Foreclosure is a scary term that can have lasting effects on any homeowner who has to go through it.
In a foreclosure, the lender regains possession of a mortgaged home. A mortgage is a type of secured loan where your home acts as collateral. Meaning, if you default on the terms of your loan by failing to make payments, the lender can repossess your home.
If you become delinquent, you’re at risk of foreclosure. Foreclosure can lead to being evicted from your home and wreak havoc on your credit history. Because the consequences of this process are so serious, many homeowners will explore ways to avoid foreclosure.
One such solution is to file a lawsuit.
How Filing A Lawsuit Works
As a homeowner, your strategy in fighting a foreclosure will depend on whether the foreclosure is judicial or non-judicial. (CFPB)
More than half of states in the US allow non-judicial foreclosure, which does not have to conform to the same rules. (NOLO) The states that allow non-judicial foreclosures also have different timelines.
With a non-judicial foreclosure, your lender gives you a period (typically a few months) to catch up, and if you can’t, then your home is sold.
You may be able to file a lawsuit to stop foreclosure if you can prove that the lender: (NYCourts.gov)
Does not own the promissory note
Did not follow state mediation requirements
Violated a state law
Did not follow the required steps in the process
Made another error
Judicial foreclosures, on the other hand, are handled by the court system.
There are strict state and federal laws, part of the Fair Debt Collection Practices Act, that protect you and guide how a lender proceeds during a judicial foreclosure.
The law controls the timeline, procedure notification, etc.
Fighting a Judicial Foreclosure
A judicial foreclosure occurs when your lender pursues a foreclosure by filing a lawsuit in court against you, seeking judgment for the money owed as well as the right to foreclose the mortgage on your home.
A foreclosure action ultimately results in a judgment against you and, later, the sale of your home to pay the judgment.
However, with legal reason or valid defense based on good faith, you can defend against the action, just like any other lawsuit. You can take depositions, file motions, or even go to trial.
If you’re sued, don’t ignore the lawsuit. Failure to defend against the action means the judgment will be ruled against you, and you may lose your property. You also may face a monetary judgment if your home fails to sell for enough to cover your debt.
If your lender files a foreclosure action, you should not take those risks. Instead, talk with an attorney with experience to stop foreclosure.
The lender has the burden of proof in foreclosure cases. This evidence may include the mortgage, affidavits, statements of payments, the promissory note, and other documents that validate the existence of the loan and the default.
As the homeowner, it’s up to you to attack inaccuracies or holes in the evidence provided by the lender. A prompt response can defeat or at least delay the foreclosure for a while. If you don’t challenge the accuracy of the evidence, the judge likely will assume that it’s accurate.
Submitting Your Own Evidence
Unfortunately (or fortunately in your case), lenders and servicers often make mistakes in the foreclosure process.
You can submit your own evidence in addition to attacking the lender’s evidence. This might consist of your own canceled checks and affidavits that you submitted but that the lender didn’t consider.
Once the court has received all evidence, the lender may seek summary judgment, which is a legal way of saying that the law is on their side since there’s no dispute about the facts.
You can oppose this motion, which may prompt a hearing.
A summary judgment in favor of the lender will close the case and result in foreclosure.
If the court, however, finds that material facts are in dispute, the lender won’t be entitled to judgment, and the case will proceed to trial.
The Discovery Process
If the case proceeds past summary judgment, both sides will want to gather evidence from the other to more clearly articulate their positions and help narrow the issues.
Discovery tools can include depositions, interrogatories, requests for production, and requests for admissions. The foreclosure process can’t continue until the discovery period has ended.
Defending against a foreclosure action may require representation by an experienced mortgage foreclosure defense lawyer. There are complicated rules that apply to the court process, and so are the laws and procedures that apply to the foreclosure action.
This is the final hearing in the case, at which the lender will be required to prove that they have the right to foreclose on the home. The lender will have a chance to present its case, including the testimony of witnesses.
You will then be able to present your case against the foreclosure, also including witness testimony if needed (sometimes you will testify as a witness.)
Both sides have the right to cross-examine the witnesses of the other side.
The judge then will make a decision on who seems more credible. You probably don’t have a right to a jury trial in a foreclosure proceeding, so it will be up to the judge to make the final decision.
If the judge rules in your favor, they will dismiss the lender’s case. This will save your home (at least temporarily).
A dismissal without prejudice means that the lender can proceed with refiling the case.
If the judge rules in favor of the lender, they will issue an order for foreclosure and maybe set a date for the foreclosure sale.
If your case is ruled frivolous, you may have to pay for the lender’s attorney fees and court costs. (Debt.org)
Pros of Filing A Lawsuit
✓ Filing a lawsuit allows you to keep your home, at least until a judgment is determined.
✓ A lawsuit may result in a complete dismissal of the foreclosure once you win on the merits.
✓ Avoid higher interest rates in the future – A foreclosure could stay on your credit report for up to 7 years, impacting other loans and potentially costing you higher interest.
✓ Avoid potential eviction – When your home is foreclosed, you’ll be given a few days to vacate the property. If you don’t move within a reasonable time frame, an eviction is likely. If you are evicted, it will be far harder for you to find a place to rent, as most landlords reject applicants with evictions.
✓ You can avoid the tax consequences that can follow a foreclosure by filing a lawsuit.
✓ You may receive compensation for expenses if the judge rules in your favor.
Cons of Filing A Lawsuit
✘ A lawsuit can be time-consuming and expensive. (NOLO) Before filing a suit to try to halt a foreclosure, weigh whether it’s worth it, especially if you have not been able to keep up with your mortgage payments.
✘ A lawsuit will negatively impact your credit if you lose.
Who Is This Option Good/Not Good For?
Filing a lawsuit may be a good option if you have significant equity in your home.
If you don’t have enough evidence, it may make more sense to try to negotiate an extension on the sale with your lender if you believe you can catch up on payments, negotiate a deed in lieu of foreclosure, try a short sale, or some other option that won’t hurt your credit and long-term finances as much.
DIY Vs. Hiring an Attorney
Whatever you do, do not try to file a lawsuit without an attorney.
The court process can be complicated. There are too many holes you could get trapped in and you may end up losing the very home you’re trying to save if you try to do it on your own.
"CFPB." 28 8 2017. How does foreclosure work? <https://www.consumerfinance.gov/ask-cfpb/how-does-foreclosure-work-en-287/>.
"Debt.org." n.d. How to Stop Foreclosure. 13 11 2022. <https://www.debt.org/real-estate/foreclosures/how-to-stop-a-foreclosure/#:~:text=If%20you%20don%E2%80%99t%20prove%20your%20case%2C%20the%20foreclosure%20will%20proceed>.