If you’ve been served with a foreclosure lawsuit or expect one in the near future, it’s essential to know what foreclosure defenses may be available to help you dismiss, delay or win your case. Defending Foreclosure Lawsuits
Because foreclosure laws differ from state to state and sometimes county to county within each state, we strongly urge you to hire a lawyer in your area to handle the case if at all possible. Whether you hire an attorney or defend your own foreclosure lawsuit, the more you know the more likely you’ll succeed so learn all you can about the foreclosure phases in your state as well as possible foreclosure defenses applicable to your situation.
Types of Foreclosure Defenses
There are six general categories of foreclosure defenses, also known as “affirmative defenses” in Florida and other states – defective service of the lawsuit documents, loan closing related defenses, breach of contract, standing/chain of title issues, fraud and misrepresentation and “catch all” defenses that may protect your rights if other defenses fail.
Once you identify your foreclosure defenses, you’ll either list them in the Answer to Your Foreclosure Lawsuit, as part of a Motion to Dismiss before filing your answer or as grounds for a counterclaim against the bank. Depending on the foreclosure defense involved, you may be able to use a combination of two and even all three of these options.
1. Defective Service of Process
In Judicial Foreclosure states which require the use of the court system to process foreclosures, the lawsuit itself and a summons must be personally delivered to you by a licensed process server. Referred to as “service of process”, there will be at least two documents involved consisting of the actual lawsuit and a summons for each defendant with instructions when and where to respond. More About the Foreclosure Process
If the process server makes several legitimate but unsuccessful attempts to serve you, they’ll simply serve you by publishing notice of the lawsuit in the local newspaper so its generally better to accept the papers than hiding and hoping it goes away. The process server only gets paid if you get served so don’t expect them to give up and it’s safer to know what’s going on than missing important court deadlines because you never saw the legal notice in your newspaper.
Although it sounds pretty basic, sloppy paperwork and fraudulent practices have once again conspired to make this an important foreclosure defense for homeowners who were never served or served improperly. Defective service of process obviously includes instances when you were never served despite living in the property, but can also be when the process server didn’t take all the state required steps to find you, served a minor or the house next door, files false affidavits in court about who they served and when, forged signatures or backdated documents and a host of similar intentional and unintentional actions that may justify dismissing the lawsuit. Blame the Banks – Foreclosure is Not Your Fault
If this defense applies to you, it may be grounds for a motion to dismiss the foreclosure lawsuit and/or part of your answer to the lawsuit as an affirmative defense. Consult with an attorney in your area familiar with the local requirements for process servers if possible and include the defense as part of your lawsuit answer by stating something similar to “As a first affirmative defense, the service of process was defective.” This is just an example that should be modified in accordance with the local pleading rules for each county and state to make sure you meet the local requirements.
2. Loan Closing Related Defenses
There are several related foreclosure defenses we’ve grouped under this category that arise from federal disclosure requirements under the Truth in Lending Act(“TILA”)and the Real Estate Settlement Procedures Act(“RESPA”).
Each of these federal laws were created to help consumers by forcing lenders to disclose the material terms of your loan including the actual dollar amount of all finance charges over the life of your loan, a good faith estimate of potential closing costs provided to you prior to closing, an explanation of your three day right to cancel the entire loan transaction and other essential disclosure requirements that may result in the actual rescission of your loan documents under certain circumstances.
Because this is a very technical area requiring expertise in evaluating your HUD-1 closing statement and related documents that is beyond the scope of this discussion, we strongly suggest that you retain an attorney or experienced realtor to help you analyze your loan documents and determine if violations exist. If you suspect that there are deficiencies, there are several critical steps that must be taken to protect your rights including sending a “Notice of Rescission” to your lender before the lender corrects the defects. Avoiding Deficiency Judgments
3. Breach of Contract
Breach of Contract is one of the strongest foreclosure defenses available to homeowners and investors and may also be grounds for a motion to dismiss or counterclaim against the bank. Although the specific allegations can be similar to those made in other foreclosure defenses, breach of contract claims should almost always be used as a stand alone defense if sufficient facts exist.
