Why Many Homeowners - Perhaps YOU - Should Stop Paying Their Mortgage - READ CAREFULLY - Rev. 2/28/09
Mortgage Foreclosure Defenses - Possible Ways to Save Your Home from Foreclosure
Although Millions Are Threatened, Your Concern Is a Single Foreclosure
WHY MANY MORTGAGORS SHOULD STOP PAYING THEIR MORTGAGES RIGHT NOW!!!!
I am adding this section on 2/22/09 to highlight information of growing importance to many homeowners throughout specific states in the U.S., including New York and the other "judicial-foreclosure" states (where foreclosures have to be ordered by a court).
I have come to the conclusion after giving considerable thought to the problem that it is in the best interests of many if not most homeowners (whether owner/occupiers, or investors) that the way today to deal with a lender's bad practices is to stop paying the mortgage and invite, yes invite, the lender to file a foreclosure action against you, as the owner/mortgagor. The reasons for this are many, and you need to analyze each of them, including others that may not appear on my list.
The reasons for you to consider:
To come within the Obama Administration's bailout program for homeowners - you have to look at the applicable provisions of law to see whether under your own circumstances you would qualify for any homeowner bailout benefits and whether the date of filing of a foreclosure action would qualify or preclude you from benefits.
Today, it is not as bad a financial sin (from a credit standpoint) to have a foreclosure action brought against you, especially if you would be facing one anyway 6 months from now. I tell homeowners that if you recognize that in 6 months you will not be able to pay the mortgage, you should stop paying now, save your money and use some of it to hire a lawyer to defend against the invited foreclosure action, and hopefully obtain a reduction in your monthly payment (and hopefully the total amount of your loan) more quickly, and get out of foreclosure quickly (and from the lender's standpoint bring the property back to performing status more quickly).
You have to have meritorious defenses to the foreclosure action, and one or more of these are generally available to most mortgagors because of what the major lenders were doing with appraisals, property values, mortgage brokers and other bases for what is often called "lender's liability"; I repeat, I am not advocating inviting foreclosure if you have no meritorious offsets, defenses or counterclaims to assert;
Also, I urge that in order to invite a foreclosure action (through stopping mortgage payments) that you try to obtain a modification agreement even before stopping your payments (which will probably be rejected because you are not behind in your payments) and after you stop paying, before the lender commences a foreclosure action - you will be able to see what the lender is willing to do before you are in foreclosure litigation, which too often is very little.
After you start defending the invited foreclosure action (on a timely basis, I must emphasize), the lender will probably have to hire another law firm (at considerable cost to the lender), and be far more willing, as a result, to listen to a reasonable proposal you may have for a modification agreement more along the terms you had originally wanted, but the lender had rejected.
Make sure that you are prepared to defend the action on a timely basis, which means (in NYS) that you file an answer within 20 days after you have been served, and you definitely should obtain a lawyer as quickly as possible to be able to get a good answer together and ready for filing within the 20-day period. By a "good answer" I mean one which takes into account the various lending failures of the lender, any mortgage broker, appraiser, and any mortgage servicing agent, and perhaps others to comply with the letter of the law, and asserts a variety of meritorious counterclaims, offsets and defenses to the foreclosure action;if you don't file your answer (with counterclaims) on a timely basis, you may wind up having to settle for a belated answer that contains far fewer defenses, and perhaps no offsets or counterclaims, because they might prejudice your efforts to file a belated answer.
If you fail to file your answer on a timely basis, you may wind up being unable to file your answer without seeking an order from the court; if this is so, it will cost you far more money than if you had just filed a timely answer, and it has the risk that even with the additional expense of making your motion for permission to file belatedly (or to vacate a default or a default judgment), the judge may deny you any relief - THIS IS MOST IMPORTANT FOR YOU TO UNDERSTAND, AS WELL AS MY NEXT POINT
Most defendant mortgagors in a mortgage foreclosure action fail to respond to the lawsuit for a variety of misguided reasons, including (i) well-meaning friends tell them erroneously that as long as your property has not been sold at auction you can always stop the sale - you might be able to stop the sale for several days by filing for bankruptcy but the bankruptcy judge may well terminate the bankruptcy and allow the sale to proceed; (ii) 97% as an estimate allow the foreclosure action to go by default because they believe they owe the money (which technically is true if you look at the mortgage and note) but is not necessarily true when you consider all the other circumstances, which form the basis for meritorious defenses, offsets and counterclaims; (iii) they believe that defending a foreclosure action is costly - this is not true, it will cost substantially less than the monthly payments you will no longer be paying; a foreclosure action can be defended for months at a total cost of less than $2,500 to $4,000 in many cases; (iv) the mortgagor was not served (this is something that can be overcome by a motion to vacate a default or default judgment for lack of service, at a much lower cost than when the default was deliberate).
