Banking

You are cautioned: The Alabama Civil Court of Appeal is addressing foreclosure “strict compliance” in Barnes v. US National Bank, No. 2180699. | Balch & Bingham srl

Recently, the Alabama Civil Appeals Court ruled that a mortgagee’s notice of acceleration did not strictly adhere to the mortgage notice provisions when it informed the borrower only that ‘she “could” have the right to assert defenses against the foreclosure, rather than informing her affirmative right to bring an action against the mortgagee. This case serves as a warning to lenders and mortgage agents who are considering foreclosure.

In 2002, Terri Barnes and Autrey Fletcher entered into a mortgage (the “Mortgage”) on a parcel of property in Birmingham, Alabama (the “Property”) in favor of Hometown Mortgage Services (“HMS”). Fletcher died and Barnes assumed all liability under the mortgage and the loan it secured (the “Loan”).

In the event that Barnes defaults on the mortgage, paragraph 22 of the mortgage required HMS to notify Barnes before accelerating the loan. Among other things, paragraph 22 required HMS to advise Barnes “of the right to bring legal action to assert the non-existence of a defect or any other defense.” . . to the acceleration and sale ”of the Property.

In 2012, The Bank of New York Mellon Trust Company, National Association (“BONY”) succeeded HMS ‘rights under the mortgage. Barnes was behind on its payments, and Ocwen Loan Servicing, LLC (“Ocwen”), acting on behalf of BONY, sent Barnes a notice of default (the “Notice”) which read: “You may have the right to assert in court the non-existence of a defect or any other defense to acceleration or foreclosure.

In 2017, BONY accelerated the loan and purchased the property in a foreclosure sale. When Barnes continued to live on the property, BONY sued Barnes for eviction and damages.

Prior to trial, BONY assigned its interest in the mortgage to the US Bank National Association (“US Bank”). Barnes disputed the sufficiency of the notice, but the trial court ruled that the notice met the requirements of paragraph 22 because it informed Barnes “of. . . his right to assert the non-existence of defect and other defenses in court, ”and noted that there was no evidence that Barnes was harmed by alleged deficiencies in the notice.

On appeal, the Alabama Civil Court of Appeal disagreed, finding that the opinion did not meet the requirements of paragraph 22.

“Strict compliance, not just substantial compliance” with the notice of a mortgage instrument provisions, was a prerequisite for a valid foreclosure sale.

The Court first found that Barnes’ challenge to the legality of BONY’s foreclosure on the grounds that there was insufficient notice was an indirect, rather than direct, attack on the foreclosure. Therefore, under Alabama law, Barnes was only entitled to a remedy if she could prove that the foreclosure sale was void. ab initio, rather than cancelable. The Court went on to explain that under the Alabama Supreme Court ruling in Ex Parte Turner, “strict compliance, not just substantial compliance” with the notice of mortgage instrument provisions was a prerequisite for a valid foreclosure sale. Therefore, whether or not Barnes suffered prejudice as a result of the alleged deficiencies in the notice was irrelevant. If BONY did not strictly comply with paragraph 22, then the foreclosure was void.

The Court then ruled that the Opinion did not strictly comply with paragraph 22 because rather than informing Barnes of his right to bring an action against BONY, which would give him the opportunity to bring a direct attack, the Opinion simply stated that Barnes “may be entitled” to assert foreclosure defenses in legal action. Since the notice did not affirmatively inform Barnes of the right to sue, it risked leading Barnes to believe that she did not need it or that she could wait for BONY to bring an action against her. However, as the Court alluded to, in a non-judicial foreclosure state like Alabama, BONY would likely never take such legal action.

Failure to strictly adhere to the notice of a mortgage can make or break a foreclosure.

The Court ruled that the Notice was still insufficient because its use of the term “may” suggested that Barnes’ unconditional right to sue BONY was subject to “an unknown and unspecified condition”. The Court set aside the ejection judgment in favor of US Bank and returned for entry a judgment consistent with its opinion.

the Barnes The case should serve as a reminder to lenders and service agents to closely examine their mortgage arrangements before initiating the foreclosure process. While issuing an acceleration notice may seem like a routine act for many large lenders, failure to strictly adhere to mortgage notice provisions can make or break a foreclosure.

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