How to Avoid Wrongful Foreclosure Actions in New York

Unfortunately, some lenders initiate non-judicial foreclosure actions against borrowers without any legal cause. Or, perhaps a lender will initiate a foreclosure, accept a partial payment, and then continue on with foreclosure as if nothing happened. Such cases are classified as wrongful foreclosure actions – because these are predatory, misleading practices, they are illegal. 

If you believe that your lender is wrongfully initiating a foreclosure against you, seek legal counsel immediately. Our attorneys are highly experienced in examining the reasoning behind each non-judicial foreclosure and identifying if it is wrongful. With a good foreclosure lawyer by your side, there’s no need to fear any fraudulent or oppressive actions on your lender’s end. 

When Your Rights Are Violated

If you feel that your rights have been violated during a non-judicial foreclosure, you can bring it to court. If the lender is found to have used predatory and wrongful practices, they will have to cancel or reverse the foreclosure sale and pay your legal fees. What’s more, you may be compensated for emotional distress.

You may be wondering how to calculate damages in a wrongful foreclosure action. The damages available to a borrower can vary drastically from case to case, so it can be difficult to perform a calculation on your own. We recommend getting in touch with legal experts for a more accurate estimate. Overall, though, you should keep in mind that you can be compensated for the value of the property lost, emotional distress, loss of work (if directly related to the foreclosure), and more. 

Wrongful Foreclosure Cases

If you live in New York, you are already starting with a leg up: because it is a judicial foreclosure state, your foreclosure must go through court. This gives you a chance to present your case to the judge and prevent foreclosure – this is much less of a hassle than trying to overturn a foreclosure. The best time to address a wrongful foreclosure is when you receive a Complaint and Summons. This will be delivered either in-person or in the mail. 

After receiving the Complaint and Summons, you will be responsible for delivering a written answer to the court in 20 to 30 days (depending on how you received the document). The easiest way to do so is to use the DIY Foreclosure Answer program. The NY Courts site gives some helpful information on how to work through the program. There will be a General Denial section at the beginning of the form, in which you would include any reason why you think the foreclosure is wrongful.

To give you an idea of what a real-life wrongful foreclosure case is like, let’s take a look at Wells Fargo. In October of 2019, the Eastern District of Washington’s U.S. District Court determined that Wells Fargo wrongfully foreclosed upon hundreds of homes. 

This was due to a software error in 2018, causing mortgage-loan borrowers not to receive loan modifications even though they had qualified for relief. Wells Fargo foreclosed upon approximately 545 borrowers. Wells Fargo provided each victim with approximately $13,000 each – and victims may also choose to pursue further compensation by filing a claim under the Wells Fargo mortgage class action settlement.  

In another example, a lender wrongfully told a husband and a wife that they were unable to receive a mortgage loan modification without defaulting on the loan. Thus, the borrowers followed the advice of the lender and defaulted. They filed for Chapter 13 bankruptcy, but the lender still continued on with foreclosure and eviction proceedings even while the bankruptcy’s automatic stay was in place. The lender sent agents to stalk the borrowers, causing them significant emotional distress.

how to prove wrongful foreclosure

 Eventually, the lender rescinded the foreclosure – without notifying the borrowers. The homeowners eventually sued for wrongful foreclosure in state court and then in bankruptcy court. They were awarded hundreds of thousands of dollars in emotional damages, $83,200 in actual damages for the cost of alternative housing, full attorney’s fees, nearly $500,000 in lost income, and more. Furthermore, the lender had to pay $45 million in punitive damages for wrongful foreclosure – paid out to law schools and nonprofits. 

Causes of Wrongful Foreclosures

When you file a wrongful foreclosure action against a lender, you may state that the notice of default is invalid. All of these are usable wrongful foreclosure elements: 

  • Incorrect adjustment of interest rate (this is one of the most common defenses, according to NY Courts)
  • Incorrect tax accounts 
  • Breach of contract (the lender fails to restructure or refinance a loan when it should be allowed under your agreement, or they fail to provide notice of loan term changes)
  • Infliction of emotional distress (this can be intentional or negligent)
  • Misapplied payments
  • Unfair business practices (coercing the borrower to accept terms that aren’t fair – often through deceptive or exploitative language)
  • Improper accounting or software issues (like with the Wells Fargo case)

 Impact of A Wrongful Foreclosure

A wrongful foreclosure will still appear on your credit report as a foreclosure – thus, your score will drop by a significant amount. Even after the foreclosure is found to be wrongful, you must still petition to get the foreclosure taken off of your credit report. This can be a time-consuming process. Furthermore, if you don’t act quickly during a wrongful foreclosure, it is possible that you may lose your home.  

How to File a Wrongful Foreclosure Suit

Before getting into what to do in the case of wrongful foreclosure, you should know that all foreclosure proceedings are temporarily halted until further notice. This is because of the ongoing pandemic; a foreclosure moratorium was put into place in March of 2020 by Governor Cuomo, and it was extended in August. The moratorium’s current extension lasts until September 20th, but it is likely that it will be reinstated once again. So, even if you are facing wrongful foreclosure, you have extra time to rectify the situation. 

how to file a wrongful foreclosure suit

With that being said, if your lender has wrongfully initiated a foreclosure, bring it to the court as soon as possible. Remember, if you wait too long, you may lose your house. Keep your state’s wrongful foreclosure Statute of Limitations in mind – typically, you must file a lawsuit within 2-4 years. In New York, it is six years. 

If the foreclosure sale has not yet occurred, you can apply for an injunction. If one is granted, it will stop the sale until the lawsuit has been resolved. Typically, a wrongful foreclosure lawsuit takes between ten months and two years. 

And how do you prove wrongful foreclosure? When bringing your case to the court, you must show: 

  • the legal duty owed to you by the foreclosing party
  • a breach of that legal duty
  • a connection between the duty’s breach and the injury you sustained
  • damages

Avoiding Wrongful Foreclosure Actions

To avoid wrongful foreclosure, we recommend keeping accurate records of all communications you receive from your lender. Transparent communication is key! By maintaining records and reviewing them on a regular basis, you can catch any discrepancies and shut them down before they lead to any wrongful foreclosure actions. 

However, sometimes a wrongful foreclosure is out of your control. If you have found yourself on the receiving end of negligent practices, reach out to us for a free consultation. Fill out our contact form and provide us with the reason why you feel the foreclosure is wrongful. We’ll do everything we can to help you win the case!