The NJ Supreme Court just decided the case of US Bank v. Guillaume and removed one significant defense that mortgage debtors had been hoping to use in order to stay in their homes longer. The Guillaume case asked the question: what is the remedy when a Notice of Intent to Foreclose (NOI), as required by the New Jersey Fair Foreclosure Act, does not include the name of the actual lender or note holder, but merely that of the servicer of the loan. The Court, in true lawyerly fashion, held: that depends. The Court specifically overturned the 2011 Appellate Division decision in Bank of New York v. Laks, which held that the only remedy in such cases was dismissal of the case without prejudice and starting from scratch. The entirety of the Guillaume decision can be found here.
What many in the foreclosure and debtor bar (including your truly) had hoped was that the Court would decide that the Laks decision was correct and that, if the servicer’s attorney had not included the lender’s information, the NOI would be invalid and the lender/servicer would have to start from scratch. According to the NJ Supreme Court, that’s not the case. Instead, the Court held that the trial court has the discretion to determine if dismissal, requiring amended notice, or some other remedy is the appropriate remedy under New Jersey Court Rule 4:50-1, which governs post-judgment relief. This brings up a good question – when is this defense often raised? It may be that this defense about the NOI being improper is raised after the homeowner has ignored their right to answer the complaint and is now facing imminent sherrif’s sale. This was the case with the appellants in Guillaume, who had ignored the case for a long time and only filed papers when sale was imminent.
The Court also held that a violation of the Truth in Lending Act (TILA ) does not entitle the debtor to recission of the mortgage if the demand for recission is not accompanied by tender of the amount lent, or the ability of the debtor to tender that money.
What is the benefit to the debtor of this decision:
1) In egregious cases, or where the case merits it, dismissal is still an option.
2) Amending the NOI gives the debtor a new 30 day time to reinstate the mortgage without foreclosure fees and costs getting tacked on.
Mortgage lenders get more benefits, the most obvious being that they don’t have to start from scratch and redo thousands of cases that have been sitting in limbo for years. In addition, dismissal might have invalidated the lis pendens, which is the legal document that sits in the County Clerk, clouding legal title by informing the world that the property is subject to a lawsuit.
So, what do we take away from this?
1) If you are behind on your mortgage and get a Notice of Intent to Foreclose – CONTACT A LAWYER NOW. If you can’t afford one, contact your local legal services office and see if a pro bono attorney will take the case.
2) Do not rely on minor violations of TILA or RESPA to invalidate a foreclosure action. Those claims, while real, are difficult to prove and if they are your sole basis to invalidate a foreclosure, you’d be better off looking at fixes for the affordability problem rather than litigating it.
3) Courts do not like it when you “sit on your rights”. The appellants in Guillaume waited for years to appear in the action. During that time, they were actively trying to modify their loan and knew the foreclosure was pending. Rather than answer the complaint in the initial instance or timely moving to vacate a default, they relied on a technical non-compliance with the Fair Foreclosure Act to save their home. The Court was not kind to them.
The facts in the Guillaume case were not good for the debtors because they had waited a long time to appear in the case. That’s never a good decision. The ultimate fall out from this case will likely be that many more foreclosures will be filed and the 100,000+ backlog of cases will slowly be worked through. The defendants in those cases now know that they won’t get out of the case by stating that the lender failed to comply with the Fair Foreclosure Act and thus a dismissal is warranted based on the NOI absent compelling circumstances. As a debtor’s lawyer, I am not sure how I feel about this, but one cannot keep the wheels from turning forever.