How the Nonjudicial Foreclosure Process Discourages Homeowner Defenses in Court

In nonjudicial foreclosure states, homeowners who believe they can fight back against the process face an additional challenge that borrowers in judicial states do not have to deal with. In a nonjudicial foreclosure process, the bank is able to proceed with selling a home at a public auction with no involvement by the local court system. Authority for advertising and selling the property is given in the loan documents themselves.

The most important clause in the deed of trust document for homeowners in nonjudicial states is the "power of sale" clause. Through this, borrowers sign away their right to a fair and meaningful trial to determine if they are in default of the contract or not. The clause also authorizes the lender to follow a certain number of guidelines, meet state requirements for foreclosure, and then have the house auctioned out from under the borrowers.

All of this sounds like a gross violation of individuals' right to a speedy and meaningful trial, as well as due process rights, and many lawyers assisting borrowers in foreclosure situations tend to agree. The ability of the bank to inform the trustee of its intent to foreclose without providing any evidence of default, even to our admittedly imperfect justice system, gives these lenders a vast amount of power over deed of trust contracts.

Homeowners, it is argued, are able to defend against the process by filing their own lawsuit against the bank in county court and assert their rights and any defenses they have to the foreclosure. However, even this process works against borrowers, as they are now the ones in the position of proving their case against the bank. And court procedures may make the entire lawsuit too expensive to pursue.

For instance, many courts require that homeowners give security in the form of a bond if they are requesting a preliminary injunction or temporary restraining order against the bank's efforts to pursue foreclosure. The court decides the amount of the bond, and may require financially strapped borrowers to make monthly payments during the period of the lawsuit. This is designed to guarantee payment of court costs and other fees to the bank if it is decided the foreclosure was wrongfully prevented.

This bond requirement, if it is not waived, can present a significant problem for borrowers. While many courts have the authority to waive the bond, they may not always do so, unless the owners can show the bank will not be unreasonably harmed or there is a question of the validity of the deed of trust security instrument. Of course, lenders will fight for higher bonds to make defending the home almost impossible.

It is not only in nonjudicial states that borrowers may face the requirement for providing security in the form of a bond in order to have access to the courts. While it is most common in nonjudicial foreclosure proceedings, it may also be used in cases where homeowners are attempting to stop eviction after a trustee sale, stay a judgment of foreclosure when the case is being appealed, set aside a foreclosure auction, or in other similar circumstances.

Many courts have also found that the failure to post this bond is enough to make the challenge worthless. In one case, homeowners' appeal of a post-foreclosure eviction was thrown out because they had failed to post a bond. Homeowners attempting to save their homes from foreclosure need to be aware of the bond requirement and how important it is to courts that borrowers pay as much as (or more than) humanly possible in order to prevent foreclosure.