Without providing a seminar on contract law, there are three basic elements to every breach of contract claim-a valid contract, breach of some obligation imposed by that contract, and damages specifically resulting from the breach itself. For example,your obligation as borrower under the contract (the loan documents) is to make timely payments of the amount you’ve agreed to pay, while the bank must also comply with its contractual requirements.
One of the most frequent breaches by the bank is purchasing “forced placed” insurance that is either unnecessary, overly expensive or both. The damage from the breach is your inability to make monthly payments because of the higher insurance costs and as a result, you would not have breached your obligation to make monthly payments if the bank hadn’t first breached its obligations by forcing you to pay more than your contract requires. Florida Foreclosure Lawsuits
Other possible breaches by the bank include failing to comply with its own underwriting requirements in giving you loan terms that were unfair or not supported by your income. By offering no interest or adjustable rate loans that later skyrocketed upwards, balloon payments due in the midst of an economic crisis or even providing too much money for a loan they knew you couldn’t afford, the bank breached its contractual obligations in many respects.
Finally, additional examples include breach of the disclosure requirements in RESPA or TILA discussed above or failing to provide adequate notice of default and its intent to accelerate the payment requirements as specified in paragraph 22 or 23 of most mortgages. Read more about the Specific Requirements for Default Notices.
No matter where you allege the breach of contract – in a motion to dismiss, answer or counterclaim – you need to be very specific about the facts. Thus, breach of contract as a defense in your answer should read something like “As a third affirmative defense, the bank breached the contract by purchasing forced place insurance that was either unnecessary or too expensive” or ” by failing to provide proper notice of its intent to accelerate the loan as required by paragraph 22/23 of my mortgage.” Sample Florida Foreclosure Documents
Of course modify these examples to reflect your specific circumstances and to comply with local court rules and procedure. Even if you decide not to hire an attorney to defend your case, you can always hire a lawyer for an hour or two to help you meet local requirements. Florida Foreclosure Process
4. Lack of Standing/Defective Chain of Title
Ask homeowners who owns their mortgage and most will confidently tell you its the company they pay each month. However, the answer is much more complicated as the original loan was almost certainly transferred several times since closing and at best you’re likely paying the loan servicing company not the original owner. Who Owns Your Mortgage and Why Care.
The importance of this defense – called “lack of standing” or “defective chain of title” – can’t be overstated as several courts have found fraudulent, backdated and inadequate loan documents in many cases and have actually dismissed foreclosure lawsuits with prejudice as a result. Lack of standing to sue and/or not owning the loan documents can be the grounds for a motion to dismiss, an affirmative defense in your answer or the basis for a counterclaim against the bank. Sample Foreclosure Discovery
There are at least three important documents to review before deciding if this defense can help you – the mortgage or deed of trust, the promissory note and any assignments involved in transferring the loan from one bank to another. The current owner of your loan must have physical possession of each of these original “wet ink” documents and every transfer must be properly endorsed on the documents and recorded in the county where the property is located together with payment of recording and doc stamp fees. Finally, make sure the current assignment was dated prior to the the date the foreclosure lawsuit is filed with the court. Learn about the distinction between your Promissory Note and Mortgage.
With the huge number of mortgages transactions, many banks have no idea where the original documents are, most failed to properly record each transfer or assignment and in too many situations actually forged or backdated documents in an effort to meet legal requirements. In fact a recent Reuters investigation involved a random review of foreclosure files from five different states and found more than 1000 questionable mortgage assignments, promissory notes with missing or faulty endorsements and foreclosure lawsuits containing multiple inaccurate facts. Read How The Nationwide Foreclosure Settlement Works
During the early stages of the foreclosure crisis, the bank’s strategy of filing lawsuits without proper documentation worked well and many people unnecessarily lost their homes as a result. However, recent court decisions have refused to endorse these illegal bank schemes and have required compliance with basic evidence standards instead. To proceed with foreclosure lawsuits, most courts now require proof that the banks have physical possession of the original documents and further require evidence to show how they got the documents and that the chain of title is not defective.
