Wrongful foreclosure occurs when a mortgage company or lender illegally begins foreclosure proceedings on a home or property. Often instigated by a computer glitch or records error, wrongful foreclosures can result in the loss or damage of property, possessions, credit, and personal reputation. Wrongful foreclosure has become a serious issue following the wave of home foreclosures associated with the financial crisis of 2007-2008; much media attention has focused on “horror stories” of illicit foreclosures, and the call of activists for stricter regulations and stronger penalties for violations.
Sometimes, wrongful foreclosure occurs because of very simple mistakes that compound over time. If a payment is applied incorrectly, interest is calculated wrong, or changes to a mortgage structure are misapplied, it is easy to trigger foreclosure threats from a lender. Homeowners can prevent wrongful foreclosure to some extent by ensuring that they check bills carefully, pay on time, and read any and all communications from the lender promptly. If a homeowner notices even a minor error or anomaly on a billing or payment statement, he or she should contact the lender to have the issue corrected and ask for written confirmation of both the conversation and the correction.
According to many regional and national laws, lenders are required to send homeowners written notices of impending foreclosure and allow them a set period of time to correct the issues resulting in foreclosure. Since laws can vary by jurisdiction, it may be important to review all mortgage regulations regarding foreclosure should a threat or notice of foreclosure proceedings arise. If a person has been on time with all payments, and is not behind on a mortgage, or in violation of homeownership laws in anyway, receiving a foreclosure notice should be a cause of serious, immediate concern. Most legal experts recommend calling a real estate lawyer immediately, rather than trying to deal with the lender directly.
In the worst case scenario, wrongful foreclosure can occur with no warning. Many documented cases have shown instances in which homeowners received no notice of foreclosure, were on time with their payments, and, in some cases, did not even have a mortgage or account with the foreclosing lender at all. In some instances, a mistaken address has caused law-abiding homeowners to return from vacation to a padlocked, ransacked house. Should wrongful foreclosure occur in any of these circumstances, a lawyer and immediate legal action may be the best way to begin setting things to rights.
Title issues can also raise the possibility of wrongful foreclosure. In one well-documented case, a Florida man purchased a short-sale home for cash, paying for the property in full. Despite the sale being fully and legally recorded, the lending company that owned the mortgage from the previous homeowner foreclosed on the home several months later. The issue of “title cloudiness” has caused numerous similar problems following the housing crisis of 2007, resulting in increased pressure on buyers to seek out any potential claims before agreeing to buy a house in foreclosure.