Fourth DCA Reaffirms that a Mortgagee Must Only Substantially Comply With Conditions Precedent to Foreclosure

By Timothy D. Hedrick and Mark S. Mitchell

Often times, mortgages contain certain “conditions precedent” to foreclosure that require mortgagees to take certain acts before they may commence an action to foreclose on their collateral. The simplest example of a mortgagee’s condition precedent is a requirement that a mortgagee send a notice of default and right to cure before filing a foreclosure action.

On March 9, 2016, the Fourth District Court of Appeal considered the effect of a mortgagee’s failure to strictly comply with a condition precedent to enforcement of a mortgage. In Ortiