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Federal vs. State Foreclosure Law Suit

Federal vs. State Foreclosure Law Suit

Federal vs. State Foreclosure Law Suit

Previously we learned that states have a choice in how they regulate home loan transactions and the types of rules and contracts used. They are either JUDICIAL states which require the contract to be a MORTGAGE, or in NON-JUDICIAL states, which utilize a contract called a DEED OF TRUST.

Remember that in both types of states, the first document a borrower signs is the note, sometimes referred to as a promissory note. The Note is the commitment, or the promise, of the borrower to repay the loan. The MORTGAGE or DEED OF TRUST is the legal contract that defines the rights and responsibilities of both the lender and the borrower for the duration of the loan. For the lender or servicer, this details when the loan payments are due, how late fees are calculated, the lender’s ability to sell the loan and/or servicing to the loan, how the lender or servicer can proceed with collections in the event of delinquency or default, and even how the foreclosure of a loan will be processed.

For the borrower, some of the rights and responsibilities defined include the right to request a copy of their history of payments and how those delivered funds were applied, who to make payments to and how to make disputes about what and when payments were made.

There are serious consequences for both the lender and the borrower if either party breaches the loan contract. If the borrower breaches the contract by failing to make payments as agreed the loan can go into collections and if not resolved, eventually the loan may go into foreclosure.

If the lender or servicer fails to adhere to any aspect of the loan servicing process, including the foreclosure process, the lender or servicer may be liable for damages or harm to the borrower. Borrowers can file complaints with the OCC and their states regulatory department, which is often a good place to start, but offer limited ability to provide compensation to borrowers.

Suing your lender or servicer for violating borrowers legal rights often is the most effective way to protect your home and to recover damages. These may be statutory damages based on state or federal laws which often have fines built into the law, or punitive damages where a judge or jury decide to punish the offending lender or servicer, or even compensatory damages ordered by a judge or jury because of the harm the borrower suffered. Also a judge can require the parties to begin the process again if the legal process was violated. Courts generally won’t find financial damages in a wrongful foreclosure if the mistakes were minor and didn’t cause monetary harm to the homeowners, in other words damages the borrower, but often will demand both parties enter into a settlement negotiation that benefits the borrower.

By using the power of the court borrowers can protect their rights, get the time they need to negotiate a resolution and potentially receive compensation for the ordeal they suffer.

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