Efforts by homeowners to stop foreclosure sales intensified this week as evidence of lender wrongdoing was released. In the past few days, attorneys general in all fifty states have announced investigations into misconduct by lenders and mortgage loan service providers. It is clearer than ever that many thousands of homeowners have legal defenses against foreclosure complaints from lenders and that thousands of foreclosure cases nationwide are fraught with faulty procedures and documentation. By relying on “robo-signers” and invalid documents, some bank lawyers appear to have initiated improper proceedings, which resulted in courts denying banks’ requests for foreclosure rulings. Courts have also ruled against banks for fraudulent “pick a payment” or adjustable interest rates. In this environment, homeowners filing foreclosure defense forms to their local courts can increasingly save their homes and stop foreclosure. In today’s environment, a response to a foreclosure complaint or a request to cease a foreclosure sale is an effective tool and can result in the termination of the foreclosure proceedings.
This article summarizes how the current mortgage foreclosure scandal has evolved and what foreclosure defense options are available for homeowners looking to stop foreclosure and save their home.
(a) Phase one of the crisis (2008-2009): Reports of financial and legal irregularities at lenders and credit service providers are reported sporadically as the number of foreclosure cases increases
In 2008 and 2009, news broke that mortgage lenders and the companies they rely on appeared to have had questionable practices. In general, articles about such misconduct were buried deep in the back pages of the mainstream media and the reports were poor in detail and provided little practical guidance to troubled borrowers. Various types of wrongdoing were mentioned in the articles, including:
Failure by lenders and credit services companies to lawfully document the assignment and / or transfer of credit;
The use of false affidavits and / or affidavits performed by “robo-signing” to circumvent the procedural and substantive rules necessary for the lawful execution of a foreclosure Useful Foreclosure Resource;
The submission of documents that have never been notarized and / or recognized, in violation of basic enforcement regulations that require notarization;
Failure to provide homeowners with legal notice before and during foreclosure proceedings.
Although the prevalence of such practices was not yet apparent, it became increasingly clear that lenders paid little attention to the common good. For example, lenders carried out foreclosures on homeowners whose livelihoods had been destroyed by the Gulf Coast tragedies. From September 2009 to September 2010, Louisiana foreclosures rose about 30%. In Florida, California, and Nevada, entire communities were decimated by the foreclosure crisis.
(b) Phase Two of the Crisis (November 2009 – September 2009):
News of possible foreclosure irregularities spread like a fierce wind across the country. Last week, attorneys general in all fifty states announced an investigation into illegal foreclosure practices. In addition, since late 2009 and to this day, an increasing number of judges have dismissed some foreclosure proceedings due to irregularities in legal and financial documents and failure of some lenders to follow basic foreclosure procedures. Recently, even the law firms that represent the banks were put to the test, with some of the largest foreclosure firms under investigation.
On July 7, 2010, the New York Supreme Court denied a major bank’s petition for a warrant of reference (an essential aspect of any NY foreclosure litigation) because a bank was unable to demonstrate that it was holding the bond and mortgage at the time of the foreclosure suit submitted. The court found that the alleged endorsement presented to the court by the bank