LITIGATION STRATEGIES IN FORECLOSURE CASES

Once a property is in foreclosure, a homeowner’s options range from filing for bankruptcy to applying for a loan modification. There are also options when it comes to litigation.

The foreclosure process is confusing and complicated to most people already facing financial hardship. Even if you apply for a loan modification, the bank may still proceed with the foreclosure while the application is pending; this is called dual-tracking. New York is one state that has passed a Homeowner Bill of Rights, which requires loan servicers to grant or deny a first-lien loss mitigation application before starting or continuing the foreclosure process.

Federal rules generally restrict dual-tracking, unless the servicer informs the borrower they’re not eligible for a loss mitigation option, the borrower rejects one, or they fail to comply with the terms of the agreed-upon loss mitigation option. If a loss mitigation application is received more than 37 days prior to the foreclosure sale, the servicer may not move forward with foreclosure actions.

Depending on your actions during the foreclosure process, these rules can work for or against you during litigation. Your can assess your handling of the situation to build a defense.

You can proceed with a lawsuit if the bank forecloses using a nonjudicial process. In this case, foreclosure can be stopped or delayed if you challenge it. But if the foreclosure is judicial, you would have had a chance to appear in court before the foreclosure sale.

Winning a lawsuit against a bank is tough. However, it’s possible if you can prove to the court foreclosure is unnecessary because a servicer:

• Can’t prove ownership of the promissory note (where you promise to repay the loan). If the foreclosing party can’t prove ownership of a loan, it does not have the standing, or legal right, to foreclose on your property.
• Violated your state’s mediation requirements or Homeowner Bill of Rights. If the servicer refused to meet with a mediator or didn’t help explore all options to avoid foreclosure, or you’ve submitted your loss mitigation application by the required deadline, your attorney can use that as a defense.
• Has not followed the proper steps to foreclosure, as outlined by state law. Each state has procedures for foreclosing parties to follow. If procedural requirements aren’t met, you may be able to challenge the foreclosure and, if successful, the court may order the bank to start the process over.

If you can’t prove your case, it will only delay the foreclosure process.

Another litigation strategy is to prove the mortgage servicer made a mistake. You can challenge the foreclosure if they credited your payments to the wrong party, practiced dual-tracking in violation of federal and/or state law, imposed fees not authorized by the loan contract, or charged unreasonable fees to reinstate the loan.

Court litigation is an option if you are a servicemember on active duty, even if foreclosures are usually handled outside of court in your state. Other common foreclosure defenses your attorney can bring before a judge include:

• The servicer didn’t provide a breach letter to state you were in default of the loan or deed of trust.
• You have a VA, FHA, or USDA loan and the lender didn’t follow federal loss mitigation regulations.
• You made payments on a loan modification plan all along and should not be facing foreclosure.