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Strict Compliance Required for Alabama Default Notices

Posted By USFN, Monday, August 17, 2020

by Andy W. Saag, Esq.
Tiffany & Bosco, P.A.
USFN Member (AL, AZ, CA, FL, NM, NV)

Barnes v. U.S. Bank National Association, as Trustee for NRZ Pass-Through Trust V
; Alabama Court of Civil Appeals Case No. 2180699

What did the case say?
On June 26, 2020, the Alabama Court of Civil Appeals voided a foreclosure sale finding that the notice of default (the “notice”) sent to the borrowers prior to the foreclosure sale failed to strictly comply with the notice provisions in the mortgage. Among other requirements, the mortgage required the notice to “further inform Borrower of . . . the right to bring a court action to assert the non-existence of a default or any other defense of Borrower to acceleration and sale.” However, the servicer’s notice stated, “You may have the right to assert in court the non-existence of a default or any other defense to acceleration or foreclosure." The court found that the servicer’s notice did not strictly comply with the notice provisions in the mortgage in at least two respects. First, the notice contained no reference to a right to affirmatively seek relief in a court action directly challenging the foreclosure. Second, the reference in the notice was not unequivocal because it referred to what rights Barnes "may" have. Accordingly, the court found the foreclosure sale was void.

What impact will this case have?
Barnes is not the first case in Alabama to require strict compliance with the notice/breach provision in the mortgage. The strict-compliance concept of the default notice was first highlighted in 2012 in Jackson v. Wells Fargo Bank, N.A. 90 So.3d 168 (2012).  Then, in 2017, the Alabama Supreme Court invalidated a foreclosure sale because the notice of default letter did not strictly comply with the notice/breach provision in the mortgage. Ex Parte Turner, 254 So. 3d (Ala. 2017). After Turner, many servicers initiated a review of their notice of default letters to ensure strict compliance. Based on this review, most servicers made changes to ensure strict compliance on future notice letters. Accordingly, it is possible the Barnes decision will not have an enormous impact on the industry. Given an uncontested foreclosure in Alabama generally does not take longer than a few months, it is likely that many active foreclosure and REO properties originated after the review following Turner, and thus, likely do not have the same issues as we saw in Barnes.* Of course, the best defense is to make certain the default letter strictly complies with the terms of the mortgage on the front end so that it never becomes an issue on the back end. Furthermore, because the requirement to send default notice letters is purely contractual, changing or eliminating the notice requirements on the mortgage itself would clearly help mitigate any future challenges.

*The Notice in Barnes was sent prior to the publication of the Turner decision.


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