Potential foreclosure defenses

Well, here it is the last day of July 2008, and we are still in the midst of a tsunami of forclosures nationwide.

Concentrating on the Massachusetts area, what I personally have seen is the same scenario over and over again: the homeowner never questions the mortgagee's (Bank) claim, and foreclosures are fast tracked and end up being Bank REO's (Real Estate Owned - taken back by the bank), as the bank is most times the "high bidder."

There are a number of potential defenses a homeowner can raise, if done immediately.

• Examine the initial mortgage paperwork for errors, and non-compliance with the Truth In Lending Act (TILA). TILA is a powerful tool that can be used by mortgagor's (borrowers). TILA is basically a disclosure statute, that is your lender had to make certain disclosures relating to the type of loan you purchased, as well as its interest rate, and most importantly your right to cancel the contract within 3 - days. If not done correctly this 3 day right of rescission can be extended up to 3 years.
  
  During the height of the mortgage boom over the past few years, mortgagee's (mortgagee- lenders) became very sloppy with their paperwork, and you may have a legitimate defense based on TILA.
  
• Make the mortgagee (lender) prove it owns your mortgage. The really complicated thing that happened with home mortgages is the fact that they became "securitized". What this means is that after you purchased your mortgage, your lender turned around and sold it to a brokerage house (like Bear Stearns), who then packaged your loan along with many others as an "investment" to accounts like teachers and firefighters pension plans. So many times if challenged the entity foreclosing does not have it's name on the title, and cannot proceed.
  
  Pension plans and trusts are always looking for ways to maximize their shareholder's return on their money (no doubt to justify the fees they charge for managing money), and with these sub-prime mortgages, the monthly mortgage payments were providing a fantastic rate of return, until the inevitable point where the mortgagor (borrower) no longer could afford the rapidly escalating payment amount, due to the fact that property values were no longer rising.
  
  The insidious part about this whole concept is the fact that mortgage companies KNEW that housing prices COULD NOT continue to escalate EVERY year, and there would come a time where housing price appreciation would fail to keep pace with the mortgage payment increase, therefore this was a house of cards that was set up to fail.
  
  Many times mortgage servicer (not the mortgagee - lender) tries to bring a foreclosure action. This can be challenged if the mortgage note is not titled in the servicer's name, and if not, this can potentially be unauthorized practice of law by the servicer. Or another scenario involves the mortgagee (lender) bringing a foreclosure action, when the note has been purchased and is in the name of a trust or pension plan.
  
  This defense can prove useful to buy time to work out an alternate agreement, but normally alone will not keep someone in their home permanently.
  
• In Massachusetts a foreclosure is conducted through the power of sale clause in your mortgage, if the foreclosure process was not conducted exactly as the clause is worded you may have a defense.
  
• In the next week or two, I will be selecting a family to document what happens from the initial contact from the mortgagee in a foreclosure action, up to final resolution (either auction or workout).

Remember you have the right to challenge foreclosure of your home!

While you may think to yourself, that there is nothing you can do because you haven't kept up with the mortgage payments, when in reality your situation may have been caused by a mortgagee (lender) who intentionally, or unintentionally failed to follow the law in selling your mortgage to you.

Ask Questions, it is your right!