Recent laws protecting homeowners and greater awareness of errors and abuses by mortgage servicers have increased the options of homeowners who are defending against a foreclosure. The process of challenging a foreclosure varies based on whether the foreclosure is judicial or non-judicial. If the lender is pursuing a foreclosure in court, you can challenge this judicial foreclosure proceeding by responding to the lender’s complaint. If the lender is pursuing a foreclosure outside court, you can challenge a non-judicial foreclosure by initiating a lawsuit to stop the process until a court reviews the foreclosure.
A successful defense may take several different forms, ranging from procedural issues to substantive errors or abuses. You can raise several different defenses if you believe that each of them applies. Failing to raise a certain defense may waive it, so you should bring all of your arguments to the court’s attention at the outset.
Procedural defense = a defense based on the rules that apply to the case (such as when the defendant did not receive the required notice)
Substantive defense = a defense based on the specific facts of the case (such as when the defendant is not behind on their mortgage payments)
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.
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.
People who have taken out loans through the USDA, the FHA, or the VA have certain additional rights to loss mitigation under federal law. Pointing out a violation of these rights can prevent a foreclosure until the lender complies with the law.
Meanwhile, servicemembers on active military duty have specific protections under the Servicemembers Civil Relief Act. You may have a right to force a lender to pursue a judicial foreclosure instead of a non-judicial foreclosure if you took out your mortgage before going on active duty. If you took out your mortgage after going on active duty, you still may have some narrower rights under the SCRA.
TILA and RESPA Violations
Under the Truth in Lending Act (TILA), a borrower must receive notice of a mortgage's transfer to a new owner or assignee within 30 days. Under the Real Estate Settlement Procedures Act (RESPA), a borrower must receive notice of a servicing transfer from their old servicer at least 15 days before the transfer takes effect and must receive notice from their new servicer not more than 15 days after the transfer.
These are just some examples of possible defenses to a foreclosure. You can consult an attorney in your state to find out whether other defenses may apply to your situation.