What Happens When a Mortgage Company Wrongfully Forecloses?

Mortgage companies often make mistakes. It is not unusual for mortgage companies to lose payments or fail to properly apply payments, or for some other reason falsely accuse the borrower of defaulting on the mortgage. Mortgage companies also sometimes fail to give the required notice to the borrower prior to the foreclosure. Also, because of the confusion that often exists regarding the ownership of a mortgage, a foreclosure can be performed by the wrong company.

Conducting a foreclosure sale without complying the legal requirements is considered under Alabama law to be a “wrongful foreclosure.” Alabama law allows a borrower to bring suit for wrongful foreclosure. The consumer may recover damages and may be able to set aside the foreclosure sale. Conducting a wrongful foreclosure sale may also constituted a violation of federal law.

In Alabama the foreclosure process begins when the foreclosure notice is first published in the newspaper. Beginning this procedure when there is no right to foreclose can also be “wrongful foreclosure.” This means that consumers may have a claim for wrongful foreclosure, or other claims, even when the foreclosure sale has not occurred or was ultimately canceled.

Challenging a Foreclosure

The law also allows a consumer to go into court, before a foreclosure sale, and ask the court to "enjoin" (i.e. stop) the foreclosure sale. The borrower will have to present evidence that the foreclosure is illegal. Although success of this challenge will depend on the particulars of the case and the judge's discretion, where successful, this can be a valuable alternative to filing bankruptcy. The key is to act quickly so that your lawyer will have a time to pursue option. This point is so important, it bears repeating - see below.

Act Quickly! If you believe that foreclosure proceedings have been brought against you wrongfully, you need to immediately seek legal advice with a consumer rights attorney. Do not wait. If you think that you are victim of a wrongful foreclosure, even if the sale has not taken place yet, act now. The sooner you get legal help, the more options you will have.

YOUR RIGHTS AGAINST DEBT COLLECTORS

We are experiencing in Alabama an explosion of collection suits. While many of these suits are legitimate, a large portion are frivolous - filed with no basis and with no intent to present evidence proving the debt. Consumers report being sued by companies they have never heard of, or on a debt that they have never heard of, much less owe, or both. Others get sued on accounts they own, but in amounts that make no sense. Some of the alleged debt, if it is owed it at all, is so old that it not legally enforceable - well beyond the applicable statute of limitations.

In order to win its collection case in court, assuming the debtor shows up, the collector would have to prove the debt. This would mean presenting admissible evidence that clearly identified the debt, the debtor, and established that the debt collector is the owner of the debt. Moreover, the evidence would, in most cases, have to be authenticated by a human being, through live testimony, with personal knowledge of the records or the debt. Many debt collectors know that, if challenged, they would never be able to meet the evidentiary standards for proving their claim.

In representing many consumers targeted by such suits, one sad fact becomes crystal clear: Many collectors know that they can not prove their case and they do not intend to try to prove their case. So, why do all these cases get filed? The answer is the default judgment. A default judgment is entered when the defendant (the debtor) fails to answer the complaint or show up for trial. Once a default judgment is entered, it is as effective as any other judgment. The default judgment entitles the plaintiff (the debt collector) to collect on the judgment just as though it had gone to trial and proved its case. Debt collectors know that many of the consumers they sue will simply not show up to defend the suit. When the debtor does show up for trial, many collectors will concede or dismiss the case. They know they will recoup any loss through default judgments obtained against debtors that do not show up.

The "debt buyers" are the worst offenders. These are nationwide companies, many of which are very large. They purchase "bad debt" either from the original creditor or from another debt collector. By the very nature of this "bad debt" there is usually some fundamental problem in the collectability of the debt. There is usually little or no documentation which would provide admissible evidence of who is responsible for the debt and the amount of the debt. Not surprisingly, this results in suits against the wrong consumer and suits for amounts which cannot be justified or proven. This practice also results in suits on debt that is too old to be collected.

So You’ve Been Sued by a Debt Collector - What Now?

If you have been served with a collection suit, there are two main points to bear in mind:

1. DON’T PANIC! THE COLLECTOR HAS THE BURDEN OF PROOF:
   
   The collection suit filed against you is like any other lawsuit: the plaintiff (the debt collector) has the burden of proving that you owe the debt. Despite what collectors may be telling you over the phone, you have no obligation to prove that you do not owe the debt. Our legal system does not work that way. It is up to the debt collector to prove by admissible evidence each of the following: (a) that this is your account and you owe the debt, (b) that the amount claimed is correct, and (c) that the entity that filed the lawsuit is the owner of the debt. If the collector fails to prove any part of its case, it is not entitled to a judgment against you. In addition, if the suit is filed beyond the applicable limitations period for filing the suit (and you raise this as a defense), the collector cannot obtain a judgment against you even if it proves that this is your debt. The statute of limitations which apply will depend on the particulars of the account. For more on this subject, click here.
   
   Assuming that you timely respond to the lawsuit (see below), the filing of the suit against you can ultimately be used as an opportunity for you to not only defeat this debt once and for all (including having it removed from your credit report), but to turn the tables on the collector and pursue the collector for violating your legal rights. For more on your legal rights against debt collectors, click here.
   
2. YOU MUST TIMELY RESPOND TO THE COMPLAINT!
   
   The worst thing you can do if you are sued is to ignore it. Doing nothing will result in a default judgment being entered against you. This may result in the garnishment of your wages or bank account or other action taken by the collector, even if you never owed the debt. Read and follow the instructions on the summons you receive very carefully and comply with those instructions in answering the complaint. If you are sued in Small Claims or District Court in Alabama, you have 14 days from the day you are served with the complaint to file an answer. If you are sued in Circuit Court (will apply if the debt is over $10,000), you will have 30 days to respond.
   
   In Small Claims or District Court, a form answer is typically provided with the summons. If you do not owe the debt or do not recognize the name of the entity that has sued you or if you believe there is some other reason why you do not legally owe the debt, indicate on the form that you are denying that you owe. The best course is to seek legal advice before submitting this answer.
   

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