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The feared tidal wave of foreclosure and post-foreclosure lawsuits has begun across the United States as lenders or their collection agencies try to collect unpaid loan balances. This article written by attorney Robert W. Carlson at CAPITAL LAW CENTER Robert W. Carlson & Associates, P.A. will help you understand how to respond if you become subject to such a lawsuit.


1. What to Expect - A lawsuit is simply a claim by one party (the Plaintiff) against another (the Defendant), which is filed in a court, asking a Judge to Order the Defendant to do something. For example, the lender sues the debtor seeking a Judgment ordering the debtor to pay the remaining debt. In many cases, the Plaintiff will not be the actual lender who made the loan. Collection companies are buying loans from lenders for pennies on the dollar then suing the borrowers for the full amount. One company, Cohen & Slamowitz in New York, has actually automated the process and is filing approximately 80,000 lawsuits a year! The lawsuit has two parts: the Summons and the Complaint. The Complaint states the facts as to why the Plaintiff claims they are entitled to a Judgment against the Defendant. The Summons is the Order for the Defendant to respond to the Complaint within a certain amount of time which varies from State to State. The average amount of time is 30 days.

2. How to Respond - Plaintiffs hope that Defendants will ignore the Summons and fail to file a response, usually an Answer, within the allowed time. If so, the Plaintiff will quickly get a Default Judgment and can start pursuing the collection by attaching the Defendant’s property and garnishing their wages. This is the worst possible result for a Defendant because it is giving up without a fight. Instead, upon being served with a Summons and Complaint, the debtor should get together with an Attorney and determine how best to respond. Often, the first response is attacking the Complaint through a legal process called a Demurrer. There are many grounds for this such as: (a) the Plaintiff doesn’t own the loan and therefore has no right to file the lawsuit; (b) the lawsuit is barred by various laws of the State; and (c) the Complaint is defective. At the same time, the attorney will start the Discovery process of compelling the Plaintiff to produce copies of every document they are relying on in filing the lawsuit. While the Demurrer could actually make the lawsuit go away, it generally won’t. What it will do is force the Plaintiff to spend time and money responding which is the last thing they really want to do. So it starts the negotiation for Settlement.

3. Settlement Negotiations - At the start of a lawsuit, the Plaintiff wants to collect everything and the Defendant wants to pay nothing. While both sides want to win at trial, only one side will. Settlement eliminates that risk and avoids the heavy financial and emotional costs of lengthy litigation, usually well over a year. In most states, 98% of lawsuits will settle before trial. The hard part is reaching an agreement. Inevitably the Plaintiff will feel they got too little and the Defendant will feel they paid too much, but both will agree that the settlement is better than the alternative of continuing in litigation. There is no standard percentage that determines settlement. Rather, it is a complex evaluation of the Plaintiff’s evidence, the Defendant’s defenses and financial capacity, and the likely outcomes. For example, earlier this year a lender sued a client for $280,000 owed on an equity loan after a foreclosure. The Lender settled for $16,000. In several others, Plaintiffs have dismissed the lawsuits when faced with our defenses. And still others go forward.

4. Going to Trial - If Settlement fails, then at some point the Complaint will go to trial at which time the Judge and/or jury will hear all the testimony and see all the evidence and then determine who wins and who loses. The winner gets a Judgment and can try to collect from the loser. In lawsuits relating to loans, the biggest risk is the award of attorney fees. Most loan documents allow the winner to be awarded what they spent on attorney fees and legal costs. This can be bigger than the loan amount and it generally is far more than an upside-down debtor could ever afford to pay.

5. The Role of Bankruptcy - The Bankruptcy laws of the United States are designed to give an insolvent debtor a fresh start if there is no way they can pay their debts. While some attorneys would recommend filing Bankruptcy if faced with a lender lawsuit, this is not necessarily the best solution for everyone. For example: First, other than this bad debt, the defendant may have other assets they want to keep; Second, by responding to the lawsuit, the defendant may be able to settle the debt or avoid it entirely; Third, Bankruptcy will stay on the debtors credit for 7-10 years; and Fourth, the defendant may not even qualify for Bankruptcy. So, while it is one solution, Bankruptcy is not always the best solution. The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a lender lawsuit, do not ignore it. Get competent legal advise in your State immediately so that you can determine your best options. If you have specific questions about your liability regarding short sales, foreclosure, or any legal issues; feel free to contact us at

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