You should realize that the lenders are under pressure to sell the mortgaged properties in default and eliminate the toxic mortgages from their portfolio, but a foreclosure action being defended properly in NY, at least, blocks the lender from doing what it wants to do, and forces the lender to consider the perhaps unwanted alternative of giving the borrower a reduced monthly payment and a reduced principal amount of mortgage; the government's bailout program is attempting to address these concerns, but litigation (by an aggressive defense) will probably be able to accomplish more for the mortgagor, especially if the bailout relief is available to the bank and borrower for the litigated foreclosure.
The most important part of this website has already been presented to you above. You should now read the rest, which was written months prior to the above portion.
THE MOST IMPORTANT POINT TO REMEMBER WHEN THREATENED WITH FORECLOSURE -
HIRE A LAWYER NOW, NOT TOMORROW - DELAY OF ONE DAY COULD CAUSE YOU TO LOSE YOUR
I have seen foreclosure clients before they were threatened with foreclosure; and homeowners who
were served with foreclosure papers only one day earlier; and homeowners who waited until 21 days
after service of foreclosure papers (when they should have acted no later than 20 days after service); and
homeowners who waited until a date was set for sale of their home after a default was entered for
their failure to appear to defend the foreclosure action.
Speaking from a lawyer's standpoint, I can almost cry at the failure of homeowners to hire a lawyer and
defend a foreclosure within the normal 20-day period from the date of service. The risk of losing the home
increases exponentially if the homeowner lets the foreclosure action go into default. The legal costs of
trying to undo a default are far more (in many instances) than the cost of providing a timely defense.
Accordingly, the minute you receive notice of a foreclosure proceeding, and probably at some time earlier, when you
know that a foreclosure action is going to be started, retain an attorney to deal with the problem. You would be
surprised at the "tools" available to the attorney on your behalf if you retain the attorney on a
You will have a much greater chance of obtaining some desired relief (such as a modification of your
mortgage, forgiveness of a portion of the indebtedness, a lowering of monthly payments, a lowering of the interest
rate and a possible elimination of the default rate of interest, and more. These are yours almost for the asking,
but you have to do it the right way, which is by retaining an attorney on a timely basis.
I am not unmindful of the various alternatives offered, such as to hire someone who will call up the financial
institution and try to restructure the loan on your behalf; or someone who would put you into
bankruptcy; or someone who would take your money and in fact do nothing or next to nothing. I'm not even saying
that you shouldn't use one or more of these approaches. What I am saying is that when you know
a foreclosure action is going to be started, or if you have just been served with papers in a foreclosure action (or
alternative action for payment of the note), IT IS TIME RIGHT AWAY (---TODAY---) TO HIRE AN
ATTORNEY. DON'T WAIT. BY WAITING YOU MAY WELL LOSE YOUR HOME NEEDLESSLY.
I hope I have said enough about this most important issue. If you are reading this after your period to answer (in your
opinion) has expired, HIRE AN ATTORNEY RIGHT AWAY - you may be wrong as to your conclusion that the period to answer has
expired; there may be certain rules extending the time; the attorney you hire may be able to get an extension of time to
answer or the attorney may be able to file an answer anyway, belatedly, without the answer being
rejected. There are various things an attorney can do for you, so don't fail to hire an attorney, even if you are late in
answering the foreclosure complaint. Even if a sale is being scheduled, see an attorney. The problem is, of course, that the
longer you wait the more difficult it would be for you to obtain some needed relief.
Your Answer May Be the Most Important Document Ever Used in Your Life, or At Least in
the Mortgage Foreclosure Action - I Can Work With Your Local Lawyer to Prepare Your ANSWER with
any COUNTERCLAIMS to the Foreclosure Complaint
I want to make it known to you right away, that I am able to work with your lawyer anywhere in the United States to prepare
an appropriate Answer (or Answer with Counterclaims) for you, as your response to a mortgage
foreclosure action, assuming (of course) that the facts justify such response. I would like you to look at an article I wrote
a few years ago about the importance of well-drafted pleadings, see
Importance of Pleadings.
