Adam Law Group Blog

Negative Ruling for Paragraph 22 Defense

The so-called “Paragraph 22” defense to foreclosure has been the subject of prior blogs and we have yet another update on the defense out of Florida’s 2nd District Court of Appeal (“DCA”). paragraph 22

As a refresher, the defense is rooted in Paragraph 22 of the standard mortgage agreement, which provides a number of requirements that lenders must comply with before filing for foreclosure.  In short, homeowners have successfully argued for dismissal of cases where lenders didn’t comply with all of the Paragraphs requirements.

For example, in Blum v. Deutsche Bank Trust Co. America, the 4th DCA found that the lender should have been precluded from even bringing their foreclosure action where they sent a notice required under Paragraph 22 to the wrong address.  Similarly, in Samaroo v Wells Fargo, the 5th DCA, the court found that lenders failure to comply with a requirement in the mortgage agreement that required the lender give the homeowner notice of a right to reinstate the mortgage after acceleration.

Unfortunately, the most recent case on the issue, Green Tree Servicing v. Milam, which was decided by the 2nd Circuit in late July, was less favorable for homeowners.  As you’d suspect Green Tree was a foreclosure case in which the homeowners raised a Paragraph 22 defense.  The lender had sent a notice letter to the homeowners demanding that they cure the default and providing a number of notices.  The homeowners argued that the notice failed to comply with the requirements of Paragraph 22 because it failed to “ (1) to specify the default; (2) adequately to apprise the Milams of their right to reinstatement; and (3) to state where payment should be sent.”

The 2nd DCA, issued a lengthy decision criticizing and distinguishing prior homeowner friendly cases.  It’s ultimate holding was that only “substantial compliance” with Paragraph 22 is required.  In other words, as long as the homeowner receives “essential information concerning his or her default, how to cure it, and his or her rights with respect to it,” the borrower cannot use it as a defense to prevent the foreclosure action.  The alternative argument, which the homeowners made, was that lenders should have been required to comply with the exact, detailed requirements that are actually set out in Paragraph 22, a section of a contract.

Though a negative blow for homeowners, the 2nd District Court’s decision will have persuasive value across the state, but other District Courts are not required to follow it and its unlikely to be the last on this controversial defense.  It will be interesting to see if the Florida Supreme Court ultimately weighs in to help define the contours of the defense.

Talk to our Jacksonville foreclosure defense attorneys about the paragraph 22 defense today.