Keeping Banks Honest: Protect Yourself During Foreclosure

Whatever your situation, here are some tips to help you protect yourself during the foreclosure process:

Keep all your documents.

Make sure to keep your mortgage closing paperwork and your promissory note. These documents will form the foundation of any foreclosure case against you.

Lose your documents? Get new ones.

Under the Real Estate Settlement Procedures Act, you can submit a Qualified Written Request to your original lender for new copies of all your loan documents. To find out what qualifies as “qualified,” check out this guidance from the federal government. ”Do that as far in advance as possible,” Allen says.

Check the numbers.

Since banks have proven time and again that they cannot handle the tidal wave of documents involving mortgages in trouble, there’s a chance they filed for foreclosure on the wrong house (something you would have obviously recognized right away). The first thing you should do is check the loan number on your promissory note against theirs. Are they different? The bank made a mistake. “You always should have something to compare to what the bank is filing,” says Allen.

Check the process.

Chances are, your original lender doesn’t own your mortgage anymore. Instead they probably bundled it with hundreds of other loans, and sold the bundle to investors. That process involves your mortgage changing hands five or six different times. Every time it’s transferred, it needs a new promissory note to document the passage from the old owner to the new one. Separately, a “pooling and servicing” agreement tracks which parties need to sign off on every step of the process. Compare all the promissory notes to the pooling and servicing agreement. Are any of the parties missing? If so, the process broke down along the way. That could mean the investors don’t have the paperwork to prove they legally own your mortgage. Bringing that evidence to a court will slow down the process, and in rare cases could get the foreclosure motion thrown out.

“Does the transfer of the mortgage go from A to B to C? Or does it go from A to C?” Allen says. “The promissory note will tell you if they skipped a step.”

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Hire a lawyer.

As you can see, this stuff gets complicated fast. Find a lawyer who has handled foreclosure cases before.

Avoid scams.

There are foreclosure avoidance scams everywhere, including handwritten signs posted at freeway off-ramps. Don’t fall for them. Allen sees two that are especially well-run and sneaky:

Mass joinder lawsuits. These operate like class action suits. Many law firms and just plain scammers promote such suits against lenders on behalf of homeowners facing foreclosure. They often advertise online, and require payment upfront. The problem is that such lawsuits depend on having a class of plaintiffs with identical allegations of illegal conduct. But each foreclosure is unique. Besides, a bank foreclosing on you might be a serious drag, but there’s probably nothing illegal about it. Either way, “It’s just a scam,” Allen says.
Foreclosure avoidance scams. Many companies advertise that they can help you avoid foreclosure. Exceptional cases aside, they probably can’t. In particular, some scammers tell homeowners that if the bank cannot produce the original promissory note, it can’t legally foreclose. “That’s not true,” Allen says. “I don’t think you’re ever going to delay a foreclosure inevitably.”

Image: Taber Andrew Bain, via Flickr