How Much Of A Loss Will A Bank Take On A Foreclosure?

bank loses foreclosure case

The ongoing pandemic continues to take a toll on many Americans’ finances. The effect of the pandemic has had a serious impact on many New Yorkers. For some, the financial impact of the pandemic has led to their property facing foreclosure. For those facing foreclosure, many questions may arise. Some interesting questions relate to how banks handle foreclosures. Many people wonder whether banks actually suffer serious losses when banks foreclose on property. This article is here to help explain how foreclosures work in relation to the bank. 

Does The Bank Lose Money On A Foreclosure

Despite what some people may think, banks typically do not want to foreclose on your property. The foreclosure process can be very expensive and time consuming for banks and other lenders. Banks and lenders invest in mortgage loans in the hopes of making a profit, so it is not ideal for banks and lenders to lose money by going through the foreclosure process. 

Lenders do not always lose money in the foreclosure process. It is possible that a lender can make enough money off of interest payments and a foreclosure auction to not suffer a loss, but this is not always the case. Moreover, lenders often do not want to face the risk of losing money during the foreclosure process, so they will try to avoid foreclosure if possible. Why does this matter? Well, if banks do not want to foreclose on your property, this means that you as a homeowner may have more leverage to negotiate with your lender if you are concerned about foreclosure. 

How Much Of A Loss Will A Bank Take On A Foreclosure

The answer to this question is very situation specific. Sometimes, banks will lose the entire amount owed on a mortgage if it would cost the bank more to litigate the issue of foreclosure than it would to just walk away. This situation is rare. More frequently, banks look to lose no less than a set amount of the total owed on the mortgage agreement. It is best to assume that banks are unlikely to walk away from a mortgage and that the bank will expect to recover most of the money owed on a loan. 

What Happens When A Foreclosure Has A Lost Note

In foreclosure actions, a lender must demonstrate that it has possession of the original promissory note (“the Note”) and other documentation in which the buyer agreed to repay the mortgage loan. Without the Note, the lender may have a harder time proving that it has a right to foreclose on the property in question. For homeowners facing foreclosure, if your lender lost the note or other relevant loan documents related to your mortgage, you may have a valid defense against foreclosure. 

Losing the paper

Losing the documentation for a mortgage agreement can be fatal to a mortgage lender’s foreclosure action. Today, mortgage lenders frequently buy and sell mortgages. When a lender sells a loan to a new owner, the documentation associated with the mortgage should be properly transferred to the new lender. However, the process does not always occur perfectly, and purchasers of loans end up without the documentation needed to prove they have a right to foreclose on a property. This can mean that the bank loses the foreclosure case.  If the bank loses in the foreclosure case, a borrower can potentially walk away without the burden of the property debt any more.  If you own property in New York and you are concerned about foreclosure, you should consult with experienced foreclosure attorneys to see if you may be able to defend against foreclosure with the “Lost Note” defense.  

Foreclosure case dismissals

When lenders cannot produce the requisite documentation proving they own a mortgage loan, lenders can find themselves without the ability to foreclose on a property. A great example of such a situation can be seen in U.S. Bank Trust, N.A. v. Rose, 176 A.D.3d 1012 (2d Dept. 2-19). The lender admitted that the Note had been lost, so the lender was unable to foreclose on the borrower’s property. 

if bank loses in foreclosure case what happens

Similarly, in Wells Fargo Bank National Association v. Byrd, a court dismissed a foreclosure action with prejudice when the lender failed to provide the proper documentation to show that it owned the loan in question.  

Dismissal with prejudice

When a court dismisses a case with prejudice, this means that the lender cannot bring a foreclosure action for the same reason in the future. In the Wells Fargo case mentioned above, the case was dismissed with prejudice, so the lender could not bring an action for the same reason listed in the original complaint that the lender filed in court. When a foreclosure case is dismissed with prejudice, this may mean that the lender is permanently barred from bringing future foreclosure or debt collection actions against a borrower. This is an important example of how the “Lost Note” defense can be very beneficial to property owners facing foreclosure. 

Post-dismissal lender actions

What happens after a foreclosure is dismissed depends on the lender. Some lenders will act differently than others. It is important to consult with an experienced foreclosure attorney after a foreclosure suit is dismissed against your property to ensure you know the best path forward for you and your property.

Popular foreclosure defenses

Requiring the lender to “produce the note” is no longer a popular defense for foreclosure cases in New York. But, it still works in the right situation. However, there are other defenses that may be applicable to your mortgage. Some common defenses to foreclosure include: 

  • Improper Service of Notice: this defense is relevant when a lender fails to meet New York’s notice and service requirements for foreclosure suits. New York law requires lenders to provide borrowers with specific information in a certain amount of time prior to foreclosing on a home. When lenders fail to do so, they may not be able to foreclose. 
  • Fraud or Misrepresentation: some lenders have been known to act fraudulently during the mortgage loan initiation process. When lenders misrepresent information or act fraudulently, borrowers may be able to defend against foreclosure. 
  • Active service in the military: If you or someone in your home is actively serving in the military, you may have a defense against foreclosure. 
  • Loan Negotiation: if you negotiated new loan terms with your lender and your lender proceeded to foreclose anyway, your lender may be barred from foreclosing based on your negotiations. 

There are other potential foreclosure defenses that may be applicable to you, too. Working with a knowledgeable foreclosure attorney potentially can help you consider all the options available to you and help you save your home. Call our experienced foreclosure attorneys at the Law Offices of Yuriy Moshes today, if you need some help defending against foreclosure.

Why Banks Win Their Foreclosure Cases

Often, banks win foreclosure cases because they have more resources and better attorneys in comparison to homeowners. If you are facing foreclosure, it is crucial that you have an experienced foreclosure attorney by your side to defend your suit. Our team is very familiar with handling foreclosure suits in New York and we would be proud to help you defend your property against the possibility of foreclosure. We may even be able to help you stop the foreclosure of your property altogether. 

Getting Help From Foreclosure Right Now

Our team is standing by today, ready to help you during this difficult time. Please, if you are concerned about the possibility of foreclosure, contact us today to see how we can help you. We want to extend a free consultation to you just to show how dedicated we are to protecting your rights. 

FAQ section

What happens when a foreclosure case is dismissed?

The answer to this question depends on the type of dismissal. For a dismissal without prejudice, a lender may be able to bring later foreclosure suits against a borrower for the same reasons established in the initial foreclosure action. Alternatively, if a case is dismissed with prejudice, a lender would be barred from bringing later foreclosure actions for the same reasons.

How much of a loss will a bank take on a foreclosure?

This greatly depends on the bank and the loan. Some lenders can take more risks and more losses than others.

What happens when a bank walks away from a foreclosure?

In relatively rare situations, banks may “walk away” from a mortgage and cut their losses. This essentially means that the bank just loses whatever unpaid interest and other money is owed on the mortgage. When the bank walks away, the borrower does become the official owner of the property. This sounds great, but there can be some downsides to this, too. Outcomes vary widely depending on the situation.

How bad is foreclosure?

Foreclosure can have a very negative impact on a person’s credit history. It can lower a person’s credit score significantly and create issues for those who want to buy a home in the future. But, sometimes, foreclosure is the only option for certain homeowners. So, do not believe that foreclosure is the end of the world.