An important foreclosure defense is paragraph 22 of the standard mortgage. The “standard mortgage” is the mortgage agreement used by Fannie Mae and Freddie Mac, two of the largest holders of residential mortgages in the United States, making it a widely used form for residential home transactions. If you borrowed money for a residential home, chances are excellent that your lender used the standard mortgage.
Paragraph 22 of the standard mortgage requires the lender to provide the borrower a default notice prior to foreclosure. This default notice provision, often found in paragraph 22 of the standard mortgage, requires the following for a non-judicial foreclosure state like Massachusetts (where the lender does not need to go to court to foreclose):
Acceleration; Remedies. Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument (but not prior to acceleration under Section 18 unless Applicable Law provides otherwise). 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 and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of Borrower to acceleration and sale. 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 those remedies permitted by Applicable Law may be invoked. Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to, reasonable attorneys’ fees and costs of title evidence.
NOTE: I have included, as a PDF below, an excerpt from the standard mortgage with this provision, as it applies to a non-judicial foreclosure state. Note that this default requirement is not always found in paragraph 22; I have seen some mortgages include it in other paragraphs of the mortgage.
Paragraph 22 requires lenders to provide borrowers with an opportunity to cure their mortgage loan default prior to foreclosure, and requires in this notice specific disclosures. This paragraph is also referred to as the “right to cure” notice or the “default” notice.
Not surprisingly, lenders often mess up these simple notices. Can a paragraph 22 defect be a valid foreclosure defense? In Massachusetts, only a notice with a defect sent after July 17, 2015 will invalidate a foreclosure (per the Supreme Judicial Court’s Pinti v. Emigrant Mortgage decision). Interestingly, other states interpret the paragraph 22 requirement differently; many Florida courts require “substantial compliance” for paragraph 22 of the standard mortgage, in which a minor defect will not void a foreclosure by itself.
While the Supreme Judicial Court in Massachusetts made the paragraph 22 defense only applicable to those notices sent after July 17, 2015, I think there is a good argument to be made that this only applies to post-foreclosure cases, and not pre-foreclosure. In other words, if a homeowner has received a deficient paragraph 22 notice and raises a challenge before foreclosure, there is a strong argument to be made on equitable grounds that the foreclosure should be stopped.
Facing a foreclosure? Contact me to see if a paragraph 22 defense can be used to help you save your home.