When a foreclosure lawsuit is filed using improper methods, this is known as wrongful foreclosure. Wrongful foreclosure is more common than many people realize. For instance, many mortgage lenders seek to make as much profit as possible by pursuing foreclosure fraudulently, with no regard for the impact that their choices may have on a family. Other times, simple mistakes in the legal proceeding could result in the unfair possession of property. For anyone facing a wrongful foreclosure lawsuit, it is essential to know what is needed to prove the claim and gain compensation for any damages caused.
If you are an attorney working on an unlawful foreclosure case, this article provides a closer look at what this means, how these claims can be proven, and the compensation your client is entitled to when suing their mortgage lender.
What is Wrongful Foreclosure?
Any mortgaged property is owned by the bank until the loan is paid off. The action of taking possession of a property following a delay in mortgage payments is known as foreclosure. While foreclosure is legal if there is the right to do so, many lenders, intentionally or unintentionally, now wrongfully initiate the foreclosure process. For example, a wrongful foreclosure may occur due to there being:
- Errors in processing the payments;
- Miscommunication between the plaintiff and lender;
- Failure to give proper notice;
- Incorrect calculation of adjusted interest rates or tax;
- Inaccurate credit practices by lenders;
- Intentional wrongdoings or fraudulent activity; and/or
- An unclear modification agreement.
The lenders gain substantial profit by taking back property on behalf of the bank that provided the mortgage, and may choose to do so by mistake or may do so unfairly for financial gain. Whether pursued mistakenly or not, there are huge implications for the family involved in foreclosure. After foreclosure proceedings from the bank are initiated, families may lose their homes unjustly, they may have their credit rating negatively impacted, and it may make it near impossible to secure another mortgage in the future. Beyond the financial repercussions, there is also immense emotional distress associated with foreclosure, especially when there are children involved. For instance, the family may have to move homes, to new neighborhoods, or find new schools.
Due to the immense negative effects, many borrowers will seek to sue the bank or lender for wrongful foreclosure complaints and seek legal advice from attorneys to help their fight.
How to Prove a Wrongful Foreclosure Lawsuit
As each individual situation is unique, finding the best strategy to prove a wrongful foreclosure complaint will vary from case to case. However, in any case, the plaintiff must be able to prove that the mortgage lender did not operate in good faith. To do so, the individual attempting to sue their bank must be able to prove that:
- The lender owed the borrower a legal duty;
- That this duty was breached unjustly by the lender;
- That this breach resulted in injury or damages to the borrower; and
- A description of these damages (i.e. property, credit rating, or emotional damage).
Of course, proving this breach of contract and its damaging consequences is easier said than done, and unfortunately, wrongful foreclosure lawsuits are notoriously difficult to prove. For this reason, an attorney who is an expert in US law needs to work on the case. Ideally, all communication between the lender and the borrower has been kept for informational purposes. Reviewing this communication is a great way to prove that inaccuracies are due to the lender, rather than the fault of the homeowner.
It is important to note that to take legal action against a lender, the proceedings must take place within three to six years of the lender initiating foreclosure, depending on the specific laws of each US state. For example, in Texas, this period, known as the “statute of limitations”, is four years. Past this point, there is no legal right to sue. Therefore, any wrongful foreclosure cases that occurred beyond the statute of limitations cannot be proven.
Wrongful Foreclosure Settlement & Compensation
If the plaintiff can prove all of the points listed above and that the mortgage lender has failed to operate in good faith, then there are two possible routes that they can take:
- Applying for the foreclosure to be dismissed; or
- Suing the mortgage lender for compensation for the damages caused.
In many cases, seeking compensation is the preferable strategy out of the two, especially when the wrongful foreclosure has caused large financial losses. As a foreclosure defense attorney, you must be aware of the eligibility of your client to receive compensation.
Several different types of compensation can be recovered for the injustice. The best strategy to take depends on the specifics of each case and the reason for the unlawful foreclosure, as some will offer a better outcome than others. Examples of the types of compensation your client can request include compensation for:
- The loss in value of the property as a result of the claim;
- The decline in the borrower’s credit rating as a result of the foreclosure;
- Having to move to a different neighborhood or find a different school for their children;
- The emotional distress caused by the wrongful foreclosure claim; and/or
- Punitive damages if it can be proven that the lender has committed fraud.
It is important to note that any punitive damages are capped by the United States Federal Government at nine times that value of damages that are proven in court. For example, if the wrongful foreclosure claim revealed the client had suffered from $100,000 of damages, then the maximum punitive compensation that they could receive would be $900,000.
Wrongful foreclosure can be an extremely stressful and financially damaging event for a homeowner. Beyond the emotional and financial stress, wrongful foreclosure lawsuits are also known to be notoriously difficult to prove. To do so, you must be able to show that the lender breached their contract which, as a result, caused loss or damages to the borrower. If you are able to prove the claim, your client could receive a large compensation, with several different types available depending on the nature of the case.
It is important to remember that, as with many crimes in the USA, a statute of limitations will apply to wrongful foreclosure suits that limits the period you can process a claim. Unfortunately, if you leave it too long, it will be impossible for a wrongful foreclosure to be proven. If you have been a victim and believe your home has been unlawfully foreclosed on, speak to a defense attorney today for the best chances of a positive outcome.