What You Need To Know About Wrongful Foreclosure

What Is Wrongful Foreclosure?

Wrongful foreclosure happens when a mortgage lender or loan servicer tries to take your home without following the law or the terms of your loan agreement. 

Wrongful foreclosure can happen if the lender:

• Moves forward without legal authority

• Skips required steps

• Makes serious mistakes, like misapplying your payments, breaking a loan modification agreement, or using false information. 

Not every foreclosure is wrongful. If you fall behind on your mortgage, your lender or mortgage company may have the legal right to start the foreclosure process. But they have to follow the rules when they do it.

💡Your mortgage lender, mortgage servicer, the holder of the note, and/or a nonjudicial foreclosure trustee can all potentially be responsible for a wrongful foreclosure if they don’t follow the legal process or make serious errors.

Judicial vs. Nonjudicial Foreclosure

Each state has its own foreclosure laws. 

In some states, foreclosure is a legal process. This means the lender must go through the court system. This is called a judicial foreclosure.

In others, the process happens mostly outside of court. This is known as nonjudicial foreclosure. 

Even if your state allows nonjudicial foreclosure, the lender still has to give you proper notices and follow specific procedures.

It’s important to know that being behind on your mortgage doesn’t automatically mean the foreclosure is valid. If your lender didn’t follow the rules, you still have rights — and you may have options to fight back.

Common Causes of Wrongful Foreclosure 

Wrongful foreclosures often happen because of errors, not bad intentions. In many cases, they’re the result of miscommunication, poor record-keeping, or mistakes by the lender or mortgage servicer. For example, a lender might misapply a payment, calculate the wrong interest rate, or fail to update your account after a loan modification.

That’s why it’s so important to keep detailed records of your payments and any communication with your lender. Even small mistakes can snowball quickly, so reviewing your mortgage statements regularly and reporting errors right away can help protect your home.

Lender Mistakes That Can Lead to Wrongful Foreclosure

Some of the most common reasons for wrongful foreclosure include:

• Misapplying your mortgage payments

• Making incorrect changes to your interest rate or escrow account

• Failing to honor a valid forbearance or loan modification agreement

• Not canceling private mortgage insurance (PMI) when required

• Starting foreclosure too early

• Violating federal laws like the Truth in Lending Act (TILA)

• Not providing required notices, such as a notice of default or a pre-foreclosure notice

🪖 If you’re serving in the military, you may also be entitled to special protections under federal law. Your lender must follow those rules as well.

There are also state laws that protect homeowners from unfair or deceptive business practices. If your lender violates those laws or breaks the terms of your mortgage agreement, you may be able to challenge the foreclosure.

How To Spot a Wrongful Foreclosure

It’s not always easy to tell if a foreclosure is wrongful. But there are some common warning signs that something might be wrong with how your lender is handling the process.

Here are a few red flags to watch for:

🚩You’re in a loan modification or forbearance plan, but the lender starts foreclosure anyway. If you’re making payments under an agreement, the lender usually can’t move forward with foreclosure unless you break the terms.

🚩You didn’t get any warning before the foreclosure started. Lenders are required to send certain notices, like a notice of default or a breach of contract letter, before they can begin the foreclosure process.

🚩Your payments were misapplied or marked late when you paid on time. This can cause your account to look delinquent even if you’ve been paying as agreed.

🚩The loan servicer changed, and the new company didn’t honor your previous agreement. When servicing transfers between companies, important information can fall through the cracks. But that doesn’t mean your agreement no longer counts.

🚩You’re being asked to pay fees or charges that don’t make sense. Overcharging or applying unauthorized fees may be a sign that something’s wrong with your account.

🚩The lender refuses to provide clear information about your loan status. If you’re getting vague answers or inconsistent information, it’s a good idea to keep detailed records and ask for things in writing.

If you see any of these red flags, it doesn’t automatically mean the foreclosure is wrongful. But it may mean it’s time to take action. 

📋 Keep copies of your records, ask for a written explanation from your lender, and stay on top of what’s happening with your loan. The earlier you catch a mistake, the more options you may have to fix it.

What if Your Lender Broke the Law?

Not all wrongful foreclosures are caused by mistakes. In rare cases, a lender or loan servicer may do something more serious — like using false documents or lying in court filings. If this happens to you, you may be able to take legal action for emotional distress or other damages.

If you believe your lender acted in bad faith or broke the law, it’s a good idea to speak with a foreclosure defense attorney or legal aid organization. They can help you understand your rights and what next steps to take.

What To Do if You Think Your Foreclosure Is Wrongful

If you think your lender made a mistake or didn’t follow the rules, don’t ignore it. Acting quickly can make a big difference. Here are some steps many homeowners take when they believe a foreclosure might be wrongful:

• Gather your documents. Start by collecting all your mortgage loan statements, payment records, letters from your lender or servicer, and any agreements you’ve signed (like a loan modification or forbearance plan). Keeping everything in one place can help you spot errors and stay organized.

