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Using the Courts to Fight a California or Other Non-Judicial Foreclosure - 3-Stage Analysis - including a Homeowner Action to "Foreclose" on the Bank's Mortgage Security Interest - rev. 8/16/08

California real property foreclosures are totally different from foreclosures in New York and many other states. The reason is that more than 99% of the California foreclosures take place without a court action, in a proceeding called a "non-judicial foreclosure". Twenty-one states do not have a non-judicial foreclosure. [These states are CT, DE, FL, IL, IN, KS, KY, LA, ME, MD, MA, NE, NJ, NM, NY, ND, OH, PA, SC, UT, VT. - Source: realtytrac.com] In California, the lending institution can go through a non-judicial foreclosure in about 4 months from the date of the filing and recording of a "Notice of Default", ending in a sale of the property without any court getting involved. The California homeowner can stop the sale by making full payment of all alleged arrears no later than 5 days prior to the scheduled sale. Unlike a judicial foreclosure, the homeowner will have no right to redeem the property after the sale ("equity of redemption", usually a one-year period after judicial foreclosure and sale). For a visual presentation of the timeline for California and other state non-judicial foreclosures, go to Visual Timeline for California Non-Judicial Foreclosures.

A 50-state analysis of judicial and non-judicial foreclosure procedures is available at 50-State Analysis of Judicial and Non-Judicial Foreclosure Procedures.]

The problem I am going to analyze and discuss is under what circumstances can a homeowner/mortgagor go into court to obtain some type of judicial relief for wrongful or illegal conduct by the lender or others relating to the property and mortgage. My discussion applies as to all states in which non-judicial foreclosures are permitted.

There are three distinct stages that need to be separately discussed. These stages are the borrower's current situation. The three stages are:

  1. Homeowner is not in any mortgage arrears [declaratory judgment action]
  2. Homeowner is behind in mortgage payments - at least 5 days before auction [injunction action, which could even be called an action by a homeowner to "foreclose" upon or eliminate the lending institution's mortgage security interest]
  3. Property was sold at auction [wrongful foreclosure action]

I. Homeowner Is Not in any Mortgage Arrears [Declaratory Judgment Action]

As long as a homeowner keeps making the mortgage payments, and cures any occasional short-term default, the homeowner is in a position to commence an action in federal or state court for various types of relief relating to the mortgage and the obligations thereunder. One typical claim is a declaratory judgment action to declare that the mortgage and note are invalid or that the terms are not properly set forth. There are various other types of claims, as well. The filing of such an action would not precipitate a non-judicial foreclosure. Compare this to a regular foreclosure, in which the homeowner stops paying on the mortgage, gets sued in a foreclosure action, and then is able in the lawsuit to raise the issues (as "defenses") which the California homeowner would raise as "claims" or "causes of action" in the lawsuit being discussed for this first stage.

II. Homeowner Is Behind in Mortgage Payments - at Least 5 Days before Auction [Injunction Action seeking TRO and Preliminary Injunction, which you might say is a homeowner's own "foreclosure proceeding against the bank and its mortgage interest"]

This is the most difficult of the three stages for making use of the courts to oppose foreclosure. The reasons are: foreclosure and sale is apt to take place too quickly; the cost of seeking extraordinary (injunctive) relief is higher because of the litigation papers and hearing that have to be done in a very short period of time to obtain fast TRO and preliminary injunctive relief to stop the threatened sale; the cost of this expensive type of injunctive litigation is probably much higher for many homeowners than just keeping up the mortgage payments; and, finally, you would have to show a greater probability of success on the merits of the action than you would need to file a lawsuit as in Stage 1, so that the homeowner's chances of prevailing (and getting the requested injunction) are low and the costs and risks are high.

Nevertheless, when the facts are in the homeowner's favor, the homeowner should consider bringing his plight to the attention of the court, to obtain relief from oppressive lending procedures. The problem with most borrower-homeowners is that they do not have any idea what valid bases they may have to seek this kind of relief. What anyone should do in this case is talk with a competent lawyer as soon as possible, to prevent any further delay from causing you to lose an opportunity to fight back. You need to weigh the cost of commencing a court proceeding (which could be $5,000 more or less to commence) against the loss of the home through non-judicial foreclosure.

III. Property Was Sold at Auction [Wrongful Foreclosure Action]

If the property has already been sold, you still have the right to pursue your claims, but in the context of a "wrongful foreclosure" lawsuit, which has various legal underpinnings including tort, breach of contract and statute. This type of suit could not precipitate any foreclosure and sale of the property because the foreclosure and sale have already taken place. Your remedy would probably be monetary damages, which you would have to prove. You should commence the action as soon as possible after the wrongful foreclosure and sale, and particularly within a period of less than one year from the sale. The reason is that some of your claims could be barred by a short, 1-year statute of limitations.

For a description of some statutes and claims, go back to the home page, at Homepage for Mortgage Foreclosure Website.

If you would like to talk about any possible claims relating to your mortgage transaction, please give me a call. There are various federal and state statutes and court decisions to consider, with some claims being substantially better than others. I am available to draft a complaint in any of the 3 stages for review by your local attorney, and to be counsel on a California or other-state action "pro hac vice" (i.e., for the one case) when associating with a local lawyer.

Please call me at 212-307-4444 or email me at carlpers@ix.netcom.com

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Carl E. Person, Attorney at Law
325 W. 45th Street - Suite 201
New York NY 10036-3803

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