Defenses to Mortgage Foreclosure
The following defenses can act as an absolute bar to foreclosure and prevent a bank from taking your home.
Predatory lending occurs where a more sophisticated party preys on a borrower who is desperate. The Florida Fair Lending Act outlaws lending practices viewed as predatory. The Act specifically requires lenders to disclose material facts about loans before closing. Collecting excess late fees, increasing interest rates on loans going into default, and charging prepayment penalties after the first three years are a few of the prohibited activities. The Act also outlaws extending credit without considering a borrower’s ability to repay the loan and mandating full repayment of the loan when the borrower has complied with the terms of the loan. Although there is no one size fits all approach to deciphering whether a loan is predatory, the following circumstances may indicate that the lender is in violation of predatory lending laws:
- Loan documents that contain forged signatures, hidden terms, or incomplete disclosures
- The name of the lender or terms of the loan change in the loan documents immediately prior to closing.
- The loan is not suitable. For example, the lender asks that the loan be structured as a commercial or other type of loan even though it is intended as the borrower’s primary residence.
- Borrowers are discouraged from taking out affordable loans
- The loan is set up with a balloon payment which is meant to be refinanced with excessive fees
- The loan calls for low monthly payments with huge final payment
- The loan terms contain prepayment penalties that are designed to keep the loan going for as long as possible
- The loan balance is refinanced into a new loan without the knowledge or consent of the borrower
- The appraisal value of the home is inflated, or the borrower’s income is encouraged to be overstated on the application
- Excessive fees and interest rates
Lack of Standing
Standing is a broad concept that refers to a party having an actual stake in the outcome of a case; therefore, giving it the right to sue. A party who does not have standing cannot prevail in a lawsuit. Standing is not normally a heavily contested area in most civil cases because each party knows the other party and does not question the other’s right to be in court. For example, if Bill lends Tom money and Bill later sues Tom for not paying him back the money, there is likely no need to challenge Bill’s standing. It is clear that Bill is the correct person to file the lawsuit against Tom since he lent him money. Standing in the context of mortgage foreclosures is typically determined by who the owner of the promissory note. The owner of the promissory note (or one of its authorized agents) has standing to file the lawsuit. Standing is determined strictly at the time the lawsuit is filed. However, since lenders routinely buy and sell mortgage loans, it may be unclear who has standing or when they acquired the rights to the promissory note. Standing is a rather unique affirmative defense. Not only can a Defendant raise standing as an affirmative defense where the circumstances warrant it, but every Plaintiff must prove standing in order prevail regardless of whether the Defendant asserts it. There are three main ways in which a Plaintiff can demonstrate its standing, they are as follows:
- Affidavit of Ownership: A Plaintiff can submit an affidavit or rely on testimony at trial that it was in possession of the original promissory note at the time the lawsuit was filed.
- Assignment of Promissory Note: The Plaintiff can present an assignment. Again, the Plaintiff must prove that the note was assigned prior to the filing of the lawsuit. The assignment is evidence of the transfer.
- Special Endorsement or Blank Allonge located Promissory Note: If the promissory note does not name the Plaintiff as payee/lender, then the promissory note must have a special endorsement in favor of the Plaintiff or a blank endorsement.
Estoppel will be found in situations where one party promises to do something and later changes their position after the receiving party justifiably relied on the promise to their detriment. For example, lenders have been prevented from foreclosing where they prevented or refused mortgage payments from borrowers for one reason or another.
Accord and Satisfaction
The affirmative defense of accord and satisfaction involves proof of two elements: first, the parties must have intended to settle an ongoing disagreement by entering into a new superseding agreement, and, second, the parties must have actually performed with satisfaction of the new agreement, thus discharging the debtor’s prior obligation.
Failure to Meet Conditions Precedent
Before a mortgagee can foreclose on a borrower, it must absolutely fulfill any contractual conditions dictated by the Mortgage. Most mortgage contracts provide that the borrower shall receive written notice apprising them of any alleged default, together with what they must do to cure the default, a time frame in which to comply, and stating that they may be foreclosed on if they don’t comply before a lender is permitted to accelerate the mortgage loan’s entire balance and file fore foreclosure. A Plaintiff who does not fulfill the conditions imposed by the Mortgage contract will not be awarded a final judgment and will instead have its case dismissed.
Statute of Limitations
A party has five years from the date of the default to file a timely mortgage foreclosure lawsuit in Florida. However, under the current state of the law, Mortgages are viewed as installment contracts and therefore each month that a borrower fails to pay the mortgage is viewed as a new default. This legal fiction makes it possible for lenders to successfully foreclose on borrowers even when the debts more than 5 years old. Nonetheless, Plaintiffs are still vulnerable to statute of limitations defense or the defense of estoppel where they fail to allege in the Complaint that the default occurred within the past five years or where the Plaintiff’s own payment records reflect that the mortgage debt is more than 5 years old. Plaintiffs who seek to collect mortgage debt beyond the 5-year statute of limitations are subject to claims under the Florida Fair Debt Collection Practices Act.
Unable to Meet Burden of Proof at Trial
Although technically not an affirmative defense, it is important to remember that the burden of proof in a civil case always rests with the Plaintiff. Therefore, it is sometimes advantageous for a borrower to take a foreclosure defense case to trial regardless of his circumstances as long as he has evaluated all of his options. Examples of this include when the Plaintiff’s settlement offer to the borrower is weak and the borrower has nothing left to lose so to speak, or conversely when the borrower has a strong defense. Even a borrower with a mediocre case can win at trial if him/she is dealing with unprepared, inexperienced or inundated Plaintiff. Familiarity with a how a particular judge may rule on an issue, or how your opponent and its lawyers approach litigation together with a keen understanding of the court system truly works is often time’s borrower’s best weapon against a looming foreclosure lawsuit. Good attorneys know how to exploit the weaknesses of their opponent’s case.
Prevailing Party Attorney Fees
Attorney’s fees will not be awarded to any party unless authorized by statute or written agreement. Borrowers are entitled to attorney’s fees under the Mortgage contract when they prevail over the Plaintiff in court. Each foreclosure action is unique. You should count on an experienced Miami business lawyer to protect your valuable real estate assets.
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