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42 As we move into the New Year, and moratoriums fade, foreclosure activity will no doubt increase from the current historically low levels. With a higher volume of filings, an increase in the number of contested foreclosures in judicial proceedings will also follow. Looking into the crystal ball, what will be the main defenses asserted by borrowers? Are there any trends out there? More importantly, what can servicers do to prepare to head off challenges to foreclosures? DEFENSES TO FORECLOSURE: PROCEDURAL AND SUBSTANTIVE Defenses to judicial foreclosures range from procedural to substantive. Procedural defenses typically may include pre-foreclosure compliance issues. Compliance issues will range from pre-foreclosure conditions precedent to adherence to mortgage servicing regulations. ere will be heightened scrutiny on whether servicers met all of their obligations prior to referral for foreclosure. is involves compliance with all loss mitigation requirements as well as properly tendering notices of intent to foreclose. In other words, were notices of intent to foreclose properly served? How delinquent was the loan at the time of the notice? Were all persons properly served with notices? More importantly, scrutiny will focus on the servicer handling of borrower requests for loss mitigation or other issues involved with compliance of the CFPB's moratorium through December 31, 2021. With new debt collection regulations taking effect in late 2021, borrowers may try to craft defenses to foreclosure by claims of violations of the new regulations. Borrowers may also use these new regulations as an affirmative weapon, asserting counterclaims to forestall the foreclosure action. Issues concerning statutes of limitations and res judicata (based upon prior foreclosure filings against the borrower) will be raised. Substantive challenges to foreclosures will range from some standard defenses to novel uses of new servicing requirements. Borrowers will continue to raise typical standing issues in foreclosure. Borrowers will make substantive challenges to amounts owed on the loans. Borrowers that have adjustable-rate loans may be raising certain defenses in 2022 if their interest rate is tied to the LIBOR index. As the LIBOR rate sunsets, issues will arise as to how an interest rate should be calculated. Some borrowers may allege that the rate cannot be changed at all. Servicers need to be reviewing adjustable loans now to see how they will be impacted. While newer vintage adjustable-rate loans may contain terms as to how a rate is calculated if LIBOR ceases to exist, older loans may not contain such terminology, which will give rise to defense claims regarding interest owed on the loan. Servicers also will have to clearly articulate to borrowers what basis will be used for calculation of interest rates if LIBOR no longer exists. BORROWER DEFENSES 2022 When it comes to foreclosures, what types of legal defenses should we expect? By: Stephen M. Hladik Legal Industry Update