Challenges to residential foreclosures often fail

In the present real estate climate, foreclosing lenders often face all sorts of claims by borrowers attempting either to postpone foreclosure or to obtain some negotiating leverage against the lender. Many of the claims raised against lenders simply do not apply in the foreclosure context and may be summarily dismissed.

  • Violation of the Fair Debt Collection Practices Act (15 U.S.C. § 1692) Although the Act is frequently asserted in the foreclosure context, federal courts have uniformly held that it does not support a claim against foreclosing lenders because foreclosing lenders are not engaged in "debt collection" within the meaning of the statute. See Norris v. Fairbanks Capital Corp., 178 Fed. Appx. 401, 403 (5th Cir. 2006); Brumberger v. Sallie Mae Serv. Corp., 84 Fed. Appx. 458, 459 (5th Cir. 2004); Diessner v. Mortg. Elec. Regis. Sys., 618 F. Supp. 2d 1184 (D. Ariz. 2009); Williams v. Countrywide Home Loans, Inc., 504 F. Supp. 2d 176, 190 (S.D. Tex. 2007).
  • Violation of the Truth in Lending Act (15 U.S.C. §§ 1635 et seq.) Claims under this statute are aimed at the closing of the borrower's loan rather than the foreclosure per se, but are often asserted in challenges to foreclosure. To the extent that the borrower seeks to rescind the loan based on a TILA violation, that remedy should be unavailable in connection with a residential mortgage transaction. See 15 U.S.C. § 1635(e)(1); 12 C.F.R. §§ 226.23(f)(1), 226.2(a)(24). Secondly, all claims for damages under the Act must be brought within one year of "the violation." 15 U.S.C. § 1640(e). Courts have uniformly held that "the violation" occurs on the closing date for the loan. See In re Smith, 737 F.2d 1549, 1552 (11th Cir. 1984). Therefore, any claims for damages brought more than one year after the loan's closing date likely will be ruled prohibited as a matter of law. Id.
  • The Real Estate Settlement Procedures Act (12 U.S.C. §§ 2601 et seq.) As with the Truth in Lending Act, claims under RESPA are aimed at the closing of the loan, not at a subsequent foreclosure of that loan. Claims asserted under RESPA are governed by either a one-year or three-year limitation period, depending on the conduct alleged. 12 U.S.C. § 2614. Some of the more common allegations (involving illegal kickbacks or other misapplication of closing funds) are governed by a one-year limitation period that begins to run on the closing date for the loan. See Chen v. Bell-Smith, 768 F. Supp. 2d 121 (D.D.C. 2011); Gehman v. Argent Mortg. Co., 726 F. Supp. 2d 533 (E.D. Pa. 2010). Therefore, as with TILA claims, a foreclosing lender typically will not be subject to challenge under RESPA if the foreclosure is more than one year after the loan closing.
  • Wrongful Foreclosure - Failure to Produce the Promissory Note. In Georgia state and federal courts, borrowers have asserted that a lender has an obligation to produce the original promissory note before conducting a foreclosure and that a "failure" to produce the note renders the foreclosure wrongful. Courts considering this argument have uniformly held that it fails. See Cornelius v. Bank Home Loans Serv., LLP, No. 1:10-CV-03049-JEC (N.D. Ga. Aug. 9, 2011); Watkins v. Beneficial HSBC Mortg., No. 1:10-CV-1999-TWT, 2010 U.S. Dist. LEXIS 112848 (N.D. Ga. Oct. 21, 2010) and cases cited therein.