To Sue or Not Sue Your Lender – That is the Question

When clients approach me as to filing a lawsuit against their lender for wrongful foreclosure, we go through a detailed consultation and analysis to determine whether this is a favorable option for them. Litigation is not cheap and a client needs to be well versed in their likelihood of success of the associated fees and costs.

This article will help you to determine whether you should sue your lender or whether it is likely not in your best interest to do so.

1.  Has your modification been denied and foreclosure is looming?

If the foreclosure has not yet taken place, you are in the best position.  99% of the time clients are seeking an affordable modification and are unable to secure one because of the unfair games played by lenders and servicers.

Specifically, and in support of a modification application, borrowers are required to submit supporting documents.  Lenders and servicers demand that borrowers repeatedly submit the same documents because they  claim to not have received them or cannot find them in the system;  this is generally despite the fact that the borrower has likely submitted these requested documents multiple times.

Based upon the inaccurate assertion that the borrowers have not submitted the necessary documents, the lender will refuse the modification or simply proceed with a foreclosure without so much as providing the borrowers with a written determination.

Another classic game played by lenders and services, is forcing clients to deal with various representatives instead of providing them with a single contact who is familiar with their file and can postpone a trustee sale pending review of a modification application.

Please be advised that as of January 1, 2013, you have the right to demand a single point of contact.  The failure to provide you with a single point of contact as to your loan modification or short sale application, despite a request for one, is a blatant violation of the Civil Code.

IF YOUR PROPERTY HAS NOT YET SOLD AND YOU WANT TO KEEP IT YOU MUST SUE YOUR LENDER.   If the property proceeds to a trustee sale there is a chance that a third party bona fide purchaser will purchase it, which will, generally speaking, prevent you from getting the property back, even if you were successful in a lawsuit.

2.   If your property has already gone through foreclosure, did the lender take it back or was it sold to a third party?

If the lender took it back on a credit bid and you have a strong case, then you have a stronger chance that the lender will rescind the sale and settle with a modification.  If the property was sold to a third party bona fide purchaser (a purchaser who bought the property for value and without notice that you had any legal claims) then their rights trump any rights you had to the property.   The reason is that courts want to encourage investors to buy properties at trustee sales since it is good for the economy.  Accordingly, their rights are superior.  The only way you will be able to get your property back after it has sold to a third party is if you file a lawsuit, and the third party is willing to get paid a certain sum (profit) and the lender or servicer is willing to pay this sum.  This is very rare.


3.   What is your end game? 

If you want a modification, then sue before the trustee sale or immediately after the sale if it was taken back by the lender.

If your property has sold and you do not want to keep the property but want some monetary damages, you need to engage in a cost benefit analysis.  Allow me to explain.  This area of the law is very different than other established areas of law.  Accordingly, even though you may be correct in that you were wronged by the fraudulent conduct of the lender, servicer or trustee, you are not going to get the damages you believe you are entitled to.  These cases generally( again I am speaking only generally) settle for $10,000 to $25,000, depending upon the severity of the violation(s).

Of course, there have been greater settlements, especially since the enactment of the Homeowner’s Bill of Rights this last January, however the expectations must be realistic.  Recently, I have managed to secure settlements simply upon the filing of the Complaint and without having to incur additional attorney’s fees.  This is not always the case, but it has become more of a trend lately.

4.  Strong Case Factors.

If you applied for a loan mod in 2013 and the lender proceeded with a sale of the property without providing you with a written determination and likely without your knowledge, then you have a strong case.  If you had conversations with representatives who assured you that the sale would be postponed, but they proceeded without your knowledge, this further strengthens your case.

Nonetheless, it is important to consult with counsel and discuss your specific situation, since there are numerous factors in determining whether to sue your lender, and your specific facts may support such a filing. 

5.  Conclusion.

There are a number of factors to determine whether to file a lawsuit.  These cases are not generally taken on a contingency basis, accordingly you cannot proceed unless you can afford to pay the retainer and incurred fees and costs.  In most cases it is worth it, in that it is only option to protect your home.

In certain cases, however (generally if clients are seeking damages after a sale, but do not have as strong a case as they think they do), it is not in the client’s best interest to pay the legal fees since any potential settlement may not be much more than the incurred fees.

It is my sincerest desire to help people save their homes.  However, homeowners need to know that there are no guarantees and that there are no concrete answers in litigation.  The most important assessment is to determine whether it is in a client’s best interest to litigate and to make sure they understand the risks, costs, and likely results/scenarios.

Wrongful Foreclosure Scenarios

As a result of the real estate crisis, many homeowners have suffered foreclosure or are on the verge of suffering foreclosure and do not know how to move forward in protecting their rights and homes. 

Some are in denial, others have heard that filing bankruptcy is the immediate answer, and others are simply praying for a miracle.  The good news is that there are options and the fight is not over, the bad news is that it will take some effort on behalf of the homeowner to fight the lender and get the best possible solution.

There are five types of scenarios in regard to foreclosure, with the first being the best and the last being the worst-case scenario.  However, this does not mean that the game is over, even if you are in the fifth scenario of the following situations:

  1. A trustee sale has not yet taken place;
  2. A trustee sale took place, however there was no third party bona fide purchaser because the lender took back the property on a credit bid;
  3. A trustee sale took place and the property was sold to a third party bona fide purchaser;
  4. A trustee sale took place, the property was sold back to the bank and you are facing eviction because an unlawful detainer action is proceeding against you.
  5. A trustee sale took place, the property was sold to a third party bona fide purchaser and you are facing eviction because an unlawful detainer action is proceeding against you. 

Depending on which situation you are in, the plan of attack and end results may vary, however one constant generally remains in your arsenal and that is to sue the lender for various violations pertaining to the foreclosure process and required notices. 

Many homeowners are unaware of California’s strict foreclosure laws, especially the newly enacted Homeowner’s Bill of Rights, and fail to realize that in the majority of these cases the lenders have not complied with the requirements for a valid trustee sale, and are unlawfully depriving them of their homes.  It is up to the homeowner to either educate himself and attack the lender in pro per (without legal representation), or hire an attorney who specializes in wrongful foreclosure to vindicate his rights.

Either way, it is my attention to help you through this process.  I sincerely believe that a homeowner unable to hire counsel is not without options. With some guidance, a homeowner can represent himself in pro per.   

Depending on the homeowner’s desired results and personal situation, filing a bankruptcy in addition to filing a civil action may be advisable.  However, unlike the popular myth perpetrating the community, unless one qualifies for a Chapter 13 repayment plan, filing a bankruptcy only temporarily prevents the foreclosure of your home.  

My firm specializes in representing homeowners in wrongful foreclosure, including homeowners who cannot afford the full legal services and require only preparation of legal documents, or review and consultation as to already prepared documents.  The goal is always the same – to help homeowners vindicate their rights. 



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