My fee to prepare an Answer (or Answer with Counterclaims) would be on an hourly basis, and I
could be (but do not have to be) co-counsel ("pro hac vice") with your own local attorney to stay on the case
while it continues in the local court.
Let me tell you about some important statutes that are involved, or might be involved in your own mortgage foreclosure
situation. Some may apply; and some may not. But your lawyer should review every applicable statute to determine whether
there have been violations of law concerning your situation which should be raised in defense of the foreclosure action.
Various Statutes for You and Your Lawyer to Consider in Defending a Mortgage Foreclosure Action, or an Action Upon
a Mortgage-Secured Note
There is an ever-increasing number of statutes that need to be considered when deciding how to oppose a specific mortgage foreclosure
action (or for a monetary judgment upon the related note). From now on I will merely refer to the action as a mortgage foreclosure action,
a not distinguish between the two. [In New York State, the mortgagee must elect to sue on the mortgage or sue on the note, and wait until
the first choice is completed before starting an action on the second choice. But whichever choice is made, the problems remain
pretty much the same.]
Federal Statutes to Consider
Truth in Lending Act ("TILA"),enacted in 1968, protects consumers in credit transactions
by requiring clear disclosure of key terms and all costs. See
Wiki on TILA
Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2601, et seq., which requires disclosure in advance of
the amounts being received by various participants, including mortgage brokers, and prohibits the non-disclosed increase
of the interest rate to cover the mortgage broker's fee; also, RESPA, 12 U.S.C. § 2605(e), requires the lender or servicing
institution to acknowledge and respond to "Qualified Written Requests" ("QWR") by the homeowner relating to the loan, and stops the bank or servicing institution from issuing a credit report until the QWR is answered.
Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681 et seq., regulates the collection,
dissemination, and use of consumer credit information. See
Wiki on FCRA
Any new law(s) for mortgage refinancing by lender or federal agency for qualified mortgagors
State Statutes to Consider
New York McKinney's General Business Law § 349 prohibiting deceptive acts and practices. See
GBL Section 349
New York McKinney's General Business Law § 350 prohibiting false advertising, an exceedingly
short but powerful statute which states the following:
False advertising in the conduct of any business, trade or commerce or in the furnishing
of any service in this state is hereby declared unlawful.
New York McKinney's Banking Law, §§ 6-I(d) and 6-I(g), "high-cost home loan".
Counterpart statutes in other states - examples from California:
California Consumer Legal Remedies Act, §§ 1770(a), see specific subparagraphs
§ 17200 of the California Business and Professions Code, the Unfair Competition Law
§§ 17500-17509 of the California Business and Professions Code – False and Misleading Advertising
Class action allegations under the California Unfair Competition Law; California Consumer Legal Remedies Act; and Rule 23 of the Federal Rules of Civil Procedure
Foreclosure Discussion Continued
Future legislative help for millions of homeowners threatened with foreclosure is of little help to someone facing
foreclosure proceedings today. The focus for the single threatened homeowner is what he/she can do now to protect
his property interest. A foreclosure proceeding in New York State commences with the filing of a Notice of Lis Pendens, to provide notice to the world
that the title to the real estate is in litigation. What can a home owner do to protect his/her interest in
the property after a lis pendens is filed? There are various options (including bankruptcy; paying the bank all
of the amount demanded, including the outrageously high default interest and late charges; renegotiating the terms
of the mortgage and getting reinstatement on more favorable terms; walking away from the property; defending
against the foreclosure lawsuit; bringing in other persons as defendants in the lawsuit when they helped to
cause your difficulty). First I'm going to list various defenses which should be considered in a mortgage
foreclosure action. Then, I'm going to discuss the major cause of mortgage foreclosure actions: the subprime rate mortgage.
Defenses to a Mortgage Foreclosure Action
The facts in each case will be different, so all I can do is point out legal issues for possible development.
The purpose of identifying legal issues for any specific subprime rate mortgagor (usually a family buying its first
home) or other mortgage foreclosure defendant is to help the defendant and family decide what they can do,
and when they can take such action.
Here are some important defensive issues to explore:
The first thing I would want to look at, as an attorney for a subprime-rate mortgagor (borrower) is all of the
advertising and other information provided to you before you signed the mortgage papers. I would look for
deceptive or fraudulent or untrue statements upon which the borrower relied.
Secondly, I would also look to see if there are any guarantees or promises that were made which have not been
fulfilled by the lender. It is important to consider any non-written statements made to the borrower by the lender
or its agent prior to the signing of the mortgage papers (and receipt of the loan proceeds).