• Request a detailed account history. You can ask your mortgage servicer for a breakdown of your home loan payments and charges. This is sometimes called a “payment history” or “accounting of the loan.” It can help you check whether payments were applied correctly.

• Check your notices. Make sure you received all the required notices, such as a notice of default or pre-foreclosure notice. If anything is missing or looks off, that could be a sign something wasn’t done properly.

• Write down what happened. Create a timeline of events. Include when you made payments, when you spoke with your lender, and what agreements were made. This can help you explain your situation clearly if you need to file a complaint or go to court.

• Get legal advice. If you can’t afford a lawyer, there may be free or low-cost legal aid options in your area. Many nonprofit legal organizations help people facing foreclosure. You can also check if your state offers a foreclosure mediation program or housing counselor support.

Wrongful foreclosure cases can be complicated, but you don’t have to navigate this alone. Taking these steps can help you understand what’s happening and figure out your next move.

How To File a Wrongful Foreclosure Lawsuit

Filing a wrongful foreclosure lawsuit is a big step, and it’s usually not easy to win. But in some cases, it may be the right option to protect your home or get compensation for harm the foreclosure caused.

To prove wrongful foreclosure, you’ll have to show all of the following:

• The lender had a legal duty to follow certain rules.

• The lender didn’t follow those rules.

• You were harmed because of what the lender did. 

💡This harm is called damages and could include financial loss, credit damage, emotional distress, or other serious impacts.

If you’re able to prove all three parts and show that the lender acted unfairly or in bad faith, you may be able to stop the foreclosure and/or get financial compensation for the damages you experienced.

Wrongful foreclosure cases are complicated. They often require a good understanding of both state and federal laws. This is why many people hire legal help. You can usually schedule a free consultation with a wrongful foreclosure attorney. If you can’t afford to hire an attorney, look into free or low-cost legal help before taking action. This can help you better understand your options and what the court might need to see in your case.

Can You Stop a Foreclosure After You’ve Been Sued?

Even if your lender has already started a foreclosure lawsuit, you may still have time to take action, especially if the home hasn’t been sold at foreclosure auction yet.

🛑 Some homeowners ask the judge to issue a court order to temporarily stop the foreclosure. This type of order is called an injunction. If a judge grants it, the foreclosure sale can’t move forward while the case is being reviewed. Judges usually only issue this kind of court order if they believe the homeowner has a strong case and would face serious harm if the sale goes through.

It’s important to act quickly if you’re planning to challenge the foreclosure through a lawsuit. Every state has a statute of limitations, or legal deadline, for filing this kind of case. For example, in California, the deadline to file a wrongful foreclosure lawsuit is usually three years. Other states may have shorter or longer timelines. Waiting too long could mean losing your chance to file, even if your case is strong.

What Kind of Compensation Can You Get for Wrongful Foreclosure?

If you sue your lender for wrongful foreclosure and the court rules in your favor, you may be able to receive compensation for the harm you experienced. This could include money for both financial losses and emotional stress caused by the foreclosure.

If you win your case, you may be able to recover money to help with:

• Loss in property value: If your home was sold for less than it was worth, you may be able to recover that difference.

• Credit damage: A foreclosure can hurt your credit score. Compensation may help offset the financial impact.

• Relocation and disruption: If you had to move suddenly, you may be able to recover those costs. This is especially true if moving meant switching jobs, schools, or communities.

• Emotional distress: Wrongful foreclosure can be incredibly stressful. In some cases, the court may award damages for the emotional toll.

You may also be eligible for punitive damages if the lender acted fraudulently or caused serious harm on purpose. These damages are meant to punish bad behavior, not just cover your losses. 

In federal cases, there’s usually a cap — typically no more than nine times the amount of actual damages. So, if you were awarded $50,000 in damages, the most you could receive in punitive damages would be $450,000.

Every case is different, and not all types of damages apply in every situation. But if you’ve experienced real harm from a wrongful foreclosure, compensation may be one way to start moving forward.

Let’s Summarize...

Wrongful foreclosure happens when a lender starts foreclosure proceedings without following the law or the terms of your loan. If this happens, you can take action to protect your rights. Many homeowners file a wrongful foreclosure lawsuit to challenge the process and try to stop the foreclosure. This may require help from a foreclosure lawyer.

In some cases, you can ask the court to pause the sale while your case moves forward. To succeed, you’ll need to show that the lender broke the rules and that their actions caused you harm. If the court agrees, you may be able to stay in your home or receive compensation for your losses. The sooner you act, the more options you’ll have to fight back.