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Defenses to Mortgage Foreclosure

August 11, 2014

Alex Moretsky

During the economic downturn of 2008/09 that saw record numbers of homeowners in Philadelphia and across Pennsylvania lose their homes and put others in jeopardy of losing theirs, consumer advocates found evidence that the real estate industry was riddled with fraudulent and predatory lending practices. This led to a change of heart within the courts who began viewing homeowners with some sympathy and mortgage companies with suspicion.

Foreclosure laws vary from state to state due to state law. However, there are defenses common to most states when it comes to fighting a mortgage foreclosure. Here are some of the more common:

  1. Terms of the mortgage are unconscionable – You cannot just claim unfairness. You must provide a specific justification previously recognized by a court. One such justification is a principle known as “unconscionability”, that is the terms or circumstances of the mortgage are so unfair as to shock the conscious of the reasonable person. There is also a branch of law called “equity” used to defend against foreclosures. Equity focuses on fairness where legal statutes don’t provide relief.
  2. You are a service member on active duty – There are special protections for active duty service members. Federal law prohibits foreclosure proceedings while the service member/homeowner is on active duty. Violation of this protection may be enforced with sanctions.
  3. The Foreclosing Party did not follow state procedures – You can challenge the foreclosure and if successful the foreclosing party must begin the process again. For example, Pennsylvania law requires certain notices be provided to the homeowner in default. If they are not, the foreclosure process may be stopped.
  4. The Foreclosing Party cannot prove ownership – If your mortgage has been sold and bought by many different banks and lending institutions, appropriate documentation of who owns the mortgage must be presented. This has become a hot topic.
  5. Mortgage servicer made serious mistakes – Mortgage servicers are entities who contract with the banks and lenders to receive and disburse payments, and enforce the terms of the mortgage. They make mistakes by crediting payments to wrong parties, imposing excessive fees or fees not authorized by the lender, or substantially overstating the amount you must pay to reinstate the mortgage. This is especially serious because an overstated amount might deprive you of the main remedy available to keep the home.
  6. Original Lender Engaged in Unfair Lending Practices – There are two federal laws that protect against unfair lending practices associated with residential mortgages and loans: Truth In Lending Act (TILA) and the Home Ownership and Equity Protection Act (HOEPA). Lenders violate TILA when they don’t make certain disclosures in mortgages documents such as: annual percentage rate, finance charges and payment schedules. You have the right to retroactively cancel or rescind the loan if laws are violated, provided you do so within the stated period.
  7. Standing – Sometimes the entity bringing foreclosure proceedings does not have standing to do so because they do not actually own the mortgage. If the alleged mortgage was not assigned, transferred or sold to plaintiff or assigned, sold or transferred each and every time it was sold or conveyed, the plaintiff may not have standing to bring a foreclosure.
  8. Statute of Frauds – The Pennsylvania statute of frauds applies to invalidate any and all transfers of a mortgage not memorialized in writing at the time of transfer. And if the documents memorializing the transfer of the mortgage/note were not executed until after the date of commencement of action, plaintiff lacks standing to bring the action.

Many large banks have acknowledged unorthodox, unacceptable or even illegal practices in the area of mortgages, loan modification and foreclosure which has given homeowners additional ammunition. Speak to an experienced mortgage foreclosure attorney in the Montgomery County, Pennsylvania area to discuss your options.


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