Chapter 2-2 Notice of Default and Opportunity to Cure

2-2 Notice of Default and Opportunity to Cure

2-2:1 Notice as a Matter of Contract

The mortgage holder is not required by statute or by common law to notify the mortgagor of a default or allow the borrower an opportunity to cure a default.²⁵ Therefore, if the mortgage is silent as to notice, the mortgage holder can foreclose immediately upon default. If the mortgage clearly requires a notice of default, that notice requirement is interpreted and is enforceable in accordance with standard principles of contract interpretation.²⁶

2-2:2 Notice as a Condition Precedent

When the mortgage requires a notice of default as a condition precedent either to enforcement of the mortgage or to acceleration of the amount due, the mortgage holder must comply with the condition.²⁷

A foreclosure action filed before compliance with notice requirements is subject to dismissal,²⁸ provided the borrower suffered some prejudice from the mortgage holder's failure to comply.²⁹

A defense based on failure of the condition precedent is personal to the borrower and cannot be raised by a subsequent owner of the property.³⁰ The borrower must plead the failure to comply with conditions precedent, including notice of default, with specificity.³¹ Failure to do so waives the issue for trial and appeal.³² The defensive pleading must identify both the nature of the condition precedent and the nature of its alleged failing to present a valid defense.³³

As with contractual conditions precedent generally, the mortgage holder's compliance with a contractual notice requirement is evaluated for "substantial compliance," not strict compliance.³⁴

When moving for summary judgment, the plaintiff must prove substantial compliance with the default notice requirement if the borrower has challenged compliance, whether that challenge comes in the borrower's answer by specifically denying compliance or in an affirmative defense alleging failure of compliance.³⁵

At trial, the burden of proof depends on the pleadings. If the borrower raises non-compliance as a specific denial only, then the plaintiff bears the burden to prove substantial compliance.³⁶ If the borrower raises non-compliance as a specific denial and also as an affirmative defense, the plaintiff still bears the burden of proving substantial compliance.³⁷ However, if the borrower raises non-compliance as an affirmative defense only, then the borrower bears the burden to prove non-compliance.³⁸

The notice requirement can be waived by agreement of the parties.³⁹ If non-compliance is pled as an affirmative defense and the plaintiff wishes to counter that defense arguing waiver by agreement, the plaintiff must plead that issue as an avoidance in a reply.⁴⁰

2-2:3 Notice in Standard Residential Mortgage

The standard form of residential mortgage used in Florida is the Fannie Mae/Freddie Mac mortgage. The standard form is ubiquitous in Florida residential mortgages and can be found in its entirety in Appendix A.

Paragraph 22 of the standard mortgage requires the lender to send the borrower a notice of default at least 30 days prior to acceleration and/or an action to foreclose. Thus, when the mortgage at issue follows the standard residential mortgage form, sending the notice is a condition precedent to foreclosure. The mortgage holder can comply either by mailing the notice or by actual delivery of the notice. Compliance by mail requires proof that the notice was sent by first class mail⁴¹,⁴² to the "notice address" provided in the mortgage,⁴³ but need not prove that the mailed notice was actually delivered.⁴⁴ If the notice is not sent by first class mail, then the mortgage holder must prove that the notice was actually delivered.⁴⁵ If the mortgage is signed by multiple borrowers, notice to any borrower constitutes notice to all other borrowers.⁴⁶

The paragraph 22 notice must (a) identify the default; (b) identify the action required to cure the default; (c) give a date by which the default must be cured; (d) state that failure to cure the default in time may result in acceleration, foreclosure and sale of the mortgaged property; (e) inform the borrower of the right to reinstate after acceleration; and (f) inform the borrower of his right to dispute the default and raise any other defense to acceleration and foreclosure.⁴⁷

2-2:3.1 Examples of Compliant Notices of Default

A notice that says the borrower's failure to cure may result in "foreclosure proceedings" complies with the paragraph 22 requirement of notice that "judicial proceedings" may result. In Florida, "the only method for foreclosure is a judicial proceeding."⁴⁸

