Wrongful foreclosure can occur due to mistakes such as misapplied payments or interest miscalculations. Homeowners can prevent it by checking bills, paying on time, and reading communications. Lenders must send written notices of impending foreclosure, and legal action may be necessary if wrongful foreclosure occurs. Title issues can also cause problems.
Wrongful foreclosure occurs when a mortgage company or lender illegally initiates foreclosure proceedings on a home or property. Often instigated by a computer glitch or logging error, wrongful repossessions can result in the loss or damage of property, assets, credit and personal reputation. Wrongful foreclosure has become a serious issue following the surge in home foreclosures associated with the 2007-2008 financial crisis; much media attention has focused on the “horror stories” of wrongful foreclosures and activists’ calls for tougher regulations and tougher penalties for violations.
Sometimes, wrongful foreclosure happens because of very simple mistakes that build up over time. If a payment is misapplied, interest is miscalculated, or mortgage structure changes are misapplied, it’s easy to trigger foreclosure threats from a lender. Homeowners can prevent wrongful foreclosure to some extent by making sure they check their bills carefully, pay on time, and read all communications from the lender promptly. If a homeowner notices an error or even minor anomaly on a bill or payment statement, he should contact the lender to correct the problem and ask for written confirmation of both the conversation and the correction.
Under many state and state laws, lenders are required to send homeowners written notices of impending foreclosure and give them a specific amount of time to correct the issues causing the foreclosure. Because laws can vary by jurisdiction, it can be important to review all foreclosure mortgage laws in the event of a threat or notice of foreclosure proceedings. If a person has been on time with all payments and is not late on a mortgage, or has otherwise violated home ownership laws, receiving a foreclosure notice should be cause for serious and immediate concern. Most legal experts recommend calling a real estate attorney immediately, rather than trying to deal directly with the lender.
In the worst case scenario, wrongful foreclosure can happen without warning. Many documented cases have shown instances where homeowners received no foreclosure notices, were on time with their payments, and in some cases, didn’t even have a mortgage or an account with the foreclosure lender. In some cases, an incorrect address has caused law-abiding homeowners to return from vacation to a padlocked and ransacked home. If a wrongful foreclosure occurs under any of these circumstances, an attorney and immediate legal action may be the best way to start making things right.
Title issues can also raise the possibility of wrongful foreclosure. In one well-documented case, a Florida man bought a short-sale home with cash, paying for the property in full. Despite the sale being fully and legally recorded, the loan company that owned the mortgage from the homeowner’s previous foreclosure several months later. The “cloud title” issue caused a number of similar problems following the 2007 housing crisis, resulting in increased pressure on buyers to look for any complaints before agreeing to buy a home in foreclosure.
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