Foreclosed Homeowners Must Tender Debt Due Under Mortgage To Rescind Alleged Wrongful Foreclosure
(Houston, Texas) The case of James v Wells Fargo, N.A. 2014 WL 2123060 (S.D. Tex. 2014) shows a common problem for borrowers attempting to set aside the foreclosure on their home. When unable to pay many file for Chapter 13 bankruptcy to reinstate their mortgages. Some however choose to remain in their homes and attempt to recover title by litigation to cancel the foreclosure sale.
Sometimes the lenders make mistakes in the foreclosure process but at the same time the borrower by not keeping up payments causes the foreclosure process to go into effect. When the lender successfully forecloses and recovers legal title the borrowers ability to invalidate that sale becomes extremely difficult. The borrower will have to do equity by tendering payment of the underlying balance due on the debt in order to begin the process of rescission of the sale. If the borrower cannot tender the balance due then the borrower’s case insofar as seeking to recover title can be dismissed. It is only a matter of time before eviction occurs. For example in the case of Williams v First Magnus Fin. Corp., 2014 WL 2171167 (S.D. May 23, 2014) the same federal judge as in the James case denied a request for a temporary restraining order to prevent an eviction of an owner after foreclosure and the failure foreclosure of a home equity loan.
In James v Wells Fargo the borrowers defaulted on their mortgage debt and attempted to secure a new agreement with the bank and were unable to do so. After foreclosure the borrowers filed suit in state court to invalidate the sale. The borrowers contended that the bank committed statutory fraud and breach of contract based on foreclosure errors and they sought to invalidate the foreclosure sale by an action in trespass to try title — the Texas statutory mechanism to determine who is entitled to title to the real property in dispute. Lenders typically remove these cases to federal court where they can get in most cases an earlier determination of the entire case by filing a motion to dismiss.
Rescission is a Remedy
Because the court found that the plaintiffs did not have a valid statutory or common law fraud or breach of contract claim the borrowers were not entitled to rescind the transaction. The court found that rescission is a remedy and not a separate cause of action and depends on the plaintiff having a successful cause of action. Payment of the mortgage debt is required as a condition precedent to the mortgagor’s recovery of title from the mortgagee even if the foreclosure could be found to be void.
Dismissal is Appropriate in Federal Court
The United States District Court for the Southern District of Texas dismissed the case under Federal Rule 12(b)(6) finding there to be no valid cause of action and there was no tender.
Lenders or lienholders faced with wrongful foreclosure actions brought by their mortgagors should move to dismiss federal complaints in the absence of the required tender. In Texas state court a party can specially except to the petition and require the plaintiff to plead the offer of tender or move for summary judgment on that issue.
Chapter 13 bankruptcy is usually filed prior to the foreclosure process to allow the borrower to reinstate their home mortgage. But if a borrower waits too late and allows title to pass without stopping the foreclosure the remedy of rescission comes at a high price and they will be unable to prevent eviction.
In over 33 years of the practice of law I have only had one case where the plaintiff actually offered to tender the amount due in the litigation. In many cases the plaintiff cannot afford to do equity and the litigation is nothing more than attempt to obtain continued possession or settlement down the road.