How to Stop Foreclosure
In November 2007, in the thick of the mortgage foreclosure crisis, Christopher Boyko, an Ohio judge, handed down a ruling that seriously limited the ability of mortgage companies to complete foreclosure proceedings. Boyko threw out 14 foreclosure cases initiated on behalf of mortgage investors, citing the investors' failure to present promissory notes for the properties in question.
Basically, that means that the "owners" of the properties couldn't prove their ownership, thanks to the complicated way in which the secondary mortgage market functions.
Click Here For a Free Bankruptcy Evaluation
Background: Who Owns Your Mortgage
The mortgage market in the U.S. works like this (in theory):
- A mortgage broker or lender presents loan papers to a borrower, who signs them and agrees to pay according to certain terms.
- The mortgage broker/lender sells the mortgage to a bank or investment firm.
- The investment firm puts the mortgage in a "pool" with thousands of other mortgages, securitizes them, divides the pool into chunks and sells the chunks off to investors.
- The investors who own the mortgages make money on interest paid by borrowers as they make regular mortgage payments.
But, with more and more borrowers unable to make those payments, investors aren't getting their money. As a result, banks, which assured investors that their investments were good, are often forced to foreclose to recover what they can.
Is Your Foreclosure Illegal?
In order for a company to sue for foreclosure, though, it must present proof that it holds the promissory note for the property in question. But because so many mortgages have been sliced and sold piecemeal, the practice of passing individual promissory notes is all but extinct in many circles.
If your home is in danger of foreclosure, there are steps you can -; and should - take to save it. Because foreclosure is a legal process, you may want to work with a bankruptcy lawyer to make sure you're adhering to the proper guidelines and meeting all deadlines necessary.
The good news is that Judge Boyko's decision means that a court may be able to throw out your foreclosure. But it will require diligent work and adherence to strict legal requirements on your part. Again, working with a bankruptcy lawyer can make this process much easier.
Click Here For a Free Bankruptcy Evaluation
Step One: Who Holds the Promissory Note to Your House?
In order for a lender to foreclose on your home, it must have the original promissory note, with your signature in ink. In many cases, the lender must have this document in order to foreclose. Here's why:
- To prove how much you owe: The lender needs proof that you agreed to pay a certain amount, that you didn't adhere to the terms of the loan and that you still owe a certain amount.
- To prove you owe the lender: If you owe money, you owe it to whoever holds the promissory note.
- To eliminate the question of fraud: Digital technology makes faking a signature easier than ever before. The original document with your handwriting leaves no room for fishiness.
- To allow you to negotiate: You should have the option of negotiating terms of payment with the holder of your house's promissory note, based on fair market prices.
- To make sure payments were correctly applied: Knowing the current note holder (and any interim holders) allows you to review the distribution of your payments and verify that they went toward the correct expenses.
Even if a lender doesn't hold the promissory note, though, some judges may allow foreclosure proceedings to continue. But that doesn't mean your foreclosure is inevitable. If you can show evidence of predatory lending practices, that may work in your favor in court!
Step Two: Was Your Loan Predatory?
This is the part where having help from a lawyer can be especially useful. You'll want to audit, or review, all the paperwork relating to your loan to check for evidence of predatory lending, fraud and violations of various consumer protection laws.
This means wading through legal language and having at least a basic knowledge of laws like RESPA, TILA and others that protect borrowers. You'll need to examine as many of the following documents as you can locate, especially those in bold.
- Any Papers Signed at Closing;
- Promissory Note;
- Mortgage/Deed of Trust;
- Loan Application;
- Good Faith Estimate;
- Settlement Statement;
- Right to Cancel/Right to Rescission;
- HUD 1 Statement;
- TILA Disclosures;
- RESPA Servicing Disclosures;
- All Other Disclosures; and
- Copy of Current Billing Statement.
Click Here For a Free Bankruptcy Evaluation
Your lawyer can help you review these documents to determine whether or not the law was followed in the origination and execution of your loan. If you want to get an idea of whether or not you were victimized by predatory lending practices before talking to a bankruptcy attorney, ask yourself the following questions. Any answer of "yes" suggests that your loan was made on unfair or illegal terms.
- Have you refinanced your mortgage repeatedly?
- Did your rates increase (rather than decrease) after refinancing?
- Are you paying more than 9.5% interest?
- Did you receive a loan for home improvement that was done improperly or not at all?
- Have you had problems with your lender involving late posting of payments/sudden payment increases/increasing balances? Does your principal balance never seem to decrease?
- Did your mortgage closing include expensive closing costs (points and fees)?
- Did your loan's terms become significantly less favorable to you shortly before closing?
- Did your lender pay your mortgage broker?
- If your mortgage has an adjustable rate, were adjustments made correctly? Can you even determine this based on the language of the loan?
- Does your loan include prepayment penalties?
- Has a mortgage company failed to respond to your inquiries or correspondences?
- Did all debt collection efforts adhere to the rules of the Fair Debt Collection Practices Act?
- Did you receive a "Notice of the Right to Cancel" that was incompletely filled out?
- Did you sign a document at closing stating your intention not to cancel?
- Did your closing occur at your home/via mail/in another city?
Fight Foreclosure: Protect Your Home & Credit
A foreclosure suit or the threat of foreclosure in the future can be frightening, but your best bet is to take steps early to save your home. Learn more about preventing foreclosure.
This process can be time consuming and difficult, but you're not alone. Millions of Americans are currently struggling with unmanageable mortgages and heading toward foreclosure. Plus, with the individualized advice and legal knowhow of a bankruptcy attorney, you can move forward knowing you're taking the steps necessary to protect yourself and your family from losing your home.