You’ve been served with a complaint: your lender is going to foreclose. Now what?
Foreclosure defense involves fighting back against a lender who is trying to foreclose to either stall the foreclosure process or stop it altogether. A brief history lesson puts the practice in its proper context.
Securitization Has Changed the Way Banks Do Business
In the old days, mortgages were originated and held by the same lender for the entire life of the loan. If there was a problem, you could simply call your local banker, explain your circumstances and it would be in his or her best interest to work something out. Unfortunately, things don’t work like this any more. The odds of getting a decision maker on the phone at your bank are about as good as winning the lottery.
Over the last 10 years, the practice of “securitizing” mortgages has changed everything. It is a rare mortgage loan that hasn’t been packaged and sold to investors who, in turn, collect a stream of revenue plus interest from the mortgage pools they purchase. It is the investor, and not your original lender, who has ultimate control over your mortgage. Through companies that act as “servicers”, they collect payments, issue default notices and, when the time comes, initiate foreclose proceedings. In many cases, it makes more financial sense for the servicer to foreclose rather than work out a mortgage modification. The system is actually structured in such a way that your servicer (who you likely think of as your lender) makes money by foreclosing on you and loses money modifying your mortgage. For information on the skewed incentives in the mortgage servicing market, read this excellent article by Diane Thompson at the National Consumer Law Center.
Fighting Back Against the Bank
Although this introduction into the mind numbing bureaucracy of mortgage servicing may make you want to throw your hands up in despair, be heartened, there are ways for the regular consumer to fight back against the foreclosure machine. When all these mortgages were bought and sold, the banks didn’t always, well, follow the law. Paper work was lost or not done at all, notes were lost or improperly indorsed, documents were forged etc. The rapid fire transfer of mortgages during the golden years of 2003-2008 often makes it difficult to determine just who is foreclosing and whether they have the right to do so.
This is where foreclosure defense comes into play.
In states like Florida, the foreclosure process must be carried out under the supervision of a judge. Lenders are required to prove that they have the right to foreclose before claiming a borrower’s home. This gives attorneys the opportunity to take a hard look at a lender’s file and ask their employees questions about the underlying loan. For example, can the lender prove that they actually own the mortgage and note? Can they produce these documents? Do they have legal standing to file a foreclosure lawsuit? If the loan was sold, can they produce evidence of a proper transfer between each of the entities that owned the mortgage?
All of these issues, when placed in front of a judge in open court, affect the lender’s right to foreclose and may prevent them from doing so.
Bringing Bank Errors Into the Light
In some cases, exposing deficiencies in the process, such as failure to produce the note or “robo-signing” of documents, can allow homeowners to live in their homes for months or even years without making mortgage payments. A recent case out of North Carolina demonstrates the value of defending against foreclosure and making the bank prove it has the right to take your home. In RE: the foreclosure by David A. Simpson involved a family who had fallen behind on a mortgage that had been bought and sold several times. The North Carolina Court of Appeals refused to allow the bank to foreclose because the underlying note had been signed over to the wrong entity. The court made the following observation:
That the party seeking to foreclose on a promissory note is the holder of said note is an essential element of a foreclosure under a power of sale action and the debtor is entitled to demand strict proof of this element.
In the Simpson case, a bank with no legal right to foreclose was trying to take a family’s home. Absent court oversight of the process through litigation, they would have been successful. Even absent an error by your lender, foreclosure defense attorneys can slow down the foreclosure process by forcing lenders to prove their case.
Growing Practice Area
Foreclosure defense has become a popular practice area for litigators who have seen other practice areas dry up in the recession. According to a Wall Street Journal article, foreclosure defense strategy has evolved alongside shoddy record keeping by lenders.
Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner’s legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn’t.
Bank of America and some other large lenders, made national news by placing a temporary moratorium on foreclosures last year after it was discovered the bank had used “robo-signers,” or people who sign hundreds or thousands of documents a day without reviewing the details. Similarly, in New Jersey, a Pennsylvania notary signed thousands of foreclosure documents without a New Jersey license. The fraud and robo-signing of foreclosure documents was so wide spread that the Obama administration recently entered into a 26 billion dollar settlement with the nation’s 5 largest banks that will partially compensate victims of foreclosure abuse. I say partially compensate because the settlement doesn’t come close to making consumers whole based on the misdeeds of the banks.
Foreclosure Errors are Common
With errors by lenders so common, the lesson for homeowners is clear: if you’re facing foreclosure, it may be wise to meet with an attorney to discuss your options. Don’t take the bank’s word for it that they have the right to foreclose on your home.
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