Affirmative Defenses to Foreclosure Based on Lack of Standing and Fraud For Foreclosure Answers

Homeowners who wish to file answers asserting affirmative defenses in response to a lender’s complaint of mortgage foreclosure should take note of recent, legal developments involving several major banks that may increase the likelihood of success in stopping foreclosure. Recently, several of the country’s largest banks have acknowledged that their documentation of many loans is faulty. Some of the subject documents in question are essential to a financial institution’s ability to lawfully foreclose upon a homeowner.

Among other defects that have recently come to light, it now appears that thousands of mortgages were transferred between financial institutions without proper documentation. As a result of missing assignments and/or other documents, many financial institutions lack evidence of their legal standing that is required for them to pursue judgments of foreclosure.

In judicial foreclosure states (for example, Florida, New York, and New Jersey, among others), homeowners who wish to raise lack of standing as affirmative defenses to foreclosure should set forth the lack of standing defense in both their answer to the foreclosure complaint, as well as in a motion to dismiss. In non-judicial foreclosure states (such as California and Nevada) homeowners may file complaints and orders to show cause to stop foreclosure sales.

Recently, a trial court in New York ruled that a plaintiff-financial institution was not entitled to an order of reference (an essential component of any foreclosure proceeding in New York) because it was unable to prove that it was the lawful holder of the note and mortgage at the time that the foreclosure case had been filed. In particular, the court noted that there was no evidence that the underlying promissory note had either been delivered to the plaintiff or a proper written assignment prior to the foreclosure action.

Homeowners with variable rate mortgages may wish to consider including the affirmative defense of fraud in their answer to a foreclosure complaint. Such defenses are particularly promising given the recent settlements of several financial institutions in connection with allegations that variable rate mortgages were deceptively packaged and characterized, without full disclosure of their significant risks and pitfalls.

As irregularities in the foreclosure industry become increasingly publicized, homeowners are more likely to succeed in their efforts to convince courts to stop foreclosure. However, in order to succeed, it is essential for homeowners to become actively involved in the legal process by filing appropriate foreclosure defense forms, including foreclosure answers and motions for temporary restraining orders.