A defense of intentionally causing the borrower to be unable to fulfill the requirements of the loan, so that
the lender (or its assignees) can take back the property and still go after the borrower for a huge percentage of the value
of the property, which can be called a "kicker", a hidden asset for the lender which kicks in down the line, for the
benefit of the lender and extreme detriment to the borrower. But there is seldom any disclosure about this kicker.
Lender's liability for making a loan to the borrower which the lender knew the borrower had no capacity to
Review the federal and state statutes listed above, to see if any violations have taken place.
Selling the loan to "vultures" without any disclosure to the borrower that this was the intention of the
originating lender. Who the "vultures" are needs to be based on various legal doctrines designed to protect
borrowers from unlawful activity of the lenders.
Are there any technical requirements that the Plaintiff has not met, which should result in dismissal of the action? The
first of these technical requirements is whether service of the summons and complaint, and/or the Notice of Lis
Pendens, was served upon you properly. All too often service is not done properly.
If the property has been sold, was it sold after appropriate advertising or was the sale price reduced by a failure
to advertise the sale properly?
Consider the legal doctrine and defense of "unjust enrichment".
Consider the legal doctrine and defense of "breach of the implied covenant of good faith and fair dealing".
Consider the legal doctrine and defense of "tortious destruction of the borrower's business" (if this is a
Look at the state laws relating to deceptive and fraudulent advertising, such as New York General Business
Law Sections 349 (deceptive acts and practices) and 350 (false advertising; bait and switch advertising).
[California foreclosures:] Look at California laws: (i) California Unfair Practices Act, §§ 17000, et seq. [§ 17045] of the Business and
Professions Code – Secret Rebates Injuring Competition]; (ii) California Consumer Legal Remedies Act, §§ 1770(a);
Don't forget to look at the various banking laws, state and federal, to see any other possible bases for
liability, including any new legislation attempting to deal with the millions of new foreclosures that are going to be commenced
starting in 2008.
Subprime Rate Mortgages
"Subprime rate" mortgages are deceptively appealing. They have enabled families to buy a home
(usually their first home) with little money down, an immediate low, affordable interest rate,
and a hope that interest rates won't rise.
The immediate lenders (or "originating lenders") are banks, savings & loans, and companies licensed as
banks to make mortgage loans. These companies include FNMA (Federal National Mortgage Association, also
known as Fanny Mae), FHLMC (Federal Home Loan Mortgage Corporation, also known as Freddie Mac),
MorganChase and Citibank.
Also, you might be dealing with someone not licensed as a bank, but licensed as a mortgage broker.
Because of the great appeal of lending to families not qualified to obtain a regular mortgage, the lenders
set significantly higher interest rates (after expiration of the initial period of less than a year in
which the interest rate is artificially low) than are being paid on regular mortgages. The originating lenders
generally put together a group of recently-created home mortgages (together with the
promissory note and personal guarantees) and sell them as a package or in "tranches" to investors or
groups of investors often specializing in purchase of (i.e., investment in) home mortgages.
Most of the originating lenders (including Fannie Mae and Freddie Mac) have no intention of holding the mortgages.
They package and sell mortgages to investors of various types. Further information about Freddie Mac is available at
Wikipedia: Freddie Mac and about Fannie Mae, at
Wikipedia: Fannie Mae.
Another interest obtained by the lender, and assigned to investors, is the right to take back your property in the
event of a default, and (if they comply with various rules) wind up owning the property while you, the borrower,
still owe them a sizeable amount on the loan, including default interest at a much higher rate, attorneys' fees
for the foreclosure proceedings, costs and other expenses. It is not inconceivable that you could wind up owing far
more than the principal amount of the loan and lose all interest in your property. This is a neat way for the lender
or investor to have his cake and eat it too. The lender still has you owing at least as much and the lender winds up
owning the property.
From 1938 to 1968, Fannie Mae was a government monopoly, and in 1968 the federal government created competition for
Fannie Mae by authorizing the creation of privately-owned Freddie Mac.
