What are the Defenses to a Wrongful Foreclosure?


There can be a whole set of defenses for a wrongful foreclosure as long as you file your case in time. And, let us assume we are following the time tested constraint that “Time is the essence” in all kinds of foreclosure litigation.

1. Truth in Lending Act (TILA) violations enabling rescission. This recisision period which is 3 days in Nevada, can be extended to 3 years in Nevada.

The bank or your lender supposed to provide the disclosure–of course all the disclosures, and if a single one is missing, then you are entitled to a rescission without a doubt.

2. Truth in Lending Act (TILA) violations enabling damages.

If you purchased the property with the loan or used the proceeds to refinance and proper disclosures were not given, then you may be entitled to money damages to offset the foreclosure.

3. Home Ownership and Equity Protection Act (HOEPA).
This is a very powerful federal law governing high cost refinance loans. If your loan is under $150,000 or the initial rate was above 8%, you should evaluate your loan for violations of this act. Violations here enable rescission and substantial money damages that can be in excess of the loan’s dollar amount.

4. Failure to Provide a Correct Notice of the Right to Rescind.

There is a specific notice that must be provided to refinance customers at closing. If this form is inaccurate or incorrect, the loan is rescindable up to three years after the closing date.

5. Breach of Contract. These are the same contractual remedies which are available in every business litigation.

6. Real Estate Settlement Procedures Act.

This federal law governs many types of disclosures that lenders must provide at the time of closing, in addition to prohibiting things like kickbacks and unearned fees.

7. Fair Debt Collection Practices Act.

This federal law requires servicers or lenders who obtain the mortgage after default follow specific protocol in attempting to collect on the debt. A failure to follow this law enables statutory damages and attorney’s fees.

8. Fair Credit Reporting Act.

This federal law governs lenders ability to report information about the mortgage and requires the accurate reporting of negative information. Violations of this act also enables damages and attorney’s fees. Punitive damages might be available under this act.

9. Real party in interest.

This is a procedural defense to foreclosure that can be extremely effective at stopping the lender’s ability to foreclose. It essentially questions the ownership of the mortgage and questions whether the foreclosing party is, in fact, the holder of the mortgage and note.

10. Unconscionability.
This defense is focused on the events surrounding the creation and closing of the mortgage loan. A violation here gives the court great leeway in deciding whether the mortgage should be voided or changed.

11. Failure to state a claim upon which relief can be granted.
This general defense attacks the lender’s ability to foreclose and is can be used in conjunction with one of the other foreclosure defenses.

12. Failure to establish conditions precedent.

13. Failure to comply with FHA pre-foreclosure requirements.
FHA requires every lender to mail a booklet called “How to Avoid Foreclosure” and set up a face-to-face meeting with the borrower before foreclosing (in most cases). If the lender does not take these steps, then it cannot foreclose.

And finally, if there is a surrender of deed in lieu of foreclosure, you can use it as a collusive surrender in a bankruptcy court petition of Chapter 13. A surrender should only be negotiated if you don’t like the publicity of foreclosure and also if your lenders agrees with you not to report to the credit agencies of bad rating on your credit.

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