In late July, another Florida appellate court took a sizable chunk out of foreclosure defense attorneys’ litigation playbook, holding that substantial compliance, rather than strict compliance, is the prevailing standard to be used by courts when assessing whether a mortgage loan servicer complied with the pre-foreclosure requirements found in Paragraph 22 of most residential mortgages. This is a welcome precedent for lenders and mortgage servicers doing business in Florida.
In Green Tree Servicing, LLC v. Milam, Case No. 2D14-660, Florida’s Second District Court of Appeal was called on once again to determine whether the notice of default sent to Erin and William Brett (the “Borrowers”) by their mortgage loan servicer complied with the requirements of Paragraph 22 of their mortgage. In doing so, the court was squarely presented the issue of whether Florida law required strict compliance with conditions precedent to foreclosure or whether substantial compliance was sufficient. In keeping with the precedent set in U.S. Bank, National Assoc. v. Busquets, 135 So. 3d 488 (Fla. 2d DCA 2014), the court held that substantial compliance with conditions precedent to foreclosure was all that was required under Florida law.
Paragraph 22 of most standard-form residential mortgages requires a lender or mortgage loan servicer to advise a borrower of five specific pieces of information prior to initiating foreclosure. Specifically, Paragraph 22 requires that a notice of default state: (1) the borrowers’ default; (2) the action required to cure the default; (3) a date certain not less than 30 days from the date of the notice by which default must be cured; (4) the fact that failure to cure default may result in acceleration of the entire sum owed under the note and mortgage; and (5) a borrower’s potential right to reinstate after acceleration and ability to assert any available defenses to the foreclosure.
Foreclosure defense attorneys have long argued that any deviation from the language in the notice of default, no matter how insignificant or technical, results in the complete nullification of the notice itself. Consequently, according to foreclosure defense attorneys, if a lender or mortgage loan servicer fails to strictly comply with the requirements of Paragraph 22, it has failed to satisfy the conditions precedent to foreclosure. This is exactly what the Borrowers in Milam argued.
The Borrowers asserted that the notice of default they received was fatally deficient because it stated that the Borrowers “may” have the right to reinstate their mortgage loan account after acceleration and “may” have the right to assert defenses to the foreclosure. The Second District Court of Appeal wholly rejected this argument, stating that “when the content of a lender’s notice letter is nearly equivalent to or varies in only immaterial respects from what the mortgage requires, the letter substantially complies, and a minor variation from the terms of paragraph twenty-two should not preclude a foreclosure action.” The court went further to hold that use of the word “may” in reference to the right to reinstate and the right to assert defenses is, in fact, an accurate description of a borrower’s rights, given that a borrower must comply with certain requirements in order to reinstate his or her loan and can only assert defenses and the nonexistence of default where there is a good-faith legal basis for doing so. Borrowers, then, do not have an unequivocal right to either reinstatement or the assertion of defenses absent the satisfaction of other provisions of the mortgage.
The court concluded its opinion by stating that “[p]aragraph twenty-two is designed to ensure that a borrower receives essential information concerning his or her default, how to cure it, and his or her rights with respect to it. It is not a technical trap designed to forestall a lender from prosecuting an otherwise proper foreclosure action because a borrower, after the fact, decides that the letter might have been better worded.” This language, along with the court’s overall holding, provides lenders and mortgage loan servicers with another strong opinion to use in defeating foreclosure defense attorneys’ attacks on compliance with the pre-foreclosure notice requirements in residential mortgage contracts and could signal a significant movement away from the availability of such challenges in foreclosure-related litigation.