What Is a Wrongful Foreclosure?

foreclosure notice and keys on court table

Homeowners are becoming increasingly worried in Florida, as President Biden’s foreclosure moratorium has been extended but is set to expire in a few weeks.

The housing crisis of 2008 is still too fresh in the minds of many homeowners and it is natural to fear that this scenario may play out poorly once again. While the same type of foreclosure crisis is unlikely to occur in Florida, it is important to learn some lessons from what we have already lived through.

During the crisis, lenders made several errors, or simply acted in bad faith and caused many homeowners to lose their homes. These were wrongful foreclosures. Today, any homeowner that fears they may lose their home should understand the tactics lenders use, and how those actions can help with their foreclosure defense.

Below are some of the most common strategies lenders will use during a wrongful foreclosure.

Homeowners Face Foreclosure When Not in Default on Loans

The notion that a homeowner should not lose their home unless they default on their mortgage is one that most people can agree to. However, during the crisis, it was not uncommon for lenders to foreclose on homeowners that were current with their mortgages. Some had even paid off their home completely, yet they were still threatened with foreclosure.

These mistakes were typically due to processing errors. Miscommunication between lenders, title insurers, servicers, and other bank contractors was largely to blame for these mistakes. While it may sound as though these mistakes are nearly impossible to make, they are much more common than many people believe. In fact, during the housing crisis, banks publicly apologized for the mistakes made.

Lenders Foreclosed During a Loan Modification

The practice of dual tracking is prohibited by law, but lenders do it all the time. Dual tracking occurs when a homeowner applies for a loan modification with their lender and while the application is being processed, the lender proceeds with foreclosing on the home. Not only is this illegal but during the housing crisis, lenders were actually encouraging it.

At that time, lenders told homeowners seeking a modification that they could not obtain one unless they were behind on their mortgage. They advised these homeowners to not pay their mortgage for a couple of months so they could then apply for a modification. Once the homeowners were in default, they took the advice of their lender and applied for a loan modification. In some cases, the lenders would start the foreclosure process while the modification application was in the process of being approved.

In other instances, a homeowner’s application for a modification was denied and the lender proceeded with foreclosing on the home. Homeowners then tried to catch up on their mortgage payments, but due to the additional fees, it was nearly impossible and they lost their home.

Homeowners Could Not Catch Up Due to Additional Fees

The fees associated with loan modifications are not the only ones that make it difficult for homeowners to catch up on their mortgage payments. Homeowners who were already struggling with their mortgage debt found it even more difficult to pay during the housing crisis due to the fees their lender charged. The problem became such an issue that the Federal Reserve Governor at the time, Sarah Bloom Raskin, criticized the mortgage lending industry for their “Pandora’s Box of predatory tactics.”

Lenders padded fees by including broker-price options, late fees, inspection fees, and more. The Federal Trade Commission also tried to advise homeowners of the problem and inform them of how to protect themselves by releasing a consumer fact sheet. The fact sheet urges individuals to carefully review their billing statements and to ensure that any and all fees that appear within the statement are legitimate.

Even when homeowners could afford these fees, lenders often applied the payments to insurance premiums and fees, which would cause the homeowner to fall into foreclosure even though they could afford their mortgage. At the time, a judge even spoke to the Tampa Tribune and said they were seeing charges that ranged between $1,000 and $2,000 instead of the $100 to $200 in fees homeowners usually face. While the banks at the time denied that they were padding fees, an attorney at the National Consumer Law Center told legislators that these fees were responsible for approximately half of the foreclosure cases she had seen.

If lenders were willing to pad fees in this manner just over a decade ago, they may still employ that tactic today to get even more in payments from homeowners.

Lenders Cannot Prove Standing

Even when a homeowner is obviously in default because they could not pay their mortgage, and not due to any deceitful tactics, it is not possible for just anyone to foreclose on a home. To begin the foreclosure process, the lender or servicer must have standing. That is, they must be able to prove that they own the debt and have the right to foreclose on the home. In most cases, the note is used to prove this.

During the housing crisis, a number of lenders and servicers did not have proper standing, but they foreclosed on homes anyway. In a 2007 study of bankruptcy mortgage claims, it was found that banks did not have the appropriate documentation in approximately 40 percent of cases. While the issue was a main concern of homeowners and their attorneys during the housing crisis, today, lenders and servicers still try to foreclose on homes even when they do not hold the note or other documentation that shows they own the loans.

Our Foreclosure Defense Lawyers in Florida Know the Tactics Lenders Use

Facing foreclosure is always scary, but it is important that you do not panic. At Loan Lawyers, our foreclosure defense lawyers in Fort Lauderdale know the tactics lenders use to foreclose on homes when they have no right to, and we will use that when building a defense for your case. We also know that other defenses are available that will give you the best chance of keeping your home. Call us today at 954-807-1361 or fill out our online form to schedule a free consultation.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.