J. Patrick Sutton Cases & Issues Blog

Foreclosure Defense

Home mortgage borrowers have emergency court injunction relief available where the big mortgage lenders and mortgage loan servicers refuse to engage meaningfully in the loan modification or short-sale process.
A significant portion of my real estate practice right now is foreclosure defense. The recession has dragged on long enough that unemployment, rather than poor mortgage underwriting, is causing people to fall behind. The government programs ostensibly designed to help homeowners are proving to be of limited value, and the big mortgage lenders appear uninterested or unable to deal with the volume of troubled loans apart from filing foreclosure actions and hoping that no one will try to stop them.

Many of the foreclosures I'm being asked to review aren't justified or are otherwise being unfairly pursued. Others are the result of the lenders' failure to establish procedures that permit loan workouts to move forward. What is worse, the lenders dangle promises of loan modifications that they are unable to fulfill, then trip up the mortgage debtors by filing foreclosure while simultaneously pretending to work on loan modifications. The front-line employees at the loan servicers don't seem to know anything about the mortgage business, don't have authority to do anything, can't seem to receive a fax (or if they do, manage to locate it), can't give out valid phone numbers for return calls or other departments, etc. etc. -- the litany of administrative failures on the part of the big lenders is well known to frustrated borrowers at this point.

Borrowers who call me, however, often feel alone and out of options. You're not alone, trust me. Thousands of borrowers are trying to find a way through the administrative mazes and blockades set up by the big lenders, and very few will succeed. Many loans that could be worked out won't be simply because there's no one really listening at the big lenders. People are being tossed into the foreclosure mill like chickens on a slaughter line: without pity, explanation, or respect for their dignity.

It's true that some people will not be able to continue to make payments at an appropriate level. Foreclosure may be a necessity in those cases. Some people can pay but have no incentive to -- they're underwater. Foreclosure is advisable in many such cases.

But what about borrowers with significant equity but temporary cash flow problems, or those who can live up to their committments despite some payment problems in the past? Many such persons are discovering, too late, that not only are they being foreclosed upon, but that the lender has rigged things to make it impossible to locate a warm body with authority to do anything.

However, it is possible to mount an effective defense to foreclosure in some cases. Where a lender has lured the borrower into the modification process, dragged it out for months or years, and then cut a borrower off, there are promissory estoppel arguments for intervening. Where the lender can't be located and the note has disappeared, there's a good argument that the loan servicer noticing foreclosure has no authority to act. In still other cases, there are simply breaches of contract by the lender.

In all the above scenarios, the courts have special power -- "equity" -- to halt the foreclosure process while the debtor/borrower's legal case is pursued. In some cases, an emergency TRO (temporary restraining order) is warranted. In cases where there's a bit more time, a preliminary injunction may be appropriate after the defendant lender or loan servicer (or both) are served with the lawsuit. The idea is to get the lender to the negotiating table so that a short sale or loan modification can be explored.

It's not always possible to prevail in the lawsuit even if you manage to get a judge to temporarily stop the foreclosure process. But often, time and some pressure brought to bear by court order are all that's needed to get the lender to meaningfully respond and negotiate. When the lender has to fend off a suit in state or federal court, the lender can't continue evading its responsibilities.
J. Patrick Sutton Cases & Issues Blog