Contesting a Foreclosure
Because the right of redemption is an equitable right, foreclosure is an action in equity. In order to keep the right of redemption the debtor can ask an equity court for an injunction. If repossession is imminent the debtor would need to seek a temporary restraining order. However, the debtor may have to post a bond in the amount of the debt. This would protect the creditor if the attempt to stop foreclosure were a naked attempt to cheat the lender and skip on the debt.
A debtor may also challenge the validity of the debt in a claim against the bank in order to stop the foreclosure and sue for damages. In a foreclosure proceeding, the lender bears the burden of proving that there was a valid debt. There is case law to support the debtor’s case: First National Bank of Montgomery vs. Jerome Daly, 1969, in the Justice Court State of Minnesota the Judge ruled in favor of the debtor on December 9, 1968: IT IS HEREBY ORDERED, ADJUDGED AND DECREED: 1.That the Plaintiff is not entitled to recover the possession of Lot 19, Fairview Beach, Scott County, Minnesota according to the Plat thereof on file in the Register of Deeds office. 2.That because of failure of a lawful consideration the Note and Mortgage dated May 8, 1964 are null and void. 3.That the Sheriff’s sale of the above described premises held on June 26, 1967 is null and void, of no effect.That because of failure of a lawful consideration the Note and Mortgage dated May 8, 1964 are null and void.
Foreclosure is the legal and professional proceeding in which a mortgagee, or other lienholder, usually a lender, obtains a court ordered termination of a mortgagor’s equitable right of redemption. Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan. If the borrower defaults and the lender tries to repossess the property, courts of equity can grant the borrower the equitable right of redemption if the borrower repays the debt. While this equitable right exists, the lender cannot be sure that it can successfully repossess the property, thus the lender seeks to foreclose the equitable right of redemption. Other lienholders can also foreclose the owner’s right of redemption for other debts, such as for overdue taxes, unpaid contractors’ bills or overdue HOA dues or assessments.
The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust”. Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that “the lender has foreclosed its mortgage or lien”. If the promissory note was made with a recourse clause then if the sale does not bring enough to pay the existing balance of principal and fees the mortgagee can file a claim for a deficiency judgement.
