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Defenses to Foreclosure

Until recently, successful defenses against foreclosure were relatively rare. But that is changing rapidly -- more homeowners are successfully challenging foreclosure actions.

This change is due, in large part, to the unearthing of more and more evidence that the real estate industry has been rife with fraudulent and predatory lending practices. Because of this evidence, courts that once rubber-stamped foreclosure actions are now shifting their sympathies towards homeowners.

Homeowners and their attorneys are taking advantage of this change in judicial attitude, and challenging foreclosure actions in many different ways. Here's a review of some of the most common defenses to foreclosure, and how to raise them in court.

How to Raise a Defense to Foreclosure

In order to raise a defense to the foreclosure action, you must bring the issue before a judge. This is automatic in about half the states, where foreclosures are typically accomplished through civil lawsuits and judicial foreclosure orders.

In the other states, foreclosures typically take place outside of court (these are called nonjudicial 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. 

Common Foreclosure Defenses

As courts are increasingly sympathetic to challenges to foreclosure actions, attorneys across the country are raising many different types of defenses. Below is a description of the most common of these.

Defending foreclosures using the Homeowner Bill of Rights

In 2012, SB900 was introduced and signed into law. SB900 took effect on January 1, 2013 and was touted as the Homeowner Bill of Rights (“HBOR”).

The two most important provisions of the HBOR restrict “dual tracking” and require “single points of contact.” Dual tracking occurs when a bank forecloses on a homeowner while the loan is being reviewed for a modification. A single point of contact has been defined as a person or group of people in which a borrower can immediately contact and receive information about their modification. These provisions only scratch the surface.

Sadly, not even black letter law can put a leash on the Nation’s out-of-control mortgage industry.

While the HBOR provided a false sense of security to homeowners, the truth is that the mortgage industry continues to erroneously rely on Nymark and simply does not care about California law. Homeowners are still being foreclosed upon by the bank while simultaneously being reviewed for a loan modification.

The Terms of the Mortgage Are Unconscionable

Over the years, attorneys have used a branch of law called "equity" to come up with a panoply of approaches to defending against foreclosure. The equity branch of law focuses on fairness in situations where a legal statute doesn't provide adequate relief. It usually isn't enough to simply claim that the foreclosure is unfair; rather, you have to come up with a specific justification for your position that has previously been recognized by the courts.

One such justification is a principle known as unconscionability -- that is, the terms of your mortgage, or the circumstances surrounding it, are so unfair that they "shock the conscience of the judge." In one case where this defense was successful 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 ).

You Are a Service member on Active Duty

If you're on active military duty, the Servicemembers 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. If a foreclosure is initiated while you're on active duty, you can receive a postponement of the proceeding by requesting it from the court in writing.

The Foreclosing Party Didn't Follow State Procedures

In some cases, the foreclosing party doesn't follow state procedural requirements for bringing a foreclosure action (for example, it fails to properly serve on you a notice of default required by state law). If this happens, you may be able to challenge the foreclosure. If your challenge is successful, the court will issue an order requiring the foreclosing party to start over.

Virtually all judges will overlook errors that are inconsequential, such as the misspelling of a name. Similarly, if the foreclosing party's error doesn't actually cause you any harm, it may not be worth fighting over. More serious violations will get a more serious.

The Foreclosing Party Can't Prove It Owns the Mortgage

Only the mortgage holder (the loan owner or someone acting on the owner's behalf) may bring the action. If your mortgage, like many, has been sold and bought by many different banks, lenders, and investors, proving just who owns it can be difficult for the last holder in the chain. Appropriate documentation of who owns the mortgage must be presented, and this is often difficult for the foreclosing party to do.

The Mortgage Servicer Made a Serious Mistake

Mortgage servicers (entities who contract with banks and other lenders to receive and disburse mortgage payments and enforce the terms of the mortgage) make mistakes all the time when they're dealing with borrowers. A study by law professor Katherine M. Porter showed that in 1,700 Chapter 13 bankruptcy cases, a majority of the claims submitted by mortgage owners had errors. (Misbehavior and Mistake in Bankruptcy Mortgage Claims, Texas Law Review 2008.)

You may 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 by the foreclosing party)
  • imposing excessive fees or fees not authorized by the lender or owner, or
  • substantially overstating the amount you must pay to reinstate your mortgage.

Mistakes on the amount you must pay to reinstate your mortgage are especially serious. This is because 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 (perhaps because it imposes unreasonable costs and fees), when in fact you owe only $3,000, you may not have been able to take advantage of reinstatement (say you could have afforded $3,000, but not $4,500).

The Original Lender Engaged in Unfair Lending Practices

You may be able to fight your foreclosure by proving that your lender violated a federal or state law designed to protect borrowers from illegal lending practices. Two federal laws protect against unfair lending practices associated with residential mortgages and loans: the Truth in Lending Act (TILA) and an amendment to TILA commonly termed the Home Ownership and Equity Protection Act (HOEPA).

Lenders violate TILA when they don't make certain disclosures in the mortgage documents, including the annual percentage rate, the finance charge, the amount financed, the total payments, the payment schedule, and more.

In the case of loans covered by HOEPA, lenders must comply with various notice provisions and are prohibited from using certain mortgage terms, such as prepayment penalties if the loan is a high-cost home loan.

The right to rescind the loan. TILA and HOEPA provide a number of remedies for the borrower if these laws are violated. However, the key remedy in foreclosure actions is the borrower's ability to retroactively cancel or rescind the loan under certain circumstances if the violation is "material" (that is, significant or substantial). This is referred to as the right to an "extended rescission." 

State-law remedies for "high-cost" loans. A few states have special protections for people facing foreclosure on "high-cost" mortgages. If your state is one of these, and the lender has violated any of its provisions, you might be able to raise that violation as a defense in your foreclosure case.

Original Link: http://www.nolo.com/legal-encyclopedia/defenses-foreclosure-29937.html 

This website is for informational purposes only. Please do not construe anything contained herein as legal advice. Each case is different depending on the facts. Most of the content on this site is based on a general application of the law that may not be applicable to your case. For the best advice, give us a call and speak with an attorney.

 

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