A mortgage or a deed of trust constitutes a security instrument that helps to guarantee repayment of a real estate loan specified in a negotiable instrument known as a note. With respect to home loans, the security instrument consists of a promise to forfeit real property for failure to repay according to the terms of the note. The note becomes legally part of the mortgage, even though written on a separate document. The law provides for enforcement of a valid note with or without the security instrument. The security instrument has no effect except in association with the note.
A foreclosure constitutes claim by the owner of beneficial interest in the note that the borrower breached the terms of the note. The foreclosure effort seeks to accelerate the note, making it immediately payable in full. It then seeks to take possession of the real estate if the borrower does not pay the balance due forthwith.
Deed of Trust states provide a non-judicial means to foreclose. Lien theory states require a superior trial court to order the foreclosure. As a consequence of the foreclosure, the trustee or court orders a sale of the real estate and application of the proceeds to discharge the debt. For loans in which the borrower owes more than the value of the real estate (an “underwater loan”), the borrower will end up owing money unless the law provides otherwise, as it does in some states. In that case the court or trustee will order the borrower to pay the deficiency.
A foreclosure will virtually always go through to completion if the borrower breached a valid note and did not obtain a forbearance agreement. All attorneys know or should know this. And yet, many attorneys convince the borrower facing foreclosure to hire them to defend against the foreclosure merely to delay the inevitable loss of the collateral property. These lawyers typically charge several hundred dollars a month or upwards of $20,000 for that defense, knowing the borrower will ultimately lose the house. Do you consider that ethical? Mortgage Attack does not. See the Attorneys topic for more on this.
For that reason, Mortgage Attack does not advocate focusing on foreclosure defense for breach of a valid note.
Instead, Mortgage Attack does recommend attacking the lender or lender’s agents for behaviors that made the note void or voidable, and any other injuries to the borrower, that might justify a set-off from the amount owed, or compensation in the form of damages See the Attack topic for this process.
Note that the Articles page provides links to numerous articles showing why traditional foreclosure defenses fail. Such defenses include securitization arguments, robosigning, lack of standing because of broken chain of ownership of beneficial interest in the note, expired statute of limitations on the foreclosure effort, vapor money theory, unknown owner of the note, missing original note. Remember that Foreclosures proceed in equity, and once the judge ascertains that the note seems valid and the borrower breached it, the judge has the legal duty to enforce the mortgage by ordering the sale of the property to raise funds to discharge the debt.
Please do not mistake Mortgage Attack’s disdain for FOCUS on the defense as an attack on affirmative defenses generally. Mortgage Attack believe it makes sense to use affirmative defenses to set back the foreclosure effort provided the borrower mounts an attack on the lender and agents regarding mortgage fraud, and to file complaints, counter-complaints, and cross-complaints against the injuring parties in an effort to win damages awards from them. It makes little sense to defend unless one can also attack. The saying is true: “the best defense is a good offense.”
Here’s a simple test for you. Look at this list of items and decide which should become defenses alone, which should become causes of action in a some form of complaint seeking damages, and which have no merit:
- Appraisal Fraud – An appraiser’s intentional over-valuation of the property in order to win future business or receive kickbacks.
- Breach of Contract – Violating a term of the contract such as interfering with the borrower’s ability to pay timely or charging the borrower premium fees in order to provide kickbacks to the mortgage broker.
- Damage to Credit Reputation – Erosion of credit scores because of errors or misreporting by the lender or holder of the note.
- Equal Credit Opportunity Act (ECOA) – Bait-and-switch tactics by the lender/broker that increased the cost of the loan inordinately, particular because of the borrower’s race, gender, religion, language impediment, etc.
- Failure to Establish Conditions Precedent – Servicer or lender fails to perform important functions required by law or contract prior to taking hurtful actions.
- Fair Debt Collection Practices Act (FDCPA) – Debt collectors abusing borrowers through harassment, filing wrongful credit reports to credit reporting agencies, etc.
- Federal Housing Administration (FHA) Pre-Foreclosure Requirements – Servicer failing to mail the “How to Avoid Foreclosure” booklet to, or scheduling a meeting with, borrowers in advance of collection enforcement.
- Home Ownership and Equity Protection Act (HOEPA) – Charging excessive fees and interest on high interest loans.
- Interstate Land Sales Full Disclosure Act (ILSFDA) – Failing to disclose appropriate information in certain subdivision land sales
- Notary Fraud – Robosigning, or absentee notarization of loan documents, expired notary commission.
- Document Fraud – Counterfeiting of “original” loan documents, forgery of borrower’s signature.
- PSA – Bank violated provisions in the Pooling and Servicing Agreement.
- Vapor Money – Lender created money out of thin air because the borrower’s note funded the loan
- Real Estate Settlement Procedures Act (RESPA) – Broker, lender, appraiser, title company, or others gave or received kickbacks or unearned fees, failed to provide proper disclosures at closing.
- Real Party in Interest – The wrong party tried to foreclose.
- Truth in Lending Act (TILA) – Failure of lender or title company to provide proper disclosures and notice of right to rescind at or before closing.
- Unconscionability – Lender or broker inserting extremely unfair or one-sided terms in the note or mortgage, or inserting items unbeknownst to the other party, or running a fly-by-night operation outside the scope of federal and state requirements.
- Unfair and Deceptive Practices – Creating overreaching mortgage transactions, failure of brokers to conduct a lawful business, or having proper licensing.
If you need to know the answers, contact Mortgage Attack using the Contact page.