Canceling A Completed Foreclosure Sale
Often a homeowner does not seek legal advice until after a foreclosure sale has been completed. In some cases, the homeowner does not even become aware of the foreclosure sale until the new owner brings an eviction action against them.
The process to undo a completed foreclosure sale will depend on the foreclosure method used by the lender. If the foreclosure was conducted by power of sale, the foreclosed homeowner usually must initiate a suit to set aside or void the sale. Because the foreclosure process is entirely extra-judicial in most states that allow power of sale foreclosures, no existing action in which claims to invalidate the completed foreclosure can be raised. An action to set aside the sale may be filed in state court, or the homeowner can file bankruptcy and seek to set aside the sale in the bankruptcy proceedings.
In states where foreclosure is conducted judicially, the issues are more complicated. If, under state process the foreclosure case remains open through completion of the sale process, objections to the validity of the foreclosure sale may be raised. If, however, the state judicial process terminates with entry of foreclosure judgment that is not appealed, a party objecting to the sale must either reopen the case or file a separate action to have the foreclosure sale set aside. One choice or the other may be mandated by statue, rule, or case law. If either option is available, filing a separate action may be preferable if the only issue is the validity of the sale.
If the purchaser at the foreclosure sale (more times than not it is the lender) has already brought an eviction action against the former homeowner and obtained a judgment, the lender may argue that the judgment for eviction is res judicata as to the validity of the sale. A judgment in an eviction action, however, generally does not resolve any issue of title and therefore should not bar litigation of the validity of the foreclosure sale. Some state eviction statues specifically provide that an eviction judgment for possession is not a bar to a later action to recover title.
If the foreclosure sale is set aside as void, title is normally restored to the homeowner. Mortgage and lien interests in the property are generally restored as if no foreclosure sale had taken place. Once a foreclosure sale is set aside the homeowner is able to raise claims against the lender, if any, based on the underlying mortgage.
When the sale cannot be successfully challenged, the homeowner may retain claims for damages against the lender. In some cases these damages may be substantial and may include attorney’s fees. Although these claims may not invalidate the mortgage or the foreclosure, they may create leverage which can be used by the homeowner to reacquire the property.
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