The Great Recession hit the United States hard. It especially hit the state of California, where one out of 88 houses were in some form of foreclosure. Banks faced an unprecedented number of foreclosures, while consumers saw their home values drop precipitously, with many home values going underwater. This created a frenzy amongst lenders while consumers faced blight in their neighborhoods. The remedy for many was bankruptcy. Others looked toward foreclosure defense as an option.

Non-Recourse Loan

California is one of 12 states that legislated for non-recourse loans with respect to mortgage lending. That is to say, the lender on a mortgage, in the case of foreclosure on a property, can only recoup what is owed up the value of the house. Amounts owed that exceed the value of the house cannot be collected. In other words, the lender has no recourse against the borrower personally for the loan – hence, non-recourse.

What to do When You Default on a Mortgage

If you defaulted on a mortgage, do not give up. As the saying goes “when there’s life there’s hope” applies to your house and the mortgage. Until the house is sold, it is still yours and you may be able to keep it. Many have defaulted on their mortgage, saw their homes go through the foreclosure process, and saved their homes at the last minute.

First, speak to your mortgage lender. The lender, which is often a bank, usually has programs that will work with you to keep your house. Keep in mind that the bank wants you to stay in your home and pay interest on the mortgage; it does not want to involve itself in foreclosure. If there is reasonable grounds to avoid foreclosure, a bank is willing to work out a plan.

Second, conduct research to determine whether you qualify for state-instituted mortgage help. The state has programs that work to keep people in their houses. After what California endured during the Great Recession, help is a real possibility.

Show Me the Note

The “show me the note” defense can be an effective defense. Under the Uniform Commercial Code, or UCC, Article 3, it is the lender’s responsibility to prove that it owns the note on the house in foreclosure. This means that the borrower in default can challenge the bank’s foreclosure action by compelling it to prove its ownership.

Banks and other lenders sell the note to a mortgage all the time. During the life cycle of owning a property, there may be numerous lenders who service the mortgage. This occurs because banks sell the mortgage note to each other. What is more, banks sold such notes to each other as part of the residential mortgage backed securities, or RMBS, sales during the last decade. Mortgages were often sold to trusts that securitized them and sold them to investors on Wall Street.

Under the UCC, if challenged, a mortgage lender must produce not just a copy of the note but also proof of chain of title. Often, because mortgages were sold so frequently and the RMBS debacle, the lender will be unable to prove chain of title, barring the lender from foreclosing on the property.

Facing foreclosure? Do not give up and do not face the bank alone. Contact the foreclosure defense firm of Melanie Tavare, a Bay-area foreclosure defense attorney.