Foreclosure Law: What Lenders Can Do and How Borrowers Fight Back

The mortgage or deed of trust contains an acceleration clause. When a borrower misses payments, the lender demands the full outstanding balance. Lender foreclosure rights differ depending on whether the loan is secured by a mortgage or a deed of trust. A mortgage requires judicial foreclosure. A deed of trust allows non-judicial foreclosure through a trustee's sale without court involvement.

Home foreclosure counsel evaluates the loan documents to identify the applicable foreclosure law, advises on the scope of lender foreclosure rights under the mortgage or deed of trust, and advises on the defenses available to borrowers facing mortgage foreclosure based on the loan terms and the lender's conduct.

In judicial foreclosure states, the lender files a lawsuit before selling the property. A lis pendens is filed against the property, clouding title during litigation. In non-judicial foreclosure states, the trustee issues a notice of default after the borrower falls behind. California requires a 90-day notice of default period before the trustee's sale. A procedural defect in the notice process is grounds for challenging the foreclosure. Borrowers must know the applicable timelines before those deadlines expire.

Foreclosure and real estate default services counsel advises on the distinction between judicial and non-judicial foreclosure procedures, evaluates notice of default procedures for compliance with applicable state law, and advises on the lis pendens filing and its effect on title during the pendency of foreclosure litigation.

The foreclosure auction is the mechanism through which property seizure is completed. In a non-judicial foreclosure, the trustee conducts a trustee's sale at the specified time and location. In a judicial foreclosure, the court orders a sheriff's sale after entering judgment. The winning bidder receives a trustee's deed or sheriff's deed upon completion. After the auction, the original borrower has no right to remain unless the jurisdiction provides a post-sale redemption period.

Foreclosure auction process counsel advises on the trustee's sale and sheriff's sale process, advises on the rights of junior lienholders whose interests are extinguished by the foreclosure sale, and advises borrowers and third-party bidders on their rights and obligations at the foreclosure auction.

Equitable redemption allows the borrower to stop the foreclosure by paying the full debt before the sale. This right exists in virtually every state. Some states also provide a statutory right of redemption after the sale. Minnesota provides a six-month post-sale redemption period. Alabama provides a one-year post-sale redemption period. Borrowers who miss their redemption rights lose one of the most powerful tools available under foreclosure law.

Real estate foreclosure auction counsel advises on the equitable redemption right before sale and the statutory redemption right after sale, advises on the timelines and payment requirements for exercising redemption rights in the applicable state, and advises borrowers who have lost a foreclosure sale on whether post-sale redemption remains available.

Filing Chapter 13 bankruptcy triggers the automatic stay and halts every pending foreclosure sale immediately. Chapter 13 allows repayment of mortgage arrears over a plan period. Loss mitigation through loan modification can reduce monthly payments without bankruptcy. HAMP programs provide for modifications that reduce monthly payments to affordable levels. Dual tracking, pursuing foreclosure while a loss mitigation application is pending, violates CFPB mortgage servicing rules.

Chapter 13 counsel advises on the Chapter 13 bankruptcy process and the use of the automatic stay to halt pending foreclosure sales, advises on the structure of Chapter 13 plans for repaying mortgage arrears, and advises on the intersection of loss mitigation, HAMP modifications, and the dual tracking prohibition with the borrower's bankruptcy rights.

A lender who does not hold the note cannot foreclose. This is the core issue in wrongful foreclosure claims based on MERS and robo-signing defects. MERS tracked mortgage ownership through securitization without recording assignments in the county recorder's office. Courts in multiple states have held that MERS lacked standing to foreclose in its own name. Chain of title defects arising from robo-signing and unrecorded assignments are grounds for challenging the foreclosure. Standing challenges must be raised before the sale or they may be waived.

Real estate litigation counsel pursues wrongful foreclosure claims based on MERS standing defects, robo-signing, chain of title defects, and other irregularities in the foreclosure legal process, advises on the damages available for wrongful foreclosure including property value, consequential damages, and punitive damages, and advises on the standing challenges that must be raised before the foreclosure sale.

When the foreclosure sale price is less than the debt, the lender may pursue a deficiency judgment for the shortfall. Many states provide anti-deficiency protections that limit or eliminate deficiency judgments. California's anti-deficiency statutes bar deficiency judgments after non-judicial foreclosure of purchase money mortgages. A short sale or deed-in-lieu of foreclosure can be negotiated to avoid the foreclosure and resolve the deficiency. Both alternatives require lender approval and careful negotiation of the deficiency release terms.

Real property law counsel advises on deficiency judgment exposure after foreclosure, evaluates the availability of anti-deficiency protections under applicable state law, and negotiates short sales and deed-in-lieu agreements that include deficiency waivers to protect the borrower from post-foreclosure personal liability.

Losing the foreclosure sale does not mean losing immediately. Post-foreclosure eviction requires a separate legal proceeding in most states. CFPB mortgage servicing regulations create additional causes of action against servicers who violated their obligations before or during foreclosure. Servicers who failed to honor loss mitigation commitments or who violated the dual tracking prohibition face liability under RESPA and the Dodd-Frank Act. The borrower's strategy after a foreclosure sale depends on whether the sale was procedurally valid and whether any redemption period remains open.

Eviction after foreclosure counsel advises on the post-foreclosure eviction process and the former owner's right to remain during the unlawful detainer proceeding, advises on CFPB mortgage servicing violation claims that can be asserted against servicers who engaged in dual tracking or violated loss mitigation obligations, and advises on the full litigation strategy available to borrowers after a foreclosure sale.