In the past, successful defenses against foreclosure were relatively rare. Since the foreclosure crisis and great recession, however, many homeowners have successfully challenged foreclosure actions. The rise in the number of successful defenses to foreclosure 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. Some of the most common defenses to foreclosure include:
• the foreclosing bank didn’t follow the required state procedures
• the foreclosing party can’t prove it owns the loan (it lacks “standing”)
• the mortgage servicer made a serious mistake when handling your loan
• you’re a service member on active duty and protected by the Service members Civil Relief Act
• the statute of limitations has passed, and
• the servicer used a defective affidavit or declaration.
Common Foreclosure Defenses
A foreclosure attorney is often able to raise one or more different types of defenses. Below is a description of a few common foreclosure defenses.
The Foreclosing Bank Didn’t Follow State Procedures
Each state has specific procedures for foreclosures. In some cases, the foreclosing bank doesn’t follow state procedural requirements for bringing a foreclosure action. In this scenario, 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. Be aware, though, that virtually all judges will overlook inconsequential errors, like the misspelling of a name. Similarly, if the foreclosing bank’s mistake doesn’t actually cause you any harm, it might not be worth fighting over. More serious violations will get a more serious response from the court.
The Foreclosing Party Can’t Prove It Owns the Loan (It Lacks “Standing”)
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 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, or an assignment might be missing. 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 on a standing argument; though, your case might be the exception.
The Mortgage Servicer Made a Serious Mistake
Mortgage servicers often make mistakes when they’re dealing with borrowers and their accounts. You might be able to challenge the foreclosure based on errors like:
• 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.
Mistakes on the amount you must pay to reinstate your mortgage are especially serious. An overstated amount might deprive you of the main remedy available to keep your home. For example, suppose 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). In that situation, you might not have been able to take advantage of reinstatement. Say you could have afforded $3,000, but not $4,500.
You’re a Service member on Active Duty Protected By the Service members Civil Relief Act
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.
The Statute of Limitations Has Passed
If a significant amount of time lapses between when you stop making your mortgage payments and when the lender initiates a foreclosure (or restarts one against you), the action might violate the statute of limitations. When applicable, the statute of limitations can be a strong defense against a foreclosure.
Defective Affidavits and Declarations
Generally, when people think of defective foreclosure affidavits, the first thing that comes to mind is the rob signing scandal where loan servicers filed thousands of unverified, fraudulent affidavits in judicial foreclosures. But, defective declarations which are similar to affidavits can be an issue in non-judicial foreclosures as well.
Judicial Foreclosure Affidavits
Typically, in a judicial foreclosure, the loan owner (the foreclosing party) must complete a written statement signed under oath, which is called an “affidavit,” to get a final judgment of foreclosure.
The affidavit usually includes information like:
• the number of months the homeowner is behind in payments
• that the lender owns the mortgage and note
• the fees and costs of the foreclosure
• the amount of interest owed, and
• the principal balance of the loan.
These affidavits are often called “affidavits of indebtedness.” The affidavit information is supposed to be truthful, accurate, and adequately supported by file documentation. A person, usually a bank employee, reviews the loan documents and signs the affidavit. At least, that’s how it’s supposed to work.
Declarations in Non-judicial Foreclosures
Some states require specific declarations, which are similar to affidavits, in non-judicial foreclosures. A declaration is a formal statement of facts concerning the case. But unlike an affidavit, it is unsworn.
In Utah or California foreclosure, for example, the lender or servicer has to complete a loss mitigation declaration as part of the non-judicial foreclosure process. The foreclosure can’t start either by the issuance of a notice of default or recording a notice of default until the lender or servicer has:
• personally contacted the homeowner to discuss options to avoid foreclosure, or
• has met the due diligence requirements for attempting to contact the homeowner.
More Foreclosure Defenses
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.
• The servicer violated federal mortgage servicing laws.
• You have an FHA, VA, or USDA loan, and the lender didn’t follow federal regulations related to loss mitigation before starting the foreclosure. Specific laws govern loss mitigation when it comes to these kinds of loans.
• You’re making payments on a loan modification plan, and therefore the foreclosure shouldn’t have been initiated.
How to Raise a Defense to Foreclosure
To raise a defense to a foreclosure action, you must bring the issue before a judge. In about half the states where foreclosures are judicial, which means the foreclosure is accomplished through a civil lawsuit; you automatically get a chance to tell your side of the story to a court. 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.
