FORECLOSURE DEFENSE: DEFECTIVE BREACH LETTERS
Why aren’t more Defendants moving for Summary Judgment on bad breach letters? Almost all mortgages have particular notice requirements the lender must meet as a condition to accelerating the loan. More often than not, foreclosing lenders fail to meet those requirements–or, at least, are unable to prove the requirements were met–yet foreclosure defendants let them get away with it by not presenting the proper defenses.
As a former Plaintiff’s foreclosure attorney, I used to look at several things before walking into Court for a trial:
- Standing at the time the lawsuit was filed;
- Standing throughout the pendency of the lawsuit (Has the loan been service transferred? Has the new Plaintiff been substituted into the case?);
- Compliance with paragraph 22 of the mortgage the breach letter (i.e. Notice Requirements);
- Whether or not the Borrower’s answer and affirmative defenses were relevant; and
- Whether or not there was a prior servicer, if so, do we have the complete payment history?
Typically, most of these things were very easy to confirm or prove, and going to trial was never really a difficult task. However, there was always one aspect of the case that would terrify me: the breach letter.
Almost every mortgage (with the exception of FHA loans) contains a provision (usually paragraph 22) which requires the lender to send any borrowers that are currently in default a “notice of acceleration” at least 30 days before filing a lawsuit. In the foreclosure business, we often call this the “breach letter.”
Among other things, the breach letter must advise the borrower that they have the right to reinstate the loan after acceleration and that failure to do so would result in foreclosure and sale by judicial proceeding. The letter must inform the borrower that they have the right to assert the non-existence of a default or any other defense to acceleration and foreclosure.
That sounds easy enough for a lender to do, right? Well, not really. While prosecuting foreclosure cases, I came across a multitude of breach letters that failed to relay this simple message. Many of the breach letters that are sent to borrowers in Florida are non-judicial breach letters, meaning they are for States that do not have formal judicial proceedings to finalize foreclosures.
In non-judicial foreclosure states, such as California, the borrower has the onus of filing a separate action to defend the foreclosure in order to assert defenses.
This is not the case in Florida because Florida requires servicers to file a lawsuit to foreclose on a property. A non-judicial breach letter typically would say something to the effect of “you may have the right to bring a Court action to assert any defenses or the non-existence of a default.”
Sending a non-judicial breach letter to a Florida borrower in default has the effect of informing them that they need to file an entirely separate lawsuit to defend the foreclosure. This violates the language of paragraph 22 and the essence of the provision, to inform the borrowers of their rights.
Much of my trial preparation, at times, dealt with trying to hunt down a breach letter that was in compliance with paragraph 22 or trying to settle a case that had a violating breach letter. However, I never once went into Court in South Florida and had a case thrown out because I had a non-judicial breach letter. The argument was never made at trial and, in fact, in all my time representing banks, one one foreclosure defense attorney made a Motion for Summary Judgment based upon the violating language. In that particular case, the Motion was not filed correctly.
As a result, several days after the procedurally defective Motion for Summary Judgment was denied, the case went to trial and I was victorious without opposing counsel even mentioning the defective breach letter during the proceedings.
After this trial, I found myself walking out of the Courtroom wondering how I had won the case. I also found myself wondering why more of these cases haven’t been dismissed for this reason. A lot of defense attorneys in California have been successful at having these cases dismissed due to questionable breach letters. How come this practice hasn’t been utilized on the East Coast of Florida?
This is especially perplexing to me because Judge Haury, a sitting Circuit Court Judge in Broward County has released an opinion granting a Defendant’s Motion for Summary Judgment in a case with a non-judicial breach letter. This opinion made ripples throughout the plaintiff foreclosure firms, but none of the local defense attorneys capitalized on the opportunity. I think it is time to do so.
Recently, courts have begun to scrutinize breach letters and, generally, have become a little more borrower friendly. For example, the Samaroo opinion, released in March, 2014, reversed the Trial Court’s Final Summary Judgment in favor of the Plaintiff because the demand letter failed to properly advise the borrowers that they had the right to reinstate their loans. Even more recently, Holt v. Calchas, held that a bank’s failure to comply with paragraph 22 of the mortgage should result in dismissal of the case.
I have a hard time believing that all of the cases still pending from 2008 through 2014 have all been filed with good breach letters because of the amount of noncompliant letters I have seen while working on the other side. At the same time, however, I am sure the banks have started to correct their mistakes regarding the breach letters.
The only way to know is to carefully review each letter on a case by case basis. If you have had a foreclosure case filed against you, please bring your breach letter in to our Firm so that we can review it and determine if moving for a Defendant’s Summary Judgment is appropriate.