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Home Foreclosures: 6.2.6.1 Introduction

While courts in judicial foreclosure states have consistently upheld the defensive use of FHA-regulations, courts in non-judicial foreclosure states have not provided the same consistent protection.147 Advocates in non-judicial or quasi-judicial foreclosure states generally bring affirmative actions to stop foreclosure, and this places a heavier burden on borrowers than the one placed on borrowers in judicial foreclosure.

Home Foreclosures: 6.2.6.3 Responding to Common Lender Arguments Against Borrowers’ Enforcement of Their Contract Rights

Of course, while the case law has improved for borrowers bringing contract-based claims, there are still cases coming out both ways.173 Because claims based on contract terms are necessarily state law claims, the application of the law will vary in each jurisdiction. Moreover, some Courts may still allow for affirmative litigation to stop a non-judicial foreclosure sale based on regulatory non-compliance even if the borrower does not meet the breach of contract elements.174

Home Foreclosures: 6.2.7.1 Responding to Lenders’ “Substantial Compliance” Arguments

Lenders commonly argue that they have “substantially complied” with the regulations when they clearly have not satisfied them. Typically, they will point to hundreds of collection calls or other letters and claim that the borrower would not have responded to an invitation to a face-to-face meeting.216 Alternatively, they will claim that the borrower is not eligible for loss mitigation as demonstrated by some postforeclosure review of options, and therefore any face-to-face meeting would be unproductive.

Home Foreclosures: 6.2.7.2 Lenders’ Efforts to Re-Start Failed Foreclosures—The Importance of Loss Mitigation Timing

Lenders who have their foreclosure cases dismissed or non-judicial foreclosure proceedings enjoined do not give up easily, and borrowers may face a second court action or foreclosure proceeding. In the second or even subsequent actions or proceedings, lenders do not typically waive any of the past-due payments or fees that they claimed due in the initial action. Instead, between the two actions, the lender may (or may not) make some effort to arrange a meeting or evaluation loss mitigation options in order to succeed in the second action.

Home Foreclosures: 6.2.8 Practical Matters in FHA Litigation

Advocates should pursue discovery of the lender’s preforeclosure or pre-acceleration actions to determine whether it complied with FHA loss mitigation requirements. Because lenders frequently drag out the discovery process, it is important to make requests early.

Home Foreclosures: 6.2.9.2 Challenges to the Law

This law raises serious due process issues, particularly for borrowers in states that otherwise require a lender to foreclose by judicial process. No provision is made for a preforeclosure hearing, which due process would seem to require.274

Home Foreclosures: 6.2.10.3 Legal Claims Arising from the DASP Program

Borrower advocates should not give up on legal arguments based on non-compliance with FHA regulations upon learning that a loan has been sold through DASP and is no longer FHA insured. A critical question for an advocate to consider is whether the loan was still FHA-insured during the period in which the regulations imposed specific duties on the lender. According to HUD, loans sold through DASP are at least six months behind on payments. By that time, the lender of an FHA-insured loan was already required to send a specific notice (24 C.F.R.

Home Foreclosures: 6.3.3.1 Introduction

Foreclosure of VA-guaranteed mortgages are generally conducted in accordance with the laws of the state in which the property is located.338 Some courts have held that VA regulations preempt or override state foreclosure law.339 To the extent that VA regulations offer more protection than the application of weaker state laws, borrowers may benefit.

Home Foreclosures: 6.3.3.2 Foreclosure Prevention Claims and Defenses Based on Lender’s Failure to Comply with VA Servicing Guidelines

Failure to comply with VA servicing guidelines has been raised as a defense in foreclosure proceedings or asserted in affirmative actions to stop foreclosure in non-judicial foreclosure states.343 If at all possible, claims or defenses should be linked to a regulation or statute, although many courts have also found the VA Servicer Handbook and Circulars to be binding. These claims and defenses are available in addition to all other claims available under state and federal law, including claims under RESPA Regulation X.

Home Foreclosures: 6.3.4.1 Introduction

Veterans who are denied a request for relief under some of the options the VA offers as an alternative to foreclosure may appeal those decisions to the Board of Veterans’ Appeals. The Board of Veterans’ Appeals (BVA) is an administrative body within the Department of Veterans Affairs.

Home Foreclosures: 6.3.4.2 Postforeclosure Waiver of Indebtedness

A veteran will be liable to the VA through either indemnification or subrogation for any claim paid by the VA to a lender due to default and foreclosure on the veteran’s guaranteed mortgage.376 The obligation remains even if the veteran transfers the property encumbered by the VA-guaranteed mortgage, and allows the new owner to assume payment of the mortgage.377 The veteran may apply for a waiver of this indebtedness.378 The Court of Appeals for Ve

Home Foreclosures: 6.4.2.1 Acceleration and Foreclosure of Section 502 Direct Loans

A Section 502 mortgage can be accelerated when there has been a default under the terms of the mortgage, most often from failure to make payments due under the mortgage. The account must be delinquent in an amount equal to three scheduled payments or an amount equal to two scheduled payments that have been delinquent for at least three consecutive months.390

Home Foreclosures: 8.7.7 The Bankruptcy Automatic Stay as an Alternative

If an eviction or foreclosure case or some other type of collection action is pending against the homeowner, the consumer should consider bankruptcy court as a forum. In most cases, as soon as a bankruptcy case is filed, all such actions are automatically stayed without the need to consider the impediments to relief discussed above.

Home Foreclosures: 8.8.3.5.1 Individual arbitration

Where an enforceable arbitration agreement forecloses class arbitration, class action litigation in court, and individual court litigation, adequate client representation may require raising the consumer’s claims in an individual arbitration proceeding. Even if an arbitration agreement is not enforceable, it can take years to resolve this issue before even reaching the merits.

Home Foreclosures: 8.8.3.5.2 Class-Wide Arbitration

Where an arbitration clause prohibits class-wide arbitration, an arbitrator is unlikely to allow such relief, and a court would almost certainly overturn a class-wide arbitration award. Most, but not all arbitration clauses prohibit class-wide relief—some are silent on the issue.

Home Foreclosures: 8.10.7 Make Sure the Agreement Is Enforceable

Everything agreed upon must be reduced to writing. Nothing should be left to chance or a promise. Most servicers and lending institutions are big, complex organizations, and any individual representative, lawyer, CEO, frontline worker, or general counsel has only a limited ability to control the other pieces of the organization.

Home Foreclosures: 8.10.9 Other Considerations

Change the account number: Most servicers use automated recordkeeping systems. Unless a thorough purge of the existing computer records is done, it is likely that, at some point, when the servicer generates a payment statement or history, some of the forgiven fees in the loan modification may get picked up and swept into the client’s current information. Changing the loan’s account number helps give the loan a fresh start, without the history of the fees, charges, and principal that have been forgiven in the loan modification.