Wrongful Foreclosure

Posted on May 1, 2013 by

Over the last couple of months, I have described some of the options lenders have when borrowers default on a real estate loan.  In this article, I will discuss borrower’s rights and lender’s obligations when lenders foreclose upon mortgaged real estate. 

If the loan documents are drafted properly, lenders have the right to foreclose without a court order when their borrower defaults on their mortgage.  However, lenders must foreclose legally.  Failure to provide proper notice and follow the legal procedures can lead to an illegal foreclosure.  If a lender breaks the law and forecloses illegally, then borrowers can sue the lender for “wrongful foreclosure.” 

In today’s market, I am often asked about “illegal foreclosures.”   The stories in this area are many and everyone appears to have heard of someone’s aunt or cousin whose mortgage was “forgiven” because of an illegal act by a lender.  The truth is that lenders very rarely make the types of errors that allow for complete forgiveness of the debt.  Most often the errors lenders make are technical and can be remedied.  Sometimes however, lenders do foreclose in an illegal manner and this can lead to liability for wrongful foreclosure.  Let me discuss a few rights of borrowers that are more commonly violated:

First, borrowers are entitled to a notice of default and notice of the lender’s intent to foreclose.  While the loan documents may provide additional rights, the law requires lenders to give at least a thirty-day notice prior to foreclosure.  O.C.G.A. § 44-14-162.2.  Be mindful, however, that the notice only has to be sent to the borrower, not received.

Second, borrowers have the right to receive this notice from the “secured creditor” at the time of the notice.  This is an interesting requirement.  As many are aware, lenders often sell and pledge mortgages for various business reasons.  In doing so, lenders are required to file document(s)[1] in the court records to provide notice as to the ownership of the mortgage.  In order to comply with the law, the foreclosure notice must come from the secured creditor (the owner) at the time the notice is sent.  Additionally, it must include contact information for an individual that can discuss and/or negotiate the terms of the mortgage.  O.C.G.A. § 44-14-162.2.

Third, lenders must file the transfer document(s) before the foreclosure sale takes place.  O.C.G.A. § 44-14-162(b).  In other words, the foreclosing party must be on record as being the owner of the mortgage. 

Failure to follow these requirements can lead to lender liability for a wrongful foreclosure and, in some cases, intentional infliction of emotional distress.  These claims carry liability often set by a jury for both compensatory and punitive damages.  Lenders need good counsel to navigate the foreclosure process in order to protect their rights and to avoid any additional liability. 

Disclaimer: The information contained in this article is for informational purposes only and is not legal advice or a substitute for legal counsel.  It does not constitute advertising or solicitation. The information in this article may or may not reflect the most current legal developments; accordingly, this article is not guaranteed to be complete, and should not be considered an indication of future results.


[1] This document is most often called a Transfer and Assignment.

Jon David HuffmanJon David Huffman is a litigation attorney specializing in real estate disputes, business disputes and commercial collections. With more than a decade of experience managing small businesses before attending Emory Law School, he brings a business owner’s perspective to the practice of law.

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