California homeowners suing lenders about to foreclose on their homes has skyrocketed from 388 in 2008 to nearly 1.400 in 2009 – another sign of desperate measures homeowners are willing to take to hold on to their homes.
According to an article in last week’s Mercury News, this strategy is allowing those homeowners to, at least for now, stay in their homes by stalling the foreclosure process:
Even if a lawsuit doesn’t ultimately succeed, it can sometimes significantly delay the loss of a home. Some suits contend the lender reneged on a promise of a loan modification… Others argue lenders screwed up the foreclosure process. Among the most frequent claims: During the overheated housing boom, the bank did not properly disclose the terms of the loan, the borrower never really qualified, but got a loan anyhow.
Yet judges are quicker to dismiss cases as they get more familiar with the complex laws, banks are more reluctant to settle them, and the federal court here is the only one in the nation that requires some homeowners to put up a portion of what they borrowed before certain lawsuits can be heard.
Attorneys familiar with the 4-inch-thick set of federal rules on lending also warn that fragile homeowners are easy prey for unscrupulous or ill-informed lawyers. California enacted an emergency law in October preventing attorneys from taking advance fees for loan modifications, but the State Bar is investigating more than 500 lawyers for loan modification fraud.
Some California Democratic legislators are trying to get a law passed that probably would reduce the number of lawsuits by requiring mediation between borrowers and lenders before a foreclosure can proceed.