A couple of additional issues to watch out for are any cases involving “MERS” as the plaintiff in your foreclosure lawsuit and whether or not a loan servicing company has authority from the mortgage owner to file suit and confirming that the owner even has authority to do so. MERS stands for the “Mortgage Electronic Registration System” banks created in an attempt to hide mortgage transactions from public scrutiny and avoid paying recording fees for each transfer. Most courts have finally decided that MERS has no standing to sue homeowners so be sure to raise any and all defenses related to this issue.
For more information on MERS and the illegal and fraudulent actions of banks and lenders involved in the foreclosure fiasco, we strongly recommend an excellent site by Greg Hunter called USA Watchdog.com which contains numerous interesting and well researched articles on the subject overall.
As you can see from this very brief discussion, lack of standing and figuring out who owns your mortgage is both an important defense and complicated subject. As a result, we strongly urge you to retain an attorney to handle your case if these issues arise or at minimum consult with a lawyer for a couple of hours to help you focus on the right issues and discuss strategies to get documents the banks refuse to provide.
When raising this issue as an affirmative defense in your answer, it should read something like “As a fourth affirmative defense, the plaintiff lacks standing to sue as a result of a defective chain of title and related issues.” As always, modify this example to reflect your specific circumstances and to comply with local court rules.
5. “Catch All” Foreclosure Defenses
“Catch All” foreclosure defenses refer to procedural devices and general defenses to make sure you raise all possible issues that may help you and/or to supplement other applicable defenses that are missing one or more of their required elements.
The first defense in this category is called “failure to state a claim upon which relief can be granted” and the second is “the failure to comply with conditions precedent.”
The failure to state a claim upon which relief can be granted is similar in concept to the breach of contract and lack of standing defenses raised above and generally addresses deficiencies in the required documentation and whether or not the plaintiff is the actual owner of your loan and has the right to sue you. The defense can be used as grounds for a motion to dismiss or as an affirmative defense in your answer, but is rarely used to support a counterclaim against the bank. Even though the defense may overlap with other applicable defenses, it’s almost always worthwhile to list as an additional affirmative defense.
The second “catch all” defense is the failure to comply with conditions precedent and covers issues ranging from the failure to provide proper and timely notice of default and the bank’s intention to accelerate your loan payments and/or failing to properly attach the required documents to the foreclosure lawsuit. Again, it’s almost always worthwhile to list this as an additional affirmative defense to cover areas you may have missed.
6. Fraud and Misrepresentation Foreclosure Defenses
The final category of defenses addressed in this article are fraud and misrepresentation by the bank, the loan servicing company or the mortgage broker on behalf of the bank. Although this defense may be right on point for many of the improper actions by the bank, the pleading requirements are much more difficult for anything related to fraud and thus require far more detail than the defenses raised above.
This doesn’t mean you shouldn’t use this defense if sufficient grounds exist, but be prepared to state the exact nature of the fraud or misrepresentation, when it occurred and in what context as well as any additional information you may have. Because many of these issues require discovery and review of bank documents you may not have at the time you respond to the foreclosure lawsuit, courts may dismiss your defense until you have more information. Remember you can always amend your answer at a later date once you have the necessary information, so make sure you have enough evidence initially before deciding to include this as a defense. The idea is not to throw everything in and hope something works as the bank and courts will see through this strategy and minimize your credibility even though legitimate defenses exist.
Your affirmative defense should read something like “As a sixth affirmative defense, the bank is guilty of fraud and misrepresentation in the following manner” and then include the facts necessary to support your allegations. If possible, meet with an attorney to help you identify any potential fraud and help comply with local court pleading requirements.