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Florida Court: ‘Substantial Compliance’ is Sufficient for Mortgage Notice of Default


The Florida Second District Court of Appeal recently upheld a mortgagee’s notice of default that substantially complied with the applicable provision of the mortgage, ruling that strict compliance is not required.

A copy of the opinion is available at:  Link to Opinion.

The borrowers obtained a mortgage in May 2007 and defaulted in November 2008. In December 2008, the mortgagee sent the borrowers a letter demanding that they cure the default within 30 days, providing the amount needed to reinstate the loan, and warning that failure to cure would result in acceleration and foreclosure.

In February 2009, the mortgagee filed a foreclosure action. The borrowers failed to respond, and a clerk’s default was entered against them in April 2009. In December 2009, the mortgage was assigned to a different company, who was substituted as plaintiff.

The borrowers eventually filed an answer generally denying the material allegations of the complaint and asserting affirmative defenses, including lack of proper notice and opportunity to cure prior to filing the foreclosure action.

In December 2013, the borrowers moved for summary judgment, arguing that the December 2008 default letter failed to specify the default adequately, advise the borrowers of their right to reinstate and raise the nonexistence of a default or other defenses, and specify where payment must be sent. The trial court found that the letter failed to adequately advise the borrowers of their right to reinstatement and raise defenses and granted the motion, dismissing the complaint without prejudice, and the servicer appealed.

On appeal, the Court first pointed out that the notice provision in the mortgage is a condition precedent that the mortgagee must satisfy before filing the foreclosure action, and framed the issue before it as whether there existed any genuine issue of material fact as to whether the mortgagee’s December 2008 default letter satisfied the contractual condition precedent.

The Court next pointed out that the dispute centered not on whether the letter contained the five items of information required by the mortgage, but on whether the information provided was sufficient. The Court also pointed out that the borrowers were not arguing that they were harmed as result of the alleged deficiencies in the letter, but that strict compliance with the mortgage’s default provision was required. The servicer, on the other hand, argued that substantial compliance sufficed.

General Rules of Contract Interpretation Apply to Mortgages

The Court reasoned that, although case law in Florida has not resolved the precise question presented as to the adequacy of the default notice, the case law in Florida is clear that the general rules of contract interpretation apply to mortgages.

The Court also held that it is also settled that in Florida, the test of whether a party has complied with a contractual condition precedent is substantial compliance or performance. The borrowers offered no reason, and the Court could find none, to treat a condition precedent in a mortgage differently.

The Court rejected the borrower’s argument that the Florida Fifth District Court of Appeal’s decision in Samaroo v. Wells Fargo Bank, N.A. 137 So. 3d 1127 (Fla. 5th DCA 2104), required strict compliance with conditions precedent to suit, reasoning that in Samaroo, the mortgagee’s notice letter was completely missing one of the required items–the right to reinstate after acceleration–and merely held that the letter’s silence as to one of the requirements was not substantial compliance.

After concluding that substantial compliance is the applicable legal standard, the Court turned to whether the notice letter substantially complied because it told the borrowers that they ‘may” have the right to reinstate and raise defenses in a foreclosure action.

The Court rejected the borrowers’ hyper-technical argument that the word “shall” was required in connection with the right to reinstate, relying on its decision in U.S. Bank National Ass’n v. Busquets, 135 So. 3d 488 (Fla. 2d DCA 2014), which reversed the trial court’s summary judgment for the borrowers because the right to reinstate was conditional, not absolute, and the use of the word “may” was correctly used to describe the right to reinstate.  Because the right to reinstate was conditioned upon paying all amounts due under the note and mortgage, the court in Busquets held that the notice letter adequately informed the borrowers of their right to reinstatement.

The Court applied the same reasoning to reject the borrowers’ argument that the notice letter did not adequately inform the borrowers of their right to defend the foreclosure action, reasoning that the right to contest whether a default occurred and assert defenses depends on whether a factual and legal basis to do so exists.

Because the borrowers vigorously defended the foreclosure action, the Court concluded that the notice letter served its purpose and substantially complied with the mortgage by apprising the borrowers of their right to contest the foreclosure action.

Finally, the Court rejected the borrowers’ argument that the notice letter was defective because it failed to specify the default, accurately calculate the payment required to cure the default and reinstate the mortgage, and specify the address where payment must be sent.

First, the letter adequately specified the default because it mentioned the November 2008 missed payment. It was not required to also specify that the next payment, for December 2008, was also missed, since the borrowers either knew or could easily ascertain this fact.

Second, the letter was not defective because it included the January 2009 payment, which was not yet due when the letter was sent, because there was no evidence that the borrowers intended or attempted to reinstate the loan before the January payment came due. In addition, the notice was not misleading because it expressly stated the January payment was included in the amount needed to reinstate. In short, the inclusion of the January 2009 payment did not preclude a finding of substantial compliance.

Finally, the Court rejected the borrowers’ argument that the notice letter was required to specify the address where the reinstatement payment must be sent because the address was easily ascertainable from the note, which showed the address for payments, and the mortgage, which referred to the address in the note. In addition, the borrowers could call the customer care telephone number in the notice letter.

The Court concluded by explaining that the standard default paragraph in the mortgage “is designed to ensure that a borrower receives essential information concerning his or her default, how to cure it, and his or her rights with respect to it. It is not a technical trap designed to forestall a lender from prosecuting an otherwise proper foreclosure action because a borrower, after the fact, decides that the letter might have been better worded.”

Because the notice letter either actually or substantially complied with the default and notice requirements of the mortgage, the Court reversed summary judgment for the borrowers and remanded the case for further proceedings.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.