A Florida state court has weighed in on whether strict or substantial compliance is required when providing borrowers with a notice of default. In Green Tree Servicing, LLC v. Erin C. Milam et al., the Court has agreed with decisions from other states that a lender’s notice of default is sufficient when it substantially complies with the appropriate mortgage provision.
At issue before the Court was the creditor’s appeal from a trial court decision holding that the creditor’s foreclosure on borrowers’ property was invalid because a condition precedent to foreclosure—notice of default—did not comply with the requirements prescribed by the mortgage. In particular, the mortgage required that a notice of default specify: (1) the default; (2) the action required to cure the default; (3) a date by which the default must be cured not less than thirty days from the date of the notice; (4) that failure to cure the default by the specified date may result in acceleration and foreclosure; and (5) the borrower’s right to reinstate after acceleration and asserts any defense to acceleration or foreclosure.
Although borrowers did not dispute that the notice at issue spoke to each of the five items, they argued that what it said was insufficient because there was no strict compliance with the mortgage. For example, the notice of default listed a payment that was not yet due at the time the notice was given and, instead of stating that borrowers had the right to reinstate their mortgage, the notice of default provided that they “may” have such right.
The court began by addressing the standard applicable to contracts and concluded that such standard was substantial, not strict, compliance. “Substantial compliance or performance is that performance of a contract which, while not full performance, is so nearly equivalent to what was bargained for that it would be unreasonable to deny the other party the benefit of the bargain. Applying these principles …, when the content of a lender’s notice letter is nearly equivalent to or varies in only immaterial respects from what the mortgage requires, the letter substantially complies, and a minor variation from the terms of [the mortgage] should not preclude a foreclosure action.” Although addition of the word “may” when describing the borrower’s right to reinstate the mortgage or assert defenses was technically a deviation from the mortgage, the language of the notice of default served the material purpose of notifying the borrowers of their rights. Likewise, the creditor’s inclusion of a payment that was not due at the time of the notice but would have been due at the expiration of the thirty-day cure period was “an immaterial variation from what” the mortgage required.
This case illustrates the important distinction between the easier burden that creditors face in defending breach of contract claims and the burden in defending against alleged violations of federal consumer protection statutes that often require strict compliance.