A notice that says the borrower "may" have the right to reinstate the mortgage after acceleration complies with the requirement to "inform Borrower of the right to reinstate after acceleration."⁴⁹

A notice that says the borrower has "the right to bring a court action" to assert defenses complies with the requirement to inform the borrower of the right to assert defenses to foreclosure.⁵⁰

A notice that requires payment of amounts past due more than five years (the statute of limitations period) in order to cure the default complies with the requirement to inform the borrower of the action required to cure.⁵¹

A notice of default that lacked the amount due to reinstate was held to be compliant with paragraph 22, even though that fact was not mentioned in the opinion.⁵²

2-2:3.2 Examples of Non-Compliant Notices of Default

A notice that fails to advise the borrower of the right to reinstate the mortgage after acceleration does not comply with paragraph 22 of the standard form residential mortgage.⁵³ A letter was held non-compliant in this regard where it advised the borrower: "acceptance of one or more payments for less than the amount required to cure the default shall not be deemed to reinstate your loan or waive any acceleration of the loan."⁵⁴

A notice that fails to advise the borrower of the right to assert the non-existence of a default or other defenses does not comply.⁵⁵

A notice that states acceleration has already occurred does not comply.⁵⁶

2-2:4 Opportunity to Cure as a Matter of Contract

The purpose of the notice provision is to alert the borrower to the alleged default and to provide the borrower with an opportunity to either dispute the alleged default or cure the default.⁵⁷ However, an opportunity to cure is only required if the mortgage requires it.⁵⁸ If the mortgage requires notice but not an opportunity to cure, then the lender complies with the condition precedent by giving notice alone and can foreclose immediately thereafter. For the effect of a defendant tendering the required cure payment, see Sections 2-3:3 and 2-3:4.

2-2:5 Opportunity to Cure in Standard Residential Mortgage

Paragraph 22 of the standard Fannie Mae/Freddie Mac residential mortgage⁵⁹ requires the lender to give the borrower a period of at least 30 days to cure the default. The 30-day cure period begins to run when the lender gives the borrower notice of the default. A foreclosure action filed before expiration of the 30-day cure period must be dismissed.⁶⁰ However, a notice that specifies a cure period less than 30 days may be deemed harmless if the lender actually filed the foreclosure complaint more than 30 days after giving the notice of default and the borrower made no attempt to reinstate the loan within 30 days.⁶¹

2-2:6 "Face-to-Face Interview" Requirement in FHA Mortgage

Mortgages insured⁶² by the Federal Housing Administration (FHA) require the lender to comply with regulations promulgated by the Secretary of Housing and Urban Development (HUD).⁶³ Among HUD's regulations are a requirement that the lender attempt to conduct a face-to-face interview with the borrower before three full monthly installments are unpaid.⁶⁴ When the terms of the note or mortgage provide that a mortgagee may not initiate foreclosure unless permitted by HUD regulations, which are incorporated by reference in the note or mortgage, the face-to-face meeting requirement operates as a condition precedent that must be fulfilled before foreclosure may be initiated.⁶⁵ The HUD regulations are not, standing alone, a condition precedent to foreclosure.⁶⁶ Whether the face-to-face interview condition was fulfilled is judged on the substantial compliance standard⁶⁷ applicable generally to conditions precedent in foreclosure cases. See, e.g., section 2-2:2.

The First and Fifth District Courts hold that a lender's alleged non-compliance with HUD's face-to-face interview requirement can be pled as a specific denial in the borrower's answer and need not be raised as an affirmative defense.⁶⁸ The Second District has explicitly abstained from that pleading issue.⁶⁹ Nevertheless, the Second District did hold that if the borrower raises the face-to-face interview issue as an affirmative defense, then the lender cannot argue the borrower waived the interview unless it does so by avoidance in a reply.⁷⁰

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Notes:

^[25] "A mortgagee simply has no duty to give a mortgagor an opportunity to cure a default." Millett v. Perez, 418 So. 2d 1067, 1068 (Fla. 3d DCA 1982).

^[26] U.S. Bank Nat. Ass'n v. Busquets, 135 So. 3d 488...