Background
A recent case arose out of foreclosure proceedings that were instituted by Wells Fargo Bank (“Wells Fargo” or “defendant”) with respect to property located at 18 High Street in Bristol, Rhode Island. The property’s owner (“plaintiff”) secured the mortgage by executing a $636,000 promissory note on March 1, 2007. Several years later, on June 15, 2018, Wells Fargo sent the plaintiff a notice of default. On August 8, 2019 – more than a year after the notice of default was sent – Wells Fargo and HSBC conducted a foreclosure auction on the property.
Fast forward almost two years later, on May 5, 2021, the plaintiff filed a complaint in Providence County Superior Court against Wells Fargo, Property Wire, and HSBC, seeking (1) a declaration that no valid foreclosure sale of plaintiff’s property had occurred; (2) an injunction restraining and enjoining Wells Fargo from conveying the property to any other entity; and (3) compensatory and punitive damages. The plaintiff argued that the mortgage document contained what he characterized as “a glaring ambiguity.” On July 12, 2021, a justice of the Superior Court denied plaintiff’s request for injunctive relief.
On February 15, 2022, there was a hearing on defendants’ motions to dismiss, with the justice concluding that the notice of default which had been sent to plaintiff “strictly complied” with the terms of the mortgage. The plaintiff then appealed the hearing justice’s grant of defendants’ motions to dismiss.
Recent Ruling
In Serenska v. Wells Fargo Bank, N.A., 2024 WL 481997 (R.I., 2024), issued February 8, 2024, the Rhode Island Supreme Court, in an action seeking a declaration that no valid foreclosure sale of property had occurred, held that a mortgagee’s (a loan servicer’s) notice of default had strictly complied with the requirements of the mortgage. In so determining, the Rhode Island Supreme Court reaffirmed its earlier pronouncements in Woel v. Christiana Tr. as Tr. for Stanwich Mortg. Loan Tr. Series 2017-17, 228 A.3d 339 (R.I. 2020), that, because a contract term “is ambiguous when it is reasonably and clearly susceptible to more than one rational interpretation” a notice of default that fails to inform the borrower of its right to reinstate the mortgage after acceleration is defective. The Court went on, however, to explain that the notice of default before it in this case, which informed of default, explained how to cure such default, and indicated the date by which the default must be cured in order to avoid the acceleration of the mortgage, ensured that the borrowers were fully informed of their rights and were not misled by the default notice provided by the mortgagee.
Therefore, the Court stated, the mortgagee was in strict compliance with the relevant terms of the mortgage provisions. “We discern absolutely no basis for plaintiff’s claim that there is an ambiguity in the mortgage.” The Court then explicated that even though such notice did not inform the mortgagor of the deadline — five days prior to the foreclosure date — to reinstate the mortgage after the acceleration of the mortgage, the relevant mortgage provision concerning default did not so require. The court further explained that the relevant mortgage clause was absolutely silent as to any requirement that the borrower be advised of the right to reinstate the mortgage up to five days before the sale of the property, such that there was nothing in the mortgage that required the borrower to be re-advised of such right in the notice of default.
Significantly, however, the opinion of the Court did note that while it had “no reason to doubt the correctness of conclusion” it was “dismayed by foreclosure counsel’s refusal to consider and seek immediate verification of plaintiff’s statement that he actually had the funds necessary to cure the default on the morning of the foreclosure . . . . . . does not seem to us that it would have been unduly burdensome for counsel (although not legally required to do so) to seek verification of plaintiff’s assertion (even though made after the deadline []) that he actually had the necessary funds.” “Taking that step” opined the Court, “would have been a laudable professional courtesy.”
Key Takeaway
The key takeaway in this case is that while mortgagors must be “fully informed of their rights and not be misled by a default notice provided by a mortgagee,” where a notice of default is in strict compliance with the relevant terms of the contract, a borrower will be held bound by the terms of such contractual provisions. If you have questions about this case or other litigation matters, please contact PLDO Partner Aaron L. Weisman at 401-824-5100 or email [email protected].
