3 Ways to Defend Against Foreclosure During the Coronavirus Pandemic
If the big banks’ actions during the last crisis provide any clue to how they’ll act during the novel coronavirus (COVID-19) pandemic, there are bound to be a lot of mistakes. What defenses do homeowners have if their mortgage companies try to foreclose during or after the COVID-19 pandemic? This post provides 3 important ways to defend against foreclosure – and, potentially, to get a loan modification.
Millions have filed for unemployment because of layoffs due to the COVID-19 pandemic. Though there are programs requiring banks and mortgage servicers to refrain from foreclosing and offer loan modifications and forbearances, what if they fail to do so? Can you bring a legal claim for failure to comply with your mortgage company’s refusal to offer a loan modification?
The CARES Act, passed by Congress in March 2020, gives a foreclosure moratorium for 60 days effective March 18, 2020. This includes the initiation of new foreclosures as well as the continuation of foreclosures that had already been initiated. Homeowners have the right to request a forbearance for up to six months, with the option to extend it to a year.
What if your mortgage company initiates foreclosure anyway? Consumer advocates have predicted that due to how quickly the CARES Act was passed, banks and mortgage servicers may have a tough time complying.
The problem with the CARES Act is that there is no private right of action. If your mortgage company initiates foreclosure, there is no provision in the CARES Act that allows you to file a lawsuit.
Our office’s review of the applicable mortgage and foreclosure shows that there may still be 3 ways to defend against foreclosure if your mortgage company moves forward.
1. Use the Real Estate Settlement Procedures Act to Correct the “Error”
The Real Estate Settlement Procedures Act (RESPA) is the federal law that applies to mortgage servicing. It contains a provision stating that you may send a Notice of Error to your mortgage company at a designated address. They are then obligated to respond to it and correct the error.
If you are put into foreclosure, that’s an error. Under the regulations for RESPA, 12 C.F.R. 1024.35 says that an “error” is defined as “Any other error relating to the servicing of a borrower's mortgage loan.” Clearly, foreclosing in violation of the CARES Act should fall under this provision. If your mortgage company doesn’t stop the foreclosure, you may be able to file a lawsuit in state or federal court to stop it.
2. Use the Fair Debt Collection Practices Act to Stop the Foreclosure
The Fair Debt Collection Practices Act (FDCPA) is the federal law regulating collection of debts. Though the definition of who is a “debt collector” and thus is regulated under the FDCPA is a fact-sensitive inquiry, your mortgage company might qualify. Under 15 U.S.C. 1692e(5), debt collectors are prohibited from “tak[ing] any action that cannot legally be taken or that is not intended to be taken.” Here, where foreclosure is prohibited under the CARES Act, your mortgage company might be subject to the FDCPA.
North Carolina law has a statute similar to the FDCPA, but which is broader. The North Carolina Unfair & Deceptive Trade Practices Act says that any business who engages in unfair practices may be sued for damages or equitable relief. Banks and mortgage servicers likely fall under the auspices of this Act, too.
3. Raise the Violation as an Affirmative Defense Before the Superior Court Clerk in a Special Proceeding
In North Carolina, foreclosures are accomplished by taking the case before a Clerk of the Superior Court to get approval to conduct the sale. The homeowner is notified before the hearing and is given an opportunity to raise any defenses that he or she might otherwise have. The hearing is conducted pursuant go N.C.G.S. § 45-21.16, which schedules the hearing within 10 days of when the bank files the foreclosure claim.
The homeowner may defend, and “shall be afforded the opportunity to show cause as to why the foreclosure should not be allowed to be held.” Homeowners should be prepared to provide evidence of how the CARES Act was violated and how he or she was affected by COVID-19.
The most common way that mortgage-related case is resolved is with a loan modification. Homeowners are entitled to apply for loan modifications and forbearances under the CARES Act, and under many other federal mortgage laws. The most important thing is that you stop the foreclosure – after a foreclosure takes place, it’s often difficult to rescind it.
Culik Law has experience negotiating and litigating against most major banks and mortgage servicers. We have helped hundreds of families to save their homes. If you have questions about your mortgage, contact us to see if we can help.