Nov 16, 2017
Strict compliance with contractual notice requirements
With the repeal of the Grace Period Notice on July 1, 2016, required notices are now limited to federal requirements and those found in the contractual agreements between the parties. However, lenders and their counsel should take care to comply with notice requirements set forth in the loan documents as a recent decision by the Illinois Appellate Court has held that the notice requirements found in loan documents require strict compliance and are conditions precedent to foreclosure. Failure to comply with all of the notice requirements set forth in loan documents can result in dismissal of a foreclosure case.
The vast majority of mortgages contain an acceleration clause allowing a lender to expedite the debt and set forth the notice required to do so. Strict compliance with the specific notice requirements contained in the loan documents is a condition precedent to foreclosure. In Cathay Bank v. Accetturo, the court found that Cathay failed to “strictly comply” with the notice requirements in the mortgage despite it having sent five separate notices to the borrower.
Specifically, the mortgage required:
The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to 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 this Security Instrument, foreclosure by judicial proceeding and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to assert in the foreclosure proceeding the non-existence of a default or any other defense of Borrower to acceleration and foreclosure. If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may foreclose this Security Instrument by judicial proceeding. Id. at ¶ 36.
The court found that Cathay’s first three letters were sufficient to give notice that there was a problem but each failed to incorporate information required by the mortgage including:
- how to cure the default;
- the date to cure the default;
- the statement that failure to cure the default may result in acceleration of the sums due, foreclosure by judicial proceeding and sale of the property; and
- information about the right to reinstate or assert defenses to the acceleration and foreclosure.
Cathay’s fourth letter also failed to mention the acceleration; provide 30 days to cure the default; include that failure to cure the default may result in acceleration of the sums due, foreclosure and sale of the property; and set forth the right to reinstate or assert defenses to the acceleration and foreclosure.
Cathay’s fifth letter provided notice that the note was already accelerated, but it was not a notice prior to acceleration as mandated by the mortgage.
Ultimately, the court found that Cathay had no right the file the foreclosure action because of its failure to comply with the notice requirements set forth in the mortgage. The court then vacated all of the trial court’s orders, effectively undoing three years of litigation in the foreclosure case.
Seek out a Chuhak & Tecson Banking Law attorney to confirm that your default notices are compliant with the terms of the loan documents.
This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.
Client alert authored by: Kara Allen, Associate
This alert originally appeared in the Winter 2017 Banking Focus newsletter.