An Associated Press article on March 25, 2007 entitled Senator "Schumer urges more regulation of subprime mortgage rates"
stated that during the next two years there is going to be "the biggest foreclosure crisis ever", unless action
is taken to prevent "economic forces" from pulling the trigger. The AP story explained that New York's
Sen. Charles Schumer warned ... that 91,000 New York families are at risk of losing their homes when the rates
of their subprime mortgages increase.... "The subprime market is the wild west of mortgage loans, and it's time
we bring a sheriff into town," Schumer said. "The first step is making sure that borrowers are protected from these
usurious lenders. Subprime lenders peddle mortgages that often require no money down and are made at "teaser"
interest rates that soon rise. They target marginal borrowers with weak credit or questionable incomes who previously
might not have gotten a loan at all. Schumer said an analysis by his office found that an estimated 1.8 million
American families, including 91,325 in New York state, are at risk of foreclosure when the rates are reset
within two years. * * * ... Schumer said his bill would establish a suitability standard for borrowers so that
lenders won't be able to issue a loan that the borrower cannot afford. * * *"
Should Suit Be Commenced Prior to Any Foreclosure Proceeding or After Foreclosure Has Started?
The facts of an individual case should help to decide whether a subprime-rate borrower should sue right now to obtain some
relief, before any foreclosure proceeding has started, and before any default by the borrower has occurred. This might be
the best way to go, especially if it is clear to the borrower that he/she is going to have to go into default at some point.
It would possibly enable you to obtain relief before you go into default, and you appear not to be using the
lawsuit claims as a defense to an existing default, which makes you appear more aggrieved than if you wait until a foreclosure
proceeding has been commenced, in which you come in belatedly and urge the court to stop the foreclosure because of the
facts that occurred some time ago, and you are just getting around to bringing the facts to the attention of the court.
On the other hand, few people bring suit for "lender's liability" until they are in desperate need. This may be why you
might want to consider going into court to obtain relief prior to going into default, to prevent you from having to go
into default. It may be worth your while to consider this preemptive tactic, to strike first, before you are in default, so
that the claims are heard as you have described them in your complaint, and not as a collection of "defenses" and
"counterclaims" to a lender's lawsuit against your for foreclosure and later for recovery of a "deficiency judgment"
for the amount of the judgment not satisfied by the distress sale of the mortgaged property.
Your House is Probably the Most Valuable Asset Your Family Will Have - and You Should Protect It as
Vigorously as You Would Protect Your Employment or Retirement Funds
If you were illegally terminated from your job and now are facing a loss of $50,000 per year, you would be seeking to obtain
relief in court for several years of lost income, or a longer period of reduced income, perhaps having a total value of
$100,000 to $200,000.
If you were terminated illegally to be able to prevent vesting of your retirement income, you would go into court to protect
that, which could amount to as much (or more) as the loss of employment just discussed.
Loss of your home is far more serious. If you remain in your home and pay off your mortgage over a 30-year period, you will
generally wind up with an asset far more valuable than your retirement income. Over the past 50 years or so, home ownership
has resulted in substantial values when retirement time comes around, and the time to protect that asset is right now, and
not run the risk that the home be taken away from you because of illegal practices of the lender and others.
You should review all the facts and decide whether you have any claim, and if there is a claim whether you should pursue
the claim now, or wait until you are facing foreclosure and eviction.
Papers to Collect and Take to Your Lawyer's Office
Lawyers will differ in what they want to see, but generally you should be ready to take at least the following documents to
your lawyer's office (or the office of a lawyer you are thinking of retaining). For a distant lawyer, you could make a pdf file
and email the documents to such lawyer:
Closing statement received at the closing;
Promissory note or other evidence of indebtedness
Mortgage or purchase money mortgage or other lien papers
Your own notes about what your bank and any mortgage broker or real estate broker told you before the closing
Documents you received about the purchase or mortgage, before the closing, from the bank,
mortgage broker, real estate broker or other person
Any correspondence or notes from telephone conversations with the bank or loan servicing
agent after the closing
Any notices or correspondence regarding the note or mortgage
Your payment record
Any written requests made by your to the bank or loan servicing agent regarding the loan or mortgage
The documents you were served such as a Notice of Pendency of Action, Summons and Complaint or Verified Complaint
MOST IMPORTANTLY, the date and manner in which you or someone was served or purportedly served with a copy of the
summons and complaint
Consultation - No Fee, No Obligation
My initial discussion is without charge.
To make an appointment to discuss your problem with me, please call
me at 212-307-4444.
Recently, I was interviewed by Harold Channer, "Conversations with Harold Channer", on MNN. Here are
links to two YouTube 1-hour interviews with Harold Channer. You might be interested in spending a few
minutes looking at one of the two interviews to let me introduce myself to you.
YouTube - Carl Person and Harold Channer - Air Date: 02-28-08