Locke Lord QuickStudy: Rhode Island Supreme Court Requires Strict Compliance with Notice of Default Requirements in Mortgage, Following Federal Courts

On June 2, 2020, the Rhode Island Supreme Court issued its long-awaited decision regarding the requirements of declaring a default and acceleration under the requirements of paragraph 22 of the standard mortgage form.  See Cesar A. Woel v. Christiana Trust, as Trustee for Stanwich Mort. Loan Trust Series 2017-17, 2020 WL 2844821, Case No. 2018-347 (R.I. June 2, 2020).  The Court held that a notice of default must strictly comply with the requirements of the mortgage, reversing the trial court’s entry of summary judgment for the mortgagee.  While this was an issue of first impression for the Rhode Island Supreme Court, it quoted from and approved of the decisions by the U.S. District Court for the District of Rhode Island in Martins v. Fed. Hous. Fin. Agency, 214 F. Supp. 3d 163 (D.R.I. Oct. 11, 2016) and by the Massachusetts Supreme Judicial Court in Pinti v. Emigrant Mortg. Comp. Inc., 33 N.E.3d 1213 (Mass. 2015).  We previously analyzed the Martin court’s interpretation of the requirements of paragraph 22, linked here.

In Woel, the servicer sent a notice of default on July 9, 2014, sent a separate notice of acceleration on October 14, 2014, and sold the secured property at a foreclosure sale on December 14, 2015. While the notice of default contained most of the information required by paragraph 22, the notice deviated from the requirements by stating “you have the right to cure the default after acceleration.”  Paragraph 22 required the notice of default to inform the borrower of “the right to reinstate after acceleration.”  The Rhode Island Supreme Court held that “the right to cure the default after acceleration” is materially different from “the right to reinstate after acceleration” because, according to paragraph 19 of the mortgage, curing the default is only one of four conditions to reinstating the mortgage. 

The Court also confirmed that a borrower does not need to show any prejudice when filing an action to declare a foreclosure sale void based on a defect in the notice of default, stating “[w]e look to the content of the default notice itself, not the particular facts related to the mortgagor.”

Notably, the Rhode Island Supreme Court limited the impact of its decision to prospective application only, applying only to Woel and cases already pending in the Rhode Island Superior Court.  Thus, completed foreclosure sales with notices of default that do not strictly comply with Paragraph 22 are not actionable under Woel if a borrower did not commence an action to challenge the foreclosure sale prior to June 2, 2020.  While Woel only carved out an exception for cases currently pending in Rhode Island Superior Court, the Court did not address whether the same exception will apply to any cases pending in the United States District Court for the District of Rhode Island at the time Woel was decided.

In sum, the Woel decision provides clarity on the requirements of Rhode Island law and limits borrower’s ability to challenge foreclosures that were completed prior to June 2, 2020 if there is not currently litigation pending.

Moving forward, servicers should ensure that notices of default strictly comply with the requirements of the mortgage.  Quoting the exact words from the relevant provision of the mortgage is the best approach, because even minor variations can be considered a material difference.  While this decision does not affect completed foreclosures, servicers should review foreclosures that are currently in process but not yet completed to ensure that the notices of default strictly comply with the requirements of the mortgage.