Why Use a Foreclosure Defense Attorney?
The market is officially saturated with self proclaimed “foreclosure rescue consultants” and dozens of companies seeking to grab money from financially distressed families who are in a panic. To make matters worse, several entities calling themselves law firms or legal groups have become glorified processing centers and illegal partnerships, where clients don’t even speak to a lawyer. Who can you trust from start to finish? What if the lender doesn’t approve your request? A licensed attorney can help you execute any and every option available. The last couple of years have been quite unstable for the housing market. People are facing foreclosure and losing their homes. According to statistics, in Florida 6% of all the mortgages are facing foreclosure proceedings.
Options for Homeowners to Avoid Foreclosure
The fact is that for vast majority of people foreclosures are stressful, confusing and overwhelming because they do not know much about the foreclosure proceeding. They are not aware of the fact that there are options available to them that can help them avoid foreclosure proceedings. Here is a quick breakdown of the most popular options:
A specialized foreclosure defense attorney can lay out the options available to homeowners who are facing foreclosure. Under the Housing Bill, homeowners facing foreclosure can go for loan modification. Assistance of a foreclosure defense attorney can help a homeowner negotiate the mortgage modification with the lenders.
Still another option that homeowners have is that of short sale. Under this option the homeowner will sell the mortgaged property for less than balance owed on the loan. The proceeds of the sale are given to the lender. Before the sale, the short sale lawyer will negotiate with the bank. The short sale attorney will convince the bank that due to economic or financial hardship, the bank should agree to a discount the loan balance. Therefore, after the house is sold the remaining balance is discounted.
Deed In Lieu
Another way that a homeowner can avoid foreclosure is by opting for deed in lieu. The homeowner’s real estate attorney will negotiate with the lender. The homeowner will sign over the deed or title of the property to the bank and the bank in return will cancel the mortgage.
Another option that a real estate lawyer can suggest to a homeowner is that of filing bankruptcy. This will not only stop all foreclosure proceedings but will also give a chance to the homeowner to repay some of the debt and retain the house.
A Utah real estate attorney can also suggest the option of refinancing to avoid foreclosure. Refinancing simply means that the homeowner replaces the existing mortgage with a new one. In most cases, the new mortgage comes with lower interest rates and better terms and conditions.
A very good option that a foreclosure defense attorney might suggest is that of reverse mortgage. This is imply a loan against the property. A homeowner does not need to repay the loan as long as he/she lives there. However, this option is mostly available to those who own the property and are over 62 years of age.
In many cases it has been seen that homeowners can successfully contest foreclosure proceeding. A foreclosure defense Jacksonville lawyer can help homeowners find the legal grounds on which the proceedings can be challenged. It might be possible that the mortgage company has filed the foreclosure proceedings illegally. A cautious attentive homeowner with the help of a foreclosure defense Florida attorney will be able to figure out what is illegal about the proceedings.
Are There Any Legal Defenses Against Foreclosures?
The very idea that you could lose your house is a very scary and stressful thought. This matter can be made even worse when you do not believe you have any way to defend yourself against a foreclosure action. However, there are some legal defenses that you can use when facing an action for foreclosure. Although many foreclosure legal defenses will depend on state law and the facts of a specific case, the following are some general foreclosure legal defenses that you might be able to use in such a case:
• Mistakes: A mortgage agreement is basically a contract, meaning that it is subject to contract laws and standards. Thus, if a mortgage agreement contains a major mistake or error, then it could potentially affect the outcome of a foreclosure action.
• Fraud or Undue Influence: Mortgage documents cannot be signed or created under conditions of fraud or undue influence. Therefore, if you believe that you were forced to sign a mortgage agreement under the threat of violence or by deceit, then such actions could invalidate the mortgage agreement.
• Mortgage scams: Various types of mortgage schemes and scams have arisen over the last decade. In particular, predatory lending is one of the most common and is considered a statutory violation in many states.
• Statutory Violations: Each state has its own laws and legal requirements, which outline the foreclosure process. If a lender has violated these laws, then this could act as a defense against a foreclosure action.
• Promissory Notice Issues: Only the original owner of a mortgage loan may initiate the foreclosure process. Once this process begins, the owner must be able to provide evidence of the original promissory note. If an entity cannot provide proof that they are in fact the owner of the promissory note, any foreclosure proceedings must be postponed until they can supply proper proof.
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