February 6, 2015
by Ronald S. Deutsch
Cohn, Goldberg & Deutsch, LLC – USFN Member (Washington, D.C.)
What is the difference between a loaf of bread with a sell-by date and a notice of intent to foreclose (NOI)? Answer: A loaf of bread has a definite sell-by date, while an NOI (a pre-foreclosure letter required by statute) has a potentially alternative smell test that it must pass. In a recent ruling, the Maryland Court of Special Appeals was presented with the issue of NOI staleness. [Granados v. Nadel, (Md. Ct. Spec. App. Dec. 16, 2014)].
Background: Maryland Law RP Section 7-105.1 provides that a foreclosure action generally may not be filed against a residential property until 45 days after the lender sends the borrower a notice of intent to foreclose. The purpose of this legislation is to aid borrowers in communicating with lenders in order to avoid foreclosure. In that vein, a notice is required to state the names and telephone numbers of the secured party, the loan servicer, and an agent of the secured party who is authorized to modify the terms of the mortgage loan.
The pertinent facts of the case: In 2009, the borrower defaulted on a loan secured by his principal residence. After making several late payments, a notice of intent to foreclose was sent on March 10, 2010, and a foreclosure case was thereafter commenced. Shortly after the foreclosure action was filed, the lender dismissed it without prejudice. Subsequently, the loan was transferred and a new servicer assumed responsibility for servicing the loan. The default was never cured. Almost a year later (on February 24, 2011), a second foreclosure action was filed.
In advancing the second foreclosure action, the foreclosing attorney relied on the original NOI that had been filed prior to the first foreclosure action. Further complicating the facts, the statute governing the notice requirement for residential foreclosures changed between the first foreclosure filing and the second one. The Maryland Commissioner of Financial Regulation, however, promulgated an advisory that foreclosing attorneys could rely on NOIs filed prior to July 1, 2010, without re-filing a new document.
The foreclosure attorneys asserted that the foreclosure was docketed using an NOI that complied with the law at the time that the NOI was issued. They maintained that the circuit court should read the new statutory provisions prospectively, permitting NOIs issued before the new law went into effect to serve as sufficient notice prior to filing an order to docket foreclosure. Finally, they contended that because the borrower did not cure his default, the original NOI remained valid.
In its ruling, the Court of Special Appeals noted that the borrower, in entering a HAMP workout after the first NOI, also received a form that advised that no new “notice of default, notice of intent to accelerate, notice of acceleration, or similar notice will be necessary to continue the foreclosure action; all rights to such notices being hereby waived to the extent permitted by applicable law.” Further, the court noted the commissioner’s advisory. Nevertheless, the court determined that the NOI was stale, finding that there is no perpetual validity to NOIs. Once the trustees dismissed the first foreclosure action, the lender was obligated to send the borrower a new NOI containing the particularized information and documents prescribed by law, before filing the second foreclosure action. Notably, the court declined to set an explicit expiration date.
Consequently, where a lender institutes a foreclosure and then dismisses it, a new NOI should be utilized on any subsequent filing. This is true, especially where the dismissal of the first foreclosure action coincided with legislative changes providing new protections to borrowers. The court stated that an NOI is not a blank check that will allow a lender to initiate a foreclosure proceeding against a borrower at any point in the future. The NOI has a specific function to give borrowers notice of a potential foreclosure and allow them to pursue remediation of their default. It would be contrary to the spirit of the law for the NOI to operate as a document providing notice to a borrower of an impending foreclosure by an uncertain lender at some unpredictable time in the future. In short, an old, potentially stale and incorrect NOI flouts the requirement of giving borrowers an opportunity to avoid foreclosure. Accordingly, such an NOI should not be relied upon by lenders seeking to foreclose in Maryland.
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