What is Mortgage Litigation?

Staci A. Terry

Mortgage litigation is a form of legal action taken in a court of law and involving some aspect of a real estate mortgage loan. While mortgage foreclosure actions may be the most common type of litigation, there are a number of other legal actions that fall within the category of mortgage litigation, as well. This type of litigation encompasses lawsuits filed not only by the mortgage lender or financial institution holding the mortgage note, but also those filed by the borrowers to allege some breach of the mortgage agreement.

Breaching terms of a mortgage agreement can result in litigation.
Breaching terms of a mortgage agreement can result in litigation.

Mortgage litigation may also involve residential mortgages between people and mortgage lenders, or commercial mortgage law, which concerns business real estate loans. Therefore, although litigation can involve many different kinds of lawsuits, all mortgage litigation entails a claim by one party that the other party has breached a mortgage loan agreement in some way.

Mortgage litigation also may result from predatory lending by mortgage brokers and financial institutions; such practices can violate both state and federal laws.
Mortgage litigation also may result from predatory lending by mortgage brokers and financial institutions; such practices can violate both state and federal laws.

Traditional litigation takes the form of a mortgage foreclosure action, in which the mortgage lender uses mortgage laws to bring a lawsuit against the borrower for defaulting on or otherwise violating the mortgage loan agreement. The most common mortgage foreclosure action results when a borrower fails to make mortgage loan payments pursuant to the mortgage agreement. The mortgage lender has a security interest in the real estate underlying the mortgage loan, so the lender can file a lawsuit against the borrower for failing to pay as agreed. Ultimately, because of the security interest the lender holds in the real estate, the borrower will most likely lose possession of the real estate and the lender will regain possession of it through the mortgage foreclosure process.

Mortgage foreclosure actions are the most common type of mortgage litigation.
Mortgage foreclosure actions are the most common type of mortgage litigation.

Mortgage litigation also includes lawsuits brought by borrowers against mortgage lenders. Just as borrowers must comply with their mortgage loan agreements, mortgage lenders must comply with mortgage loan terms and any applicable state and federal real estate laws. Increasingly, borrowers have turned to litigation for various breaches of the law, including over-escrowing practices, illegal private mortgage insurance practices, unauthorized charges and fees, and inappropriate interest rate adjustments on adjustable rate mortgages.

Litigation also may result from predatory lending by mortgage brokers and financial institutions; such practices can violate both state and federal laws. Not only have these practices by lenders spawned litigation by individual borrowers, but they also have resulted in widespread class action mortgage litigation, which has been quite successful in a number of jurisdictions.

Mortgage litigation is a form of legal action taken in a court of law and involving some aspect of a real estate mortgage loan.
Mortgage litigation is a form of legal action taken in a court of law and involving some aspect of a real estate mortgage loan.

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Discussion Comments

Markerrag

@Vincenzo -- I think that we are seeing more and more consumers get into the arena of mortgage litigation. That was not the case until we started hearing about predatory lending, improper foreclosures and other things that got people worried.

Actually, I am not sure it was the consumers that started suing banks over mortgage contracts. I think a lot of lawyers saw the opportunity to make some real money and started recruiting clients.

Soulfox

@Vincenzo -- I see your point, but I am not sure that is quite it. Let's say a bank gets the foreclosure, sells the home and is still owed $30,000 on the mortgage because the value of the home dropped a lot.

The bank then has an action against the homeowner for that $30,000.

That is not a foreclosure, of course, but it is clearly mortgage litigation.

Vincenzo

No, mortgage litigation does not always mean foreclosures, but that is exactly what we are talking about the vast majority of the time. Most of the time, consumer simply will not file suit against a bank for breach of a mortgage contract. For one thing, people generally do not know if that contract has been breached. For another, banks generally deal with these things so much that they do not risk breach.

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