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Expert Insights: An Update on Demand Letter Litigation

Under a recent ruling, servicers should avoid sending notices via certified mail only if first class is all that is required. 

As mortgage foreclosures in Illinois grow increasingly litigated, demand letters have become a battleground issue in mortgage foreclosure litigation, with recent case law illustrating both the need for notices tailored to the specific verbiage of mortgages, as well as the impact of a defendant’s answer on their ability to raise a notice issue. 

A recent Illinois appellate case illustrated the peril in failing to adhere to the specific mailing requirements for demand letters.  In Deutsche Bank Nat’l Trust Co. v. Roongseang, 2019 IL App (1st) 180948, the demand letter at issue had been sent by certified mail, and the defendant homeowners argued that “certified mail is sufficiently different from first class mail to require proof of actual delivery.”   

The mortgage was a Fannie Mae/Freddie Mac Uniform Instrument, a common mortgage form, and the court’s analysis turned on paragraph 15 of the mortgage, which provides that “[a]ny notice sent to the borrower will be deemed given ‘when mailed by first class mail or when actually delivered to Borrower’s notice address if sent by other means.’”   

The court ultimately found that, rather than an “extra service” of first class mail, certified mail fell into the category of “other means” because “the different delivery services associated with them affect the receipt of notice.”    

And for this reason, the court found that, for a Fannie Mae/Freddie Mac Uniform Instrument, “… where plaintiff chose to send the acceleration notice via certified mail, it was sent by ‘other means’ and proof of actual delivery of the notice is required to establish compliance with the notice provisions of the mortgage.”  

Under this new ruling, servicers should avoid sending notices via certified mail only if first class is all that is required.  However, the Roongseang decision pertained to the Fannie Mae/Freddie Mac Uniform Instrument; there are myriad mortgage forms that are in use and have been used in the past that are still in effect, all of which can have different notice requirements.  For instance, some mortgages require that notices be sent by certified mailing. Servicers must carefully review their mortgage documents and plan accordingly to document receipt by borrowers. 

The issue of whether a borrower can raise a challenge to the sufficiency of a demand letter has been examined in two recent Illinois cases, with both cases resulting in favorable results for lenders and turning on how a foreclosure defendant answered the complaint. 

In Bank of N.Y. Mellon v. Wojcik, 2019 IL App (1st) 180845, the First Appellate District considered the issue of whether a borrower had waived the issue of whether a notice of default complied with the mortgage at issue.  

In Wojcik, the borrowers responded to the deemed allegation found at 735 ILCS 5/15-1504(c)(9), “that any and all notices of default or election to declare the indebtedness due and payable or other notices required to be given have been duly and properly given,” with a simple statement that “Defendants deny the above allegation.”   

The borrowers then filed a cross-motion for summary judgment challenging the sufficiency of the notice of acceleration.    

The court stated that Rule 133(c) applied, as the parties agreed that “sending a proper ‘notice of acceleration’ was a condition precedent to Bank of New York’s ability to file the instant foreclosure action.”   

The deemed allegation found at Section 15-1504(c)(9) satisfies a plaintiff’s obligation to plead it has performed a condition precedent in giving a notice of default or a notice declaring the indebtedness due and payable.   

Rule 133(c) states as follows: “[i]n pleading the performance of a condition precedent in a contract, it is sufficient to allege generally that the party performed all the conditions on his part; if the allegation be denied, the facts must be alleged in connection with the denial showing wherein there was a failure to perform.   

Because the borrowers denied the deemed allegation, the court held that “[a]s such, defendants have forfeited this issue; indeed, their general denial stands as an admission that Bank of New York provided all proper notices.” Recognizing that the result might be seen as “unduly harsh,” the court noted that the Illinois Supreme Court has recognized the importance of its Court Rules.   

“The rules of court we have promulgated are not aspirational. They have the force of law, and the presumption must be that they will be obeyed and enforced as written.” (Citing Bright v. Dicke, 166 Ill. 2d 204, 4010 (1995).) 

More recently, the Second Appellate District followed suit in U.S. Bank, N.A. v. Reinish, 2020 IL App (2d) 190175.  Here, the court cited the Wojcik opinion and followed its reasoning, providing lenders with cases pending in the Second Appellate District with important precedential authority in litigating this issue. In Reinish, the borrower did not address the deemed allegations of the plaintiff’s complaint in her answer, either through denying same or raising an affirmative defense contesting the sufficiency of the notice.  

After finding that the borrower had forfeited her challenge to the sufficiency of the demand letter, the Reinish court provided guidance on how to interpret a mortgage, which is a contract between the parties. The court emphasized that “[i]f a term that is undefined by the contract has a plain and ordinary meaning, the terms should be enforced as written.”   

The court further stated that “[s]ince words derive their meaning from context, the provisions of a contract must be looked at as a whole.”   

The mortgage at issue in Reinish was not a Fannie Mae/Freddie Mac Uniform Instrument, but rather a different form, and the court was called upon to interpret whether the mortgage required a notice of default in the event of a failure to make payments.    

To the extent that the Reinish opinion calls for giving mortgage terms their plain and ordinary meaning, and for review of the provisions of the mortgage as a whole, this case can be used not only to defend the sufficiency of notices of default, but other requirements of the mortgage.   

Lenders needs to be diligent in ensuring that their notices of default comply with an array of mortgage forms. However, recent Illinois case law provides a powerful argument that borrowers can waive their ability to contest the sufficiency of such notices.  

About Author: Julie DeJong

Julie DeJong - Codilis - 8.12.2020
Julie DeJong is an attorney at Codilis & Associates, P.C. She handles litigation for mortgage foreclosure cases pending in Lake County, Illinois, one of the most heavily litigated counties in the state. She also handles contested matters including motion practice, motions for summary judgment, depositions, evidentiary hearings, and mediation hearings. She consults with clients on policy and procedures, makes frequent court appearances, and has experience handling heavy caseloads and oral arguments on contested matters.
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