The very idea that the bank could foreclose on your mortgage is frightening. It is even scarier if you believe you cannot defend yourself and protect your home. The good news is that there are indeed 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:
- Mistakes: A mortgage agreement is a contract, meaning that it is subject to contract laws and standards. Thus, if a mortgage agreement contains a major mistake or error that could potentially affect the outcome of a foreclosure action
- Fraud or undue influence: Mortgage documents cannot be signed or created under fraud or undue influence conditions. Therefore, if you believe you were forced to sign a mortgage agreement under the threat of violence or deceit, such actions could invalidate the agreement.
- Mortgage scams: Various mortgage schemes and scams have arisen. In particular, predatory lending is one of the most common and is a statutory violation in many states. A court might not enforce a mortgage that is based on predatory lending.
- The Servicemembers Civil Relief Act (SCRA): This act provides special protection against foreclosure if you’re on active military duty. Most importantly, if you took out your mortgage before you were on active duty, your foreclosure must happen in court even if foreclosures in your state customarily occur outside of court (nonjudicial foreclosures) unless the servicer gets a waiver from you. If you took out your loan after going on active duty, the SCRA also provides certain foreclosure protections.
- Statutory violations: Each state has laws and legal requirements that outline the foreclosure process. If a lender has violated these laws, then this could act as a defense against a foreclosure action.
- For example, most states require that lenders send a notice of default at least 30 days before initiating the foreclosure process. If a lender fails to give a borrower proper notice, the court may have to delay any existing foreclosure proceedings and order the lender to redo the process properly.
- This defense won’t end the bankruptcy process but will delay it. That could be just what is needed to find a new source of financing for the home. You might be able to work out an alternative arrangement or take advantage of state rules permitting reinstatement of the mortgage.
- Statute of Limitations: If a significant amount of time goes by after you stop making mortgage payments, then when the foreclosing bank initiates a foreclosure (or restarts one against you), the foreclosure might violate the statute of limitations. A “statute of limitations” sets a deadline for filing a legal action, like a foreclosure.
As mentioned, some defenses listed above may not entirely erase all foreclosure issues. Some may only serve to delay or restart the process. Regardless, having a court delay an action for foreclosure can still be very useful since this will give you more time to find funding. In the long run, this could prevent your house from being foreclosed upon.
What Is the “Produce the Note” Defense in Foreclosure?
The “Produce the Note” defense is a type of legal defense that is frequently utilized against actions for foreclosure. It concerns the endorsement of the promissory note, which gets signed along with the mortgage document. Whenever a borrower requests to take out a loan to pay for a house, they will be asked to sign both a promissory note and the mortgage document (i.e., the deed of trust).
The promissory note is the promise to repay the mortgage loan, not the document. The owner of the promissory note is the only party with the legal right to enforce the promise contained in the note and collect the debt.
It is quite common for banks to sell mortgages to other banks. You can use the “Produce the Note” defense and demand that the foreclosing bank provide proof that they possess the original promissory note and thus have the legal authority to foreclose on your property.
If the bank does not have possession of the promissory note, then you may be able to avoid foreclosure because the bank does not have any legal authority to foreclose on your property.
What If the Terms of the Foreclosure Were Unfair?
When the terms of a mortgage agreement are so unfair and lopsided that it would shock the court, you may be able to defend yourself against an action for foreclosure by filing a claim with the court that challenges the terms of the mortgage agreement. This type of claim essentially says that the mortgage agreement terms are unfair or unconscionable.
However, this type of defense is extremely difficult to prove because before a property owner or borrower signs a promissory note, they are granted the right to read all of the terms and conditions of their loan. Thus, by reading and then signing the promissory note and agreement, they essentially say they agree to all of the terms and conditions in the document.
Nevertheless, difficult does not mean impossible. If the lender included demands that would shock an ordinary banker (or the judge), then the lender may not be allowed to foreclose on the loan.
How Do I Raise a Defense to Foreclosure?
To raise a defense against a foreclosure action, you must openly assert a specific defense before the court. Also, if foreclosure is sought through a judicial foreclosure sale, which is filed in state court, you must seek the judge’s approval before being allowed to raise a defense.
You can do this by either filing a lawsuit on your own or filing a counterclaim stating that the foreclosure action is improper because of whatever you allege. You must also request that the same court issue a stay to put the foreclosure on hold until the issue regarding the illegal foreclosure action is resolved.
What Are Ways to Avoid Foreclosure?
If there are no legal defenses available that apply to the circumstances of your foreclosure, then there may be a few other things you can do to avoid foreclosure. At the very least, there are certainly some steps that you can take to minimize the impact of the foreclosure action.
For instance, most lenders want to, and will actively try to, avoid the foreclosure process. They would rather give you different payment options than take you to court.
Some other ways that you may be able to avoid a foreclosure action include the following methods:
- Talk to the bank: You should contact your lending institution or bank and see if they would be willing to work with you by suspending or lowering mortgage payments until you can start making regular payments
- Request a forbearance or partial payment: You should also ask the lender whether they would accept only partial payments for several weeks or months. This negotiation tactic is known as forbearance. Many lenders are willing to agree to a forbearance so long as a borrower can prove that they will soon be able to start making regular payments again.
- Ask the government for help: There are several different government agencies for help with avoiding a foreclosure action. Such agencies can provide various resources and assistance to homeowners facing foreclosure action. In some instances, a government agency may even be able to help a borrower or homeowner modify the terms of a loan or reduce their payments.
- File for bankruptcy: Although filing for bankruptcy should be your last resort, in some cases, it may be necessary to file for bankruptcy with a court to remain in possession of your home
How Can a Lawyer Help With Foreclosure Proceedings?
Every state has its own set of laws and procedures regarding foreclosure proceedings. Therefore, if you believe you are wrongly facing foreclosure proceedings, hiring a local foreclosure lawyer as soon as possible will be in your best interest.
An experienced foreclosure lawyer can advise you on the specific laws and requirements for foreclosure proceedings in your state. Your lawyer can also help you prepare a case and perform legal research to see if there are any defenses you can raise against the action for foreclosure.