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.

IF YOUR PROPERTY WAS SOLD BACK TO THE LENDER AND YOU WANT TO KEEP IT, YOU NEED TO ACT QUICKLY AND FILE A LAWSUIT BEFORE THEY EVICT YOU.  

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.

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