As the nation faces an onslaught of foreclosures following a catastrophic crisis of predatory and improvident lending, current homeowners seek relief in a variety of ways. For example, homeowners can attempt to avoid foreclosure by qualifying for government loan modification programs to prevent the loss of their homes, the loss of their business properties, and mounting deficiency judgments. These modifications are difficult to get, provide only limited and short-term relief, and frequently leave the homeowner owing much more than the home is worth. Once the temporary reduction in the payment amount has ended, the home is again unaffordable, and the homeowner will not qualify for a refinance because the value is below the debt. Courts are often, therefore, the only place where a homeowner, facing a wrongful non-judicial foreclosure, can turn for help.
In 2002 several large lenders, including Countrywide and Washington Mutual, lost quality control of their lending business. These lenders generated loans to almost any applicant regardless of qualification, on homes regardless of value, and with deferred teaser rates that allowed people surviving only on Social Security payments, or even less, to acquire homes “valued” by the lenders’ “in-house” appraisers at greatly inflated prices. Lenders were happy to make a loan to purchase a home with the customary down payment coming from the same lender secured by a second mortgage on the same property.
When monthly payments on most of these loans exceeded the borrower’s monthly net income, this expanding balloon became visible to everyone. As a result, values in real estate dropped twenty-five percent in 2008, in part due to having been over-valued by lenders’ in-house appraisers; homeowners had no equity and could not qualify for a refinance at the attractive rates offered once the crisis was in full bloom. By 2010, foreclosures in America topped two million and have not seen a significant decline since. The largest foreclosure frenzy in history had begun. Large numbers of homeowners across the nation defaulted on their loans, but only after depleting their retirement accounts, their savings, their equity in the home, and finally, their sanity.
In Washington, lawyers seeking to help clients in foreclosure are faced with two major obstacles. First, lawsuits to stop a wrongful foreclosure are often defeated by judge-made rules holding that there is no such cause of action unless the foreclosure is actually completed. Even worse is the obstacle to lawsuits filed after a wrongful foreclosure; in these cases, courts often find that homeowners have waived their claims by not raising them prior to foreclosure. This somewhat enviable position allows lenders and foreclosing trustees to ignore basic protections of law and places homeowners in the proverbial “damned if you do and damned if you don’t” position. Moreover, hiring a lawyer to raise defenses is expensive and beyond the reach of many homeowners who already cannot make their mortgage payments. Courts, with the urging of lawyers for the largest lenders, have placed many roadblocks in the path of the homeowner who seeks merely to resume reasonable payments on a home that may someday have equity.
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