Recently the Alabama Court of Civil Appeals held that a mortgagee’s notice of acceleration failed to strictly comply with the mortgage’s notice provisions when it informed the borrower only that she “may” have right to assert defenses against foreclosure, rather than apprising her that she had an affirmative right to bring an action against the mortgagee. This case serves as a cautionary tale for lenders and mortgage servicers who are considering foreclosure.

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

In the event that Barnes defaulted on the Mortgage, Paragraph 22 of the Mortgage required HMS to give notice to Barnes before accelerating the Loan. Among other things, Paragraph 22 required HMS to inform Barnes “of the right to bring a court action to assert the non-existence of a default or any other defense . . . to acceleration and sale” of the Property.

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

In 2017, BONY accelerated the Loan and purchased the Property at a foreclosure sale. When Barnes continued to live at the Property, BONY sued Barnes for ejectment and damages.

Prior to trial, BONY conveyed its interest in the Mortgage to U.S. Bank National Association (“U.S. Bank”). Barnes challenged the sufficiency of the Notice, but the trial court ruled that the Notice complied with the requirements of Paragraph 22 because it informed Barnes “of . . . her right to assert non-existence of default and other defenses in court,” and noted that there was no evidence that Barnes was prejudiced by any alleged deficiencies in the Notice.

On appeal, the Alabama Court of Civil Appeals disagreed, holding that the Notice failed to satisfy the requirements of Paragraph 22.

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

The Court first established that Barnes’ challenge to the legality of BONY’s foreclosure on the grounds that the Notice was insufficient constituted a collateral, rather than direct, attack on the foreclosure. Therefore, under Alabama law, Barnes was only entitled to relief if she could show that the foreclosure sale was void ab initio, rather than voidable. The Court then explained that under the Alabama Supreme Court’s decision in Ex Parte Turner, “strict compliance, not merely substantial compliance” with the notice provisions of a mortgage instrument was a prerequisite to a valid foreclosure sale. Therefore, whether or not Barnes was prejudiced by 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 held that the Notice failed to strictly comply with Paragraph 22 because rather than informing Barnes of her right to bring an action against BONY, which would afford her the opportunity to bring a direct attack, the Notice merely stated that Barnes “may have the right” to assert defenses to the foreclosure in a court action. Because the Notice did not affirmatively apprise Barnes of the right to bring an action, it risked misleading Barnes into believing that she did not need to, 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 bring such a lawsuit.

Failure to strictly comply with a mortgage’s notice provisions can make or break a foreclosure.

The Court held that the Notice was further insufficient because its use of the term “may” suggested that Barnes’ unconditional right to bring an action against BONY was subject “to some unknown and unspecified condition.” The Court reversed the judgment for ejectment in favor of U.S. Bank, and remanded for entry of judgment consistent with its opinion.

The Barnes case should serve as a reminder to lenders and servicers to closely review their mortgage provisions before initiating the foreclosure process. While the issuance of a notice of acceleration may seem like a routine act for many large lenders, failure to strictly comply with the mortgage’s notice provisions can make or break a foreclosure.