan, then it doesn’t have standing to foreclose. Banks sometimes have trouble producing the promissory note proving loan ownership. In many cases, the debt has been sold to different banks and investors sometimes over and over again. If the loan was bundled and securitized, determining if the foreclosing party actually owns it can be even more of a challenge. Even in situations where the original note is available, the endorsements sometimes aren’t in order. These days, banks and investors are pretty careful about addressing any gaps in their paperwork before initiating a foreclosure. Also, courts all over the country have heard many cases on standing and have decided against homeowners in many situations. It’s now much more difficult to win your case based a standing argument; though, your case might be the exception.
Mortgage servicers make mistakes all the time when they’re dealing with borrowers and their accounts. You might be able to challenge the foreclosure based on mistakes such as:
• crediting your payments to the wrong party (so you weren’t, in fact, delinquent to the extent asserted)
• dual-tracking (pursuing a foreclosure at the same time a loan modification or other foreclosure avoidance option, like a short sale or deed in lieu of foreclosure, is pending) in violation of federal law or maybe state law, if applicable
• imposing excessive fees or fees not authorized by mortgage contract, or
• substantially overstating the amount you must pay to reinstate your mortgage. (Learn more about common abuses and errors made by the mortgage servicing industry.)
Mistakes on the amount you must pay to reinstate your mortgage are especially serious. An overstated amount may deprive you of the main remedy available to keep your home. For example, if the mortgage holder says you owe $4,500 to reinstate when in fact you owe only $3,000 (perhaps because it imposed improper or unreasonable costs and fees), you might not have been able to take advantage of reinstatement. Say you could have afforded $3,000, but not $4,500. If you’re on active military duty, the Service members Civil Relief Act (SCRA) provides you with special protections. Most importantly, if you took out your mortgage before you were on active duty, your foreclosure must take place in court even if foreclosures in your state customarily occur outside of court, unless the lender gets a waiver from you. If a military member gets a mortgage after going on active duty, the SCRA provides certain foreclosure protections too.
Here are a few more common foreclosure defenses:
• You didn’t receive a breach letter from the servicer notifying you of the default in violation of the terms of the mortgage or deed of trust.
• You have an FHA, VA, or USDA loan and you don’t think that the lender followed federal regulations related to loss mitigation before starting the foreclosure. (There are specific laws governing loss mitigation when it comes to these kinds of loans.)
• You’re making payments on a loan modification plan and therefore the foreclosure should not have been initiated.
How to Raise a Defense to Foreclosure
In order to raise a defense to a foreclosure action, you must bring the issue before a judge. This is automatic in about half the states, where foreclosures are judicial, which means the foreclosure is accomplished through a civil lawsuit. In the other states, foreclosures typically take place outside of court (non-judicial foreclosures) and you have no automatic means to mount a legal challenge. To have your defenses ruled on by a judge in these states, you have to file a lawsuit alleging that the foreclosure is illegal for some reason and asking the court to put the foreclosure on hold pending the court’s review of the case. If you are unable to make your mortgage payments and are facing foreclosure, the worst thing you can do is ignore the problem. Some people assume that they can delay the process by doing nothing. That is not the case. Do not delay. Start by trying to negotiate a solution with your lender or by calling a U.S. Consumer Finance Protection Bureau (CFPB) counselor. You may be able to negotiate a lower interest rate, a temporary reduction in payment, or an extension of the loan term. If there is little hope of resuming payments and reinstating the mortgage, consider negotiating for a short sale, in which the lender allows the sale of the property for less than the amount owed on the mortgage. A lender may also accept a deed-in-lieu-of-foreclosure, with which the owner transfers the house to the lender with no further liability. If the situation is truly desperate, consult a bankruptcy attorney. If you are unable to negotiate a solution, consult a lawyer. Do not become involved with a “foreclosure rescue” company. These companies often make very attractive offers to take over your mortgage and allow you to continue to live in your home while you get back on your feet financially. Many are fraudulent and will use the title to your house to refinance and disappear with the money. Keep in mind that when you purchased your property, you likely signed both a mortgage or trust deed, which imposed a lien on the property and enables the lender to foreclose, and a promissory note. The note makes you personally liable and gives the lender the right to pursue payment through your other assets, for example, by garnishment of wages. Do not just walk away from a property without consulting an attorney about your liability.
Foreclosure State Law
Foreclosure differs from state to state. If you are in a state that permits non-judicial foreclosure, the lender can cause a foreclosure sale simply by providing notice. This is also called “power of sale” or statutory foreclosure. There is no requirement that the matter go to court. If the borrower has a defense, the borrower must file a lawsuit challenging the foreclosure and requesting that the judge “stay” (delay) the foreclosure suit. In 22 states, foreclosures are typically accomplished through civil lawsuits and judicial foreclosure orders. The borrower receives a foreclosure complaint and notice of a hearing. In most cases, the hearing is very short because the judge need only determine that the debt is valid and that the borrower is in default. Most borrowers do not dispute those facts but only want to discuss why they are unable to pay. Unfortunately, loss of a job, illness, and similar situations are not legal defenses. If the borrower has a legal defense, the borrower must properly raise and prove it.
Defenses To Foreclosure
Foreclosure laws are very complex, and the lender may have made a mistake in the process. A mistake in giving notice or in the timing may be a defense if it is not a harmless error, such as a misspelling. The lender may also have made mistakes before initiating foreclosure. For example, mortgages are commonly sold, and the owner of the debt often uses a separate company to “service” the loan. The privately-owned Mortgage Electronic Registration System (MERS) tracks the servicing rights and ownership of mortgages and sometimes assigns rights without recording the change in local property records. With multiple companies involved, borrowers sometimes send payments to the wrong company and are sometimes charged fees and penalties that were not authorized by the documents they signed. The company servicing the loan may have credited payments incorrectly or may have incorrectly calculated the amount that is required to reinstate the mortgage. The company that initiated foreclosure may not be able to prove that it owns the loan. Many of the mistakes can be fixed, so bringing them to the attention of the court will only cause a delay and not prevent foreclosure. The same is true of the Service members Civil Relief Act. That delay can be used to try to sell the property, negotiate with the lender, or seek other solutions. Under the Service members Civil Relief Act, 50 U.S.C. 501, active duty military personnel have special protections in foreclosure and other court proceedings. In a non-judicial foreclosure state, the Act may require the lender to go to court. In court proceedings, the service member may contact the court with proof of active duty and request a stay in the proceedings and even request the appointment of an attorney. The Act gives the courts flexibility to protect the service person. It is also possible that a mortgage was tainted from the beginning. In rare cases, a mortgage may be “unconscionable” because it is so unfair that it is “shocking.” Such situations typically involve people who are unable to protect their own interests, such as people with limited English or limited ability to read, who were not represented by a lawyer, and who were pressured into signing a one-sided agreement that contained an unusual term. More commonly, the mistake involves a federal or state statute. These statutes provide for a number of remedies, including, in some cases, to cancel or rescind the mortgage. The Truth in Lending Act, 15 U.S.C. 1602, requires that lenders make certain disclosures about costs and payments in the original loan documents and make those disclosures at specific times. To examine the required documents, visit the CFPB website. The Act has been amended and has been implemented by rules that provide special protections for borrowers in high-cost loan situations and those using home equity lines of credit. Some states also have special protections for people facing foreclosure. Consult your state’s consumer protection bureau for further information.
One way to attack a foreclosure is to argue that the foreclosing party does not have standing to foreclose. If the foreclosing party cannot produce the promissory note on which the loan is based, the court likely will dismiss the case. Producing the promissory note might be challenging if the mortgage has been transferred several times since the original lender. This “produce the note” defense is less widespread than it used to be, since foreclosing parties have put more effort into record-keeping. Many courts are now suspicious of these arguments; although that does not mean that you cannot make the defense if it applies. If the foreclosing party failed to follow the procedures required by state law, you can ask the court to dismiss the case. This may delay rather than permanently prevent the foreclosure, since the court probably will dismiss the case “without prejudice.” As a result, the foreclosing party can file the case again if they meet the requirements. The error must be at least somewhat meaningful for a court to dismiss a case on procedural grounds. This may involve showing that you were harmed by the error. Perhaps you never received notice of the default, for example, as required by the terms of the mortgage.
Substantive Foreclosure Defenses
As noted above, mortgage servicers handle a huge quantity of accounts, and their employees can make mistakes. For example, they might have failed to promptly credit your payments or might have credited your payments to another account. This would result in the record incorrectly stating that you have missed payments, which might lead to a foreclosure. They might also make a mistake in stating the amount that you need to pay to reinstate a mortgage. This may seem like a minor problem, but an overstatement can cause a homeowner to give up their home because they believe that they do not have enough funds to reinstate the mortgage. If you have already modified your loan, but the mortgage servicer has not adjusted its records to reflect the modification, it might proceed with a foreclosure based on this mistake. You can probably get rid of the foreclosure proceeding if you can show that you are making payments under the loan modification plan. Mortgage servicers also can engage in outright abuse. They may pile up excessive fees that are not permitted under the terms of the mortgage. Or they may violate federal and state laws that govern their interactions with homeowners. They may engage in dual tracking, which means pursuing a foreclosure while they are also negotiating with a homeowner on a way to avoid the foreclosure.
Types of Foreclosure Defenses In Utah
In Utah, foreclosure defenses (for residential foreclosures) can be categorized into three different arguments. Those arguments focus upon either
• the validity of the mortgage;
• whether or not there has been a “default” under the law; and
• if the lender had a legal right to accelerate the debt under the circumstances of the case.
Attacking The Validity Of The Mortgage: Foreclosure defendants are entitled to use any contractual defense that pertains to their circumstances. These defenses include issues like fraud, the statute of limitations and standing.
Fraud: If the borrower can demonstrate that the home loan was based upon fraud on the part of the lender or its agents, then the foreclosure action should fail. However, proving fraud is not easy to do because the elements of fraud must be proven with particularity. A successful fraud defense allows the home owner to obtain rescission of the mortgage or alternatively, affirm the deal and ask for money damages.
Foreclosure Lawyer in Utah
When you need to stop a foreclosure, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506