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It’s one of the most gut-wrenching pieces of mail you can get: a foreclosure notice from the bank. But just because your name’s on the envelope does not mean a foreclosure is a foregone conclusion.
"Despite the scary tone of the papers being served, foreclosure is not inevitable—there are many tactics you and your lawyer, if you have one, can employ to gain leverage and negotiate a successful resolution,” says real estate attorney Steven Wagner of Wagner Berkow in Manhattan. “I’ve helped negotiate loan modifications, short sales—in which the bank allows you to sell your home for less than the balance of the mortgage—and even succeeded in getting the entire mortgage set aside when it turned out that the lender either submitted fraudulent/robo-signed documents to the court or the documents transferring the loan to the current lender were robo-signed.”
Here are five circumstances that could stop a foreclosure:
1. Your bank didn’t offer to modify your loan
“If you’re entitled to a loan modification, a lender can’t foreclose until they offer it to you—reducing your principal or interest rate so your payments add up to 31 percent of your gross income or less,” says Wagner.
To qualify for a modification, which is typically offered under the federal Home Affordable Modification Program (HAMP), you’ll have to meet all four of these requirements:
- You mortgaged your property before January 1, 2009
- Your mortgage is less than $729,750
- Your mortgage is guaranteed or held by Fannie Mae, Freddie Mac or any number of participating lenders, including major banks like Wells Fargo, Citibank, Chase and Bank of America. Click here to see if your loan qualifies.
- You have some kind of long-term hardship, like an injury or other medical condition, or even extended unemployment.
In recent years, Wagner notes, many lenders that should have been offering loan modifications weren’t. The U.S. Department of Justice sued the banks and ultimately settled the cases in 2012 by entering consent orders agreeing to comply with the law.
“As a consequence, if a lender fails to offer a modification before filing a foreclosure action, they are violating a consent order, which is very serious,” says Wagner. “By bringing this to their attention, I have turned things around very quickly with lenders who have not negotiated fairly with a homeowner. Usually, the matter will get kicked upstairs, everyone starts smiling and being friendly, and we can negotiate a favorable resolution, such as stopping or undoing a foreclosure and giving the borrower time to sell the property and agreeing to a short sale.
2. Your lender doesn’t actually own your mortgage
“Many loans have been packaged and sold and resold—that’s what the financial crisis was all about a number of years ago,” says Wagner. “Very often, the documentation for the ownership of the loans when they get sold and assigned is inadequate, and the lender who is foreclosing is not the proper owner of the loan.”
For example, if a loan servicer--instead of the bank that held the mortgage--signs the documents transferring the loan, that may not be okay. If the loan was assigned to a trust, look at the terms of the trust—it may not permit assignment of loans after a certain period of time, or at all. Some courts will not accept transfers of loans made through the Mortgage Electronic Registration Service (MERS).
“Showing that the dots aren’t connected is one of the ways to defeat a foreclosure,” says Wagner. “You can have the mortgage taken off the property entirely. You may still owe money on the note but you will have negotiating leverage and additional defenses to the payment of the note if the lender unsuccessfully tried to foreclose and no longer has a mortgage on your home.”
3. Your loan documents were robo-signed
“In what blew up into a huge scandal in the late 2000's, lenders arranged for people to sign hundreds of affidavits a day, swearing to the existence and effectiveness of certain documents without having any personal knowledge," says Wagner. "They came to be known as robo-signers. If a known robo-signer is on any of the court papers—there are actually lists of names available online—courts have been throwing foreclosure cases out.”
You may still face another foreclosure action down the line if (or when) the lender gets the proper documents together. “But the prospect of a significant delay brings leverage to negotiate a better resolution—such as loan modification or a short sale. With a short sale, you may be able to avoid a deficiency judgment that is often granted if a property sells at the foreclosure sale for less than the amount due on the mortgage,” Wagner says.
4. The bank messed up
“Papers are not always served correctly and they don’t contain the proper notices,” says Wagner. “That’s because many law firms that do foreclosure work do it on a high-volume basis and mistakes are made.”
In New York State, for instance, the bank is required to notify a homeowner 90 days before beginning a foreclosure action, says Wagner.
“It needs to be in a very specific form. If they don’t send you that notice, or it’s in the wrong form, they can’t go forward with the foreclosure,” he says. “The action can get dismissed, causing a delay of up to a year or more—providing leverage to strike a better deal with the lender.”
A host of other technicalities can trigger the dismissal of a foreclosure: “Were the papers served correctly? Do they contain all the required special language for mortgage foreclosures? This requires a lawyer to look at, which is why you should save every single piece of paper you receive, including the envelope, and make notes about how it was served on you including how many copies,” says Wagner.
While the bank can fix many of these mistakes, he notes, uncovering them puts you on stronger footing to negotiate a settlement.
5. You can mediate a deal
“Because of all the concern over robo-signing and inappropriate loans made to begin with, courts now require that the lender try to settle the claims, which takes at least two or three sessions of mediation to try to resolve the foreclosure so you can keep your home," says Wagner.
Come to mediation with financial information like tax returns and proof of your expenses or if there’s some other hardship, be able to explain that hardship.
Steven Wagner, Esq., is a real estate attorney at Wagner Berkow LLP in Manhattan. He specializes in real estate litigation, transactions, buyouts, foreclosure defense and all aspects of co-op and condo law.
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