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November 22, 2014

Recently the Maine Supreme Judicial Court ruled that a lender's notice of default did not comply with the residential foreclosure law.

Title 14, Section 6111 of the Maine Revised Statutes requires a lender to send a notice of default and right to cure (commonly referred to as a "35-day letter") to the delinquent homeowner in order to start the foreclosure process. Among other things, the letter must specify the "amount due now," meaning the amount the borrower must pay in order to bring the loan current. Many lenders also include a statement that additional payments and charges that accrue during this 35-day period must also be paid in order for the loan to be brought current.

In Bank of America v. Greenleaf, the Maine Supreme Judicial Court found that such language did not comply with Maine's foreclosure laws. In that case, the lender's 35-day letter itemized the "amount due now" (monthly payments, interest, late charges and attorneys' fees), and then stated, "Please contact Lender to obtain an up to date figure before sending payment."

On appeal, the borrower contended that because the notice instructed him to contact the lender for the final payoff amount, the notice did not meet the requirements of 14 M.R.S. § 6111, which provides that the notice must contain an "itemization of any other charges that must be paid in order to cure the default," 14 M.R.S. § 6111(1–A)(C). The Supreme Judicial Court held:

"Although, in other contexts, the payoff amount changes over time due to the interest accruing and attorney fees accumulating from continuing efforts to recover on the loan . . ., section 6111 effectively freezes such additions to the payoff amount during the cure period. Because the amount due as stated in the notice of default is the precise amount that the mortgagor has thirty-five days to pay in order to cure the default, the amount due is not, as the Bank suggests, open to any further accrual during that period."

Given the Court's "clear directive that foreclosure plaintiffs must strictly comply with all statutory foreclosure requirements," the Court agreed with the borrower that the notice of default did not comply with section 6111. As a result, this defective notice provided an independent basis on which to vacate the foreclosure judgment.

In light of the Greenleaf decision, lenders should omit any reference to additional accruing payments in their 35-day letters. If a lender already has a foreclosure action pending with the offending language, it should consider dismissing that action and re-starting the process.

If you have questions about these recent decisions or the amendments to the foreclosure law, please contact the attorneys in our Bankruptcy and Debtor/Creditor Litigation Group. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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