by Larry R. Rothenberg
Many states have statutes requiring the service of a notice of default prior to commencing a mortgage foreclosure. Although Ohio does not have such a statutory requirement, the lender must, nevertheless, fulfill such a condition precedent if it is required by its loan documents. A failure to do so will leave the lender vulnerable to an affirmative defense being raised in that regard in the foreclosure case.
The “Ohio, Single-Family, Fannie Mae/Freddie Mac” uniform mortgage deed form (hereinafter the “Form”) imposes such an obligation on the lender prior to acceleration of the debt and foreclosure of the mortgage. This advisory will discuss how to ensure compliance with the Form’s condition precedent.
Who Must Be Served With The Notice?
The Form expressly states, “Lender shall give notice to Borrower.” This implies that all borrowers, who have not previously been released, are entitled to notice of the default prior to acceleration and foreclosure.
What if the mortgage was voluntarily given by the owner of the real property, to secure a loan given by the lender to another person? The provision of the Form only requires that notice be given to the “borrower” and does not require that a notice be given to a non-borrower mortgagor. However, many judges today are taking a more adversarial posture against lenders, and will not process foreclosures easily where the lender has not thoroughly pursued loss mitigation efforts. Therefore, we recommend that in addition to the borrower, any non-borrower mortgagors be served as well with the pre-acceleration notice in order to notify them that although they are not personally liable for the debt, a foreclosure may be filed if the default is not cured.
What Must Be Included In The Notice?
The Form requires that the notice specify (a) the default; (b) the amount required to cure the default; (c) a date not less than 30 days from the date the notice is given to the borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by the security instrument, foreclosure by judicial proceeding, and sale of the property. The Form further requires that the notice inform the borrower of the right to reinstate after acceleration and to assert the non-existence of a default in the foreclosure proceeding, or any other defense of borrower to acceleration and foreclosure.
Lenders should review the content of their notices to ensure that they strictly comply with these requirements. Even a minor deviation may give rise to a valid defense in some judges’ minds.
When Must The Notice Be Provided?
As indicated above, the Form requires that the notice give a date, not less than 30 days from the date the notice is given to the borrower, by which the default must be cured. Section 15 of the Form states: “Any notice to Borrower in connection with this Security Instrument shall be deemed to have been given to Borrower when mailed by first class mail or when actually delivered to Borrower’s notice address if sent by other means.”
Hence, if the notice is being sent by first class mail and it provides a 30-day period from the date of the notice to cure the default, the lender must make sure that it is actually mailed, i.e. deposited in a post office mail box or delivered to the post office, on the date that the letter is dated. In the event that an issue is raised in the foreclosure case regarding when the letter was mailed, it may be necessary for the lender to prove that fact with documentary evidence.
If the notice is being delivered by means other than first class mail, for example, by certified mail or hand delivery, the Form provides that the 30-day period prior to acceleration begins to run upon actual delivery. Therefore, if lenders are having the notice delivered by means other than first class mail, they must ensure that it is actually delivered not less than 30 days prior to the deadline stated in the letter, to cure the default.
Where Must The Notice Be Delivered?
The Form states that the address to which to deliver the notice shall be the property address unless the borrower designated a substitute notice address by notification to the lender. Therefore, the lender should deliver the notice to the property address, unless the borrower provided a different mailing address either when the loan was initiated, or in a subsequent notification to the lender of a change of the borrower’s address. The Form places the responsibility on the borrower to promptly notify the lender of a change of the borrower’s address. If the lender specifies a procedure for the borrower to provide a change of address, then the borrower must use that method to report a change.
The Form expressly states that there may be only one designated notice address at any one time. However, even though not required by the Form, it is recommended that the lender serve the notice at multiple addresses if it may be reasonably expected to reach the borrower at one address or another, in order to avoid a defense being raised before a pro-debtor judge.
How Must The Notice Be Delivered?
The Form does not require that the notice be delivered by any particular method. As mentioned above, if the notice is delivered by first class mail, it is deemed delivered when it is sent. However, first class mail is not the exclusive method of delivery. Many lenders use certified mail or personal delivery, although the item is not deemed delivered using those methods, unless and until it is actually delivered.
This issue was illustrated in the 10th Appellate District of Ohio’s recently decided case of Natl. City Mtge. Co. v. Richards, 2009-Ohio-25556. The lender prepared a proper notice and timely sent it by certified mail, which was returned as unclaimed. When the lender’s attorney subsequently filed a foreclosure action and then a motion for summary judgment, the borrower argued that the notice was ineffective because it had not been delivered. The Court of Appeals agreed with the borrower’s argument, stating that certified mail is not the same as first class mail, and therefore, although the mortgage provides that delivery of first class mail is presumed upon mailing, the mortgage does not provide such a presumption for certified mail. Hence, according to the Court, because the certified mail notice was returned unclaimed, it is not deemed to have been delivered, and therefore, the notice failed to fulfill the requirement contained in the mortgage, for a pre-acceleration notice of default. Consequently, the Court of Appeals ordered the foreclosure case dismissed. Lenders who are sending the notice by certified mail or hand delivery can easily avoid this problem by sending it via ordinary first class mail also. For a complete copy of the case, go here.
Lenders can save themselves much aggravation, duplicate court costs, and delays, by reviewing and strictly complying with the default provisions contained in their note and mortgage, before referring it to counsel for foreclosure. If the mortgage requires a pre-acceleration notice, the lender should indicate whether the lender delivered the notice in the referral package to foreclosure counsel, and if so, provide a copy of the notice and evidence or an indication as to how, on whom, and when it was delivered.
If you have any questions on this information, please contact Mr. Larry R. Rothenberg, Esq. Larry is the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section contained within the treatise, “The Law of Distressed Real Estate”, published by The West Group. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan. Larry can be reached at (216) 685-1135 or via e-mail at firstname.lastname@example.org.
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