One little letter stands between you and the bank that wants to take your home, if you’re in foreclosure. Those of you following recent developments in foreclosure law know that a defense, first developed by the foreclosure lawyers at Ricardo & Wasylik, has been taking the state by storm: the defective notice letters sent by the banks prior to foreclosure.
The standard mortgage contract—the one seen in more then 90% of all Florida home loans—requires that the bank send a letter to the borrower before foreclosing, which letter must contain six specific pieces of information.
Here are the first four:
(a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument, foreclosure by judicial proceeding and sale of the Property…
In addition to items (a)-(d), the notice must also:
…inform Borrower of the right to reinstate after acceleration and the right to assert in the foreclosure proceeding the non-existence of a default or any other defense of Borrower to acceleration and foreclosure.
In many cases, the notice letter sent fails to contain one or more of the required items. Back in August of 2011, Ricardo & Wasylik won a groundbreaking court order—now used by foreclosure defense lawyers across the state as persuasive authority—rejecting a foreclosure based on the bank’s failure to include every one of the required items in the notice letter. Since then, courts across the state have been shutting down foreclosures based on bank’s failure to obey the contract that the bank wrote, requiring the bank to give the borrower a “Miranda Warning” of sorts to homeowners who have fallen behind.
Because it’s required for all Fannie Mae loans, I call it the “Fannie Miranda.” And banks rarely get it right. In fact, it’s a viable defense in most of the cases I see.
The appellate courts have now effectively rejected the banks’ most effective retort to their noncompliance. Banks claim that Florida law allows them to achieve “substantial compliance” with the terms of their own mortgage contract. In their words, they can breach it, but only part-way. Florida courts have almost uniformly rejected this argument, and now the Second District Court of Appeals has chimed in, with its recent decision in Judy v. MSMC Venture, LLC [PDF].
In the Judy case, the only flaw in the notice letter was that it merely stated “that the Judys committed a breach.” It did not specify what that breach was—which of the 25 paragraphs of the standard Fannie/Freddie mortgage that impose particular duties on the borrowers. (By the way—read yours. There are a lot of ways to breach the agreement.) Out of six required elements, the Judy breach letter was missing only one. But that was enough for the appellate court to decide that it was an “insufficient notice of default.”
So why does this matter? The banks, for the last 18 months or so, have been arguing “substantial compliance” is enough. In other words, horseshoes and hand grenades are enough to take someone’s home.
But the Judy court didn’t agree. Missing just one of the required six elements was enough of a defect in the letter to prevent the foreclosure. If “substantial compliance” were the rule, the Judys would have lost. But they didn’t.
Banks are on notice: the mortgage agreement means what it says. And if borrowers have to strictly comply, so do banks.