In a recent surprising loss for mortgage holders, the Alabama Supreme Court held that a failure to strictly comply with the exact terms of the mortgage when conducting a foreclosure sale can result in the sale failing. Thus, lenders should be especially careful to conduct foreclosure proceedings exactly as required by their mortgages or risk expending substantial resources toward only to have this work later undone by a court.
In Ex Parte Turner, No. 1160212, – So. 3d –, (Ala. Sept. 1, 2017), Trenton Turner, Jr. and his wife Donna Turner owned property subject to a mortgage held by Wells Fargo Bank. The Turner’s received a notification from the bank that they were in default and the Bank would foreclose if the amount due was not paid. When it received no payments and no response, the Bank initiated foreclosure proceedings and held a foreclosure sale. When the Turner’s would not move out, the Bank filed an ejectment action.
In response to the Bank’s motion for Summary Judgment, the Turner’s claimed they had not received the exact notice of acceleration required by the terms of their mortgage. Specifically, they had not received notice that they had a right to bring a court action to challenge the foreclosure sale. The Alabama Court of Civil Appeals held that, although the Bank had not included this specific language in its notice to the Turners, they had “substantially complied” with the notice requirement. It, therefore, affirmed summary judgment for the Bank.
On petition for certiorari, the Alabama Supreme Court reversed. It held that a party must strictly comply with the requirements of the underlying mortgage or the foreclosure sale fails. The Court recognized that the Turners had notice of the foreclosure sale and may have known of their right to challenge the sale in court. Nonetheless, the lender’s failure to provide the specific notice required by its mortgage rendered the sale invalid. While Alabama courts are not hostile to foreclosure, Turner shows that at least the Alabama Supreme Court may insist upon compliance with the exact wording of the mortgage. As a result, lenders should adopt policies or practices that ensure strict compliance with not only Alabama law but the specific terms of each borrower’s mortgage. While this will almost certainly increase transaction costs, the alternative is having substantial expenditures of time and effort wiped out by an adverse judicial determination.