In a foreclosure, the lender that created the mortgage uses its lien, or claim on the property that was put up for collateral, to collect payment on the debt. This occurs after the borrower stops making payments, and the lender has tried every other form of recourse. The foreclosure is a legal process and must either be decided by a court or administered by an escrow company that serves as trustee for the transaction. As a legal process, it can be stopped by other court actions, which is where a cease and desist letter becomes important.
Cease and Desist Letter
Essentially, a cease and desist letter is a formal letter from the borrower to the lender requiring it to stop attempts to collect mortgage debt, which can often be invasive and unpleasant. The letter specifies that either the borrower does not actually owe the debt or, as is common in foreclosures, that another legal process is being used to stop the collection entirely. The letter becomes important when the foreclosure sale is drawing near, and the borrower needs a way to notify the lender that it cannot take place. Foreclosure attorneys often specialize in such letters.
Improper Action
In many cases, a cease and desist letter is accompanied by court action on the part of the borrower. The borrower files a motion to stop the foreclosure and potentially even sue the lender for an improper foreclosure. Improper actions that void a foreclosure vary based on mortgage contracts and state laws; but in general, the lender does not follow due processes when preparing and signing legal contracts, fully appraising properties or is committing other oversights.
Bank Responses
Because of the large number of foreclosures that occurred in the wake of the 2008 to 2009 housing crash, many banks began rushing foreclosure processes, which in turn led to a sharp increase in legal actions where borrowers fought the foreclosure due to improper filing. The government, in many cases, issued what is known as an Order to Cease and Desist to many banks that had issues. These orders required banks to evaluate their foreclosure processes and make key changes so that they followed state regulations and held up in a court of law.
Other Negotiations
A cease and desist letter can be used in other foreclosure circumstances beyond improper action by the lender. For instance, if the borrower is entering negotiations with one sector of the lending organization to modify the loan but is still receiving threats of legal action from another department, a cease and desist letter can clear up the issue. The letter can also warn of an upcoming bankruptcy, which automatically stays the foreclosure process.
