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Debt Relief – Insolvency – Bankruptcy Information » Uncategorized » Wrongful Foreclosure Lawsuits – More Nightmares For Mortgage Lenders

Wrongful Foreclosure Lawsuits – More Nightmares For Mortgage Lenders

The foreclosure crisis is expected to continue in 2011 and beyond. Real estate reporting entities, such as Realty Trac, a well known foreclosure tracking company, predicts more than a million foreclosures will occur in 2011, which is slightly more than occurred in 2010. The foreclosure freeze, placed in effect by a number of big banks in 2010, but now in full bloom again, will have an affect on the increase in foreclosures in 2011.

The real estate industry has been upside down since the crash of the mortgage industry in 2006 which arose out of what is known as “Toxic Mortgages” issued to millions of homeowners that contained adjustable interest rates and negative amortization schedules. Thousands of these mortgages were placed on the books and given to persons who really did not qualify and whose financial documentation was often fraudulently submitted by mortgage brokerages and numerous banks themselves. As the interest rates adjusted upwards and the monthly payments zoomed higher the homeowners could no longer afford to pay.

Homeowners defaulted in droves on their mortgage loans and the ultimately this created sometime called a “mortgage meltdown”. Major banks and stock brokerages failed and went out of business. The U.S. Treasury stepped in and bailed a number of these financial entities out, but the foreclosure process had begun and continues under the weight of a bad economy that has lasted for three years and will likely continue well into 2012 or longer.

Banks and other mortgage lenders have been under a great deal of pressure recently because of the manner in which they have handled processing foreclosures throughout the country. Many mortgage lenders and their servicers have failed to follow foreclosure laws and have engaged in foreclosure fraud which has resulted in homeowners losing their homes through the foreclosure process illegally. These illegal practices have been well documented through court findings and news reports. As a result of these actions by mortgage servicers, a new legal industry has arisen in the form of wrongful foreclosure lawsuits.

Wrongful foreclosure lawsuits are a method of exercising foreclosure rights of homeowners facing foreclosure on their property. They also provide a defense to a foreclosure or a powerful weapon to recover a home that has been taken wrongfully by the mortgage servicer.


There are two types of foreclosures. They are (1) a judicial foreclosure and (2) a non-judicial foreclosure. A judicial foreclosure requires that the bank or loan servicer first file a lawsuit in court and prove to the court that the foreclosure process is proper and that the homeowner has defaulted before the foreclosure sale can legally occur. A non-judicial foreclosure allows for the bank or loan servicer to simply give notice of default to the homeowner and file such notice in the county recorder’s office of the county where the property is located. Thereafter there is a time period (usually around 90 days) that the homeowner must bring the property current after the Notice of Default. If not, then the bank or servicer can file a Notice of Trustee Sale and sell the property at a Trustee’s Sale. This generally occurs within three weeks after the passage of a 90 day Notice of Default.


The crucial difference between a judicial foreclosure and a non-judicial foreclosure is time. A judicial foreclosure could take more than a year. A non-judicial foreclosure can be completed in less than six months. Where the property is located will have affect on whether the foreclosure process will be a judicial or non-judicial process. The mortgage contract also can dictate whether the process will be judicial or non-judicial. If the property is located in a judicial foreclosure state then a court process will be required. If in a non-judicial state then it will be processed through the foreclosure laws governing that foreclosure process. If the property is located in a non-judicial state but the mortgage contract states that any foreclosure will be conducted in a judicial manner, then the contract language will prevail.

THE FORECLOSURE PROCESS Regardless of whether the foreclosure is a judicial or non-judicial foreclosure there are foreclosure laws that must be followed and if the loan servicer does not follow the steps outlined then the foreclosure is subject to stoppage or being set aside if the foreclosure sale occurs. In every state, judicial or non-judicial, loan servicers are required to file or sign affidavits that proper foreclosure process has been followed. These statements, filed under penalty of perjury, must be accurate and true. If they are not the foreclosure may be deemed fraudulent and therefore illegal. Under such circumstances a homeowner, even if truly in default, can bring a wrongful foreclosure lawsuit and stop the foreclosure process or if the property has been sold can seek to set the foreclosure aside and can also seek monetary damages for the loan servicers fraudulent foreclosure.

Recently, many banks and loan servicers have committed fraud by signing bogus documents and submitting them to courts and county recorder offices falsely stating that they have complied with the foreclosure process and obtaining permission from judges to foreclose on the property or, in the case of non-judicial foreclosure, just filing a bogus affidavit in the recorder’s office and completing the sale. This process has become known as “robo signing” because those signing the bogus and fraudulent affidavits have been required by the loan servicer to just sign documents saying they’ve complied with foreclosure laws when in fact they have not. Mortgage lenders such as Bank of America, Wells Fargo and JP Morgan Chase have admitted that such practices occurred. For that reason several banks placed a foreclosure freeze on foreclosures for approximately 90 days the last quarter of 2010 in order to review such filings. Fraudulent affidavit singings were confirmed. The courts are now being flooded with “wrongful foreclosure lawsuits”.


Wrongful foreclosure litigation is based on a number of arguments that can support a homeowner’s claim such as:

• Failure to follow the mortgage contract requirements of notice and opportunity to cure any claimed mortgage delinquencies before commencing a foreclosure on the property. (Many mortgage deed of trusts require such a notice and loan servicers routinely ignore this notice).

• Failure to comply with notice requirements of statutory foreclosure laws.

• Failure to or fraudulently providing an affidavit that foreclosure laws have been complied with before conducting a Trustee’s Sale of the property.

• Failure of the mortgage loan servicer having standing to foreclosure on the property. (The loan servicer or bank does not hold the note on the property and therefore is not the rightful entity foreclosing on the property).

A wrongful foreclosure can be based on any one or a combination of the above arguments for a wrongful foreclosure. One of the most common and now powerful arguments is the fact that the foreclosing entity does not hold the note on the property. Under what is known as the Uniform Commercial Code, a statutory scheme of laws governing negotiable instruments such as checks, bank notes and mortgage notes, and adopted by all the states, only the person or entity that holds the original note has proper standing to sue in court or exercise the foreclosure process.

Most mortgage lenders and services cannot prove they are the current holder of the note because of the large number of mortgages that have been bundled together and sold in packages called mortgage back securities. Each mortgage must have been signed and endorsed by the true holder of the note to the current person or entity claiming it owns the note. These mortgage backed securities were bundled together and sold to large Wall Street brokerages. The notes are more often than not lost, not endorsed or otherwise made unavailable. Therefore, when seeking to foreclosure there is more often than not inability of the loan servicer to show proof that it is the “holder of the note” If it cannot then the foreclosure is bogus. Several courts are now weighing in on this issue and finding in favor of homeowners who make this argument. Most recently the Massachusetts Supreme court ruled on two such cases upholding the lower court’s ruling that U.S. Bank and Wells Fargo wrongfully foreclosed on property because it had not shown it was the holder of the note. Other courts have held the same, including bankruptcy courts in Ohio and California. This is the start of an ominous trend for loan services and banks and a powerful weapon now in the hands of homeowners who will no longer be at the mercy of loan servicers and banks that choose to ignore the rules. Wrongful Foreclosure Lawsuits are the next wave in the mortgage fraud mess.

Roy Landers is an attorney/real estate broker with over 25 years experience litigating real estate matters.He maintains two real estate blogs at, a real estate education site and A FREE Newsletter-The Real Estate Playbook is also available at these sites.


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