Wrongful Foreclosure

A wrongful foreclosure may be avoided by staying in communication with your lender and by continuing to review all statements and communication received from the lender or loan servicer.

It is possible to have a lender or loan servicer initiate foreclosure on your property when you have done nothing wrong. An error can be made by the lender which puts your loan into default although you pay your mortgage payments in full and on time.

A wrongful foreclosure can also be caused when a mortgage servicer (the company hired by the lender to collect the mortgage payment) or a new owner of your mortgage loan does not understand the details of your loan. Payments can be misapplied, incorrect interest rates can be charged and communication to the borrower can be inaccurate. Unfortunately, it is possible for a loan to be placed in the foreclosure process in error and the borrower may not even know a foreclosure has been initiated.

There are many situations that may cause a lender to start a foreclosure, ranging from statement errors to mistakes made in the administration of the loan.

If a payment is misapplied, or if a statement is inaccurate, the lender may see the loan as being in default and foreclosure proceedings might be initiated. If the lender does not communicate quickly or clearly with the borrower it is possible that the proceedings can continue for a month or more before the borrower realizes that their home is in the foreclosure process.

It is good practice to not ignore a notice from your lender that a mortgage payment is late, even if you think you received the notice in error or if you are told by a customer service representative that it was an error. Be sure to call your lender immediately and request a correction letter.

The lender can miscalculate what is owed on the loan and whether the loan is delinquent enough to put the loan in foreclosure. Common administrative errors include:

• Incorrect adjustments in the interest rate
• Incorrect balances in the impound account
• Misapplied payments

You should always carefully review all correspondence you receive from your lender or loan servicer including monthly and annual statements as well as notices of interest rate changes. Contact your lender if you find an error. Request that the lender provide you with a corrected statement.

If the borrower believes that an error was made, and the lender does not agree and moves towards foreclosure proceedings, the borrower has the right to claim that the foreclosure is wrong or that something has been done incorrectly in the implementation of the foreclosure. The borrower can use the courts to demand that the foreclosure proceedings be stopped.

The borrower can claim that statement errors or administrative errors were made. Additionally, a borrower may claim that a lender is implementing a wrongful foreclosure or that the amount to get the loan out of default status is wrong. For example:

• The lender or loan servicer accepted partial payment after initiation of the foreclosure and then continued with the foreclosure.
• A forbearance agreement was not followed by the servicer.
• Unnecessary, forced insurance was demanded.
• There was improper accounting used for a confirmed bankruptcy plan, either Chapter 11 or 13.

A borrower also has the right to file a wrongful foreclosure action in the courts at any time. Usually it is brought in the county where the property is located, prior to the foreclosure sale in order to delay the sale. Depending on the state and the scheduled court actions, a wrongful foreclosure suit can delay a foreclosure by anywhere from forty-five days to two years. It is even possible in some states to have a foreclosure voided after the property has been sold.

If a borrower files a wrongful foreclosure court action and subsequently wins in court, the foreclosure action will be stopped. Additionally, depending on the state in which the foreclosure was filed, the borrower can also be awarded:

• Damages equal to compensate the borrower for the attempted foreclosure by the servicer
• Damages for emotional distress during the foreclosure action
• Punitive damages if the servicer is found guilty of fraud, oppression or malice towards the borrower
• Attorney fees

If a borrower loses the court action, the foreclosure action continues and the borrower usually has to pay any court costs incurred by the lender or servicer. The rules vary state-to-state.

If you feel that you are facing a wrongful foreclosure, talk to your lender or loan servicer. If you are unable to stop the foreclosure, gather up all your correspondence, copies of letters and notes of your conversations with the lender and go talk to a lawyer. The lawyer will be able to explain the specific laws in your county and direct you as to what steps you should take next..

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