Conditions precedent in mortgage foreclosure: what are they and why should I care?

First of all, what is foreclosure? Legally, it’s the enforcement of a mortgage lien by judicial sale of the property. A mortgage lien is created when there is a loan contract for money borrowed under a note. This loan is secured by the mortgage lien upon real property.

Now let’s break that down into English. Mortgage foreclosures occur when a borrower defaults on their mortgage loan, prompting the lender to take legal action to regain possession of the property. In order to do so, the lender must first file a lawsuit alleging you breached the terms of the loan; which is really to say that you breached the terms of the contract you made with the lender. Just like in any contract, both sides have rights and obligations and it’s no different in a mortgage and note transaction. Know that it’s a two way street and you should be holding the lender responsible for its rights and obligations just as they are holding you responsible for yours.

When the lender claims you’re in default and sues you, it will file its complaint and make various allegations against you. Some of those allegations are required to be raised in order sustain and win a foreclosure suit; after all the lender's objective is to take your home from you. Among them are things like venue (is the lawsuit proper in Broward County as opposed to Palm Beach County?);  amount in controversy (the lender will say that the value of your home is high enough that it belongs in the court where suit was filed). 

A big one and you will see it alleged in every lawsuit, is regarding conditions precedent. When the lender alleges it, it reads like a benign one-line sentence but is actually incredibly complex and nuanced. The lender will say that “all conditions precedent to the filing of this lawsuit have either occurred or been waived.” Go ahead, take a second, and read that again. It reads so matter of fact and almost casual in its simplicity. Don’t be fooled. It’s never simple and never a matter of fact. 

First of all: what is a condition precedent? Simply, it’s something the bank must do before it is entitled to file its lawsuit. Not all mortgages contain conditions precedent, but most do. The most important condition precedent, and the one that’s litigated over the most, is that before the bank can sue you it must send you a notice of default (sometimes called a notice of intent to accelerate). 

Your loan documents say that if you don’t pay on time, you will be considered in default. And if you’re in default, the bank can accelerate the entire amount due under the note and rather than it being payable over the course of the term of the loan, the bank can declare it all due at once. And obviously if you don’t pay it at once, they will have it sold at auction to get paid. But they have to send you a proper notice first. The loan documents will be very particular about what the letter must say and how it needs to be sent to you. Bottom line is: if you can prove a default letter was not properly sent, you could win your case. First, your mortgage document will have a provision on acceleration (as discussed above) and it breaks down what the bank has to do (what the conditions precedent are) before it can file suit. It is likely paragraph 22 of your mortgage and it will lay out in four subsections, subsections (a), (b), (c), and (d) what the default letter must state. We can call them the ABC's of mortgage foreclosure. It will say that the notice must specify (a) the default; (b) the action required to cure the default; (c) a date at least 30 days away to cure the default by; and (d) that if it is not cured, the lender will accelerate the entire amount due under the loan.

Put aside for a moment whether the letter itself actually meets these requirements; that is another defense you may have. Most important here is that assuming the letter says what it needs to, you cannot do anything if you don’t receive the letter. Maybe it was an oversight. Maybe you could have paid the amount at the time, but cannot now.  That is where the problems can arise for a bank. The bank will have to prove that it actually mailed the letter. If you look at the provisions of your loan regarding giving of notices, paragraph 15 of your mortgage will say that all notices must be in writing and that any notice the bank gives to you (a default letter is a notice) will be deemed to have been given when it is mailed by first class mail or when its actually delivered to your notice address if sent by other means (if it was not sent to the right address, you could win your case). Tagging along with that will be paragraph 8 of your Note which will say that if the bank wants to give you a notice they must send it to the property address unless you told them otherwise.

Most banks, not wanting to have to go through sending default letters by FedEx or UPS, will say they sent it by US mail. After all, it’s much cheaper and all they have to do is claim that they put it in the mail and according to the loan documents, it will have been deemed given (In cases where it was sent by a form of mail that can be tracked, you would be surprised how many times the lender cannot produce the tracking information to show it was delivered). The problem for the bank can arise where they try to prove the letter was actually mailed. Typically, they will provide a number of things to “prove” they mailed it. First, they will provide a copy of the default letter itself. The letter will usually have printed on it that it was sent by first class mail. This does not prove the letter was mailed. At best, it shows that a letter was generated by a computer somewhere. Next, they will sometimes provide a copy of an envelope that the letter was allegedly placed in. Again, this proves nothing.  It shows that at best, a letter was placed into an envelope. It does not show the letter was ever placed into a mailbox. Last, they will provide affidavits (testimony) from one of their corporate representatives where the representative says that they have reviewed business records and that based on their review, the letter was mailed. This is where you must be very careful because it is where there is the most opportunity to poke holes in the lender's case against you (the more you can make the lawsuit look like a block of swiss cheese, the better off you will be). What business records did they review? Are they the records of the bank itself or some other entity? (Remember that your loan may have been sold ten times before you got sued). Are they records dealing with the practices and procedures for mailing documents? If so, what are the practices and procedures records? Has the representative seen a copy of them before? Has the representative taken a course on the procedures? When were these records made? Were they made 10 years ago when the default letter was allegedly made? Who made these records? A person or some computer software? Keep in mind that sometimes the representative will say they reviewed records which indicate the letter was mailed, but upon questioning, it will come out that your bank uses an outside, third-party vendor to handle all of its mailing. That means that the bank did not actually do any of the mailing activities. Some outside company did; and how do we know what this company did or didn’t do? Or what their procedures are? How can your bank’s representative testify about what happened at an outside company? They cannot! It's called hearsay (because the best witness to testify about what the outside company did is someone from that outside company itself and not someone working directly for the lender) Keep out their testimony and keep out any "proof" of mailing. You win.

The takeaway here is that unless your lender has everything buttoned up and wrapped in a red bow (which they never do), there may be a very good reason why you never received that default letter; In other words a failure to comply with conditions precedent may be your winning defense. Remember that you can hold the lender's feet to the fire just like they will hold yours. A careful and strategic approach to defending your case on the grounds of failure to comply with conditions precedent can make all the difference for you and your property. Make sure you have knowledgeable attorneys on your side who can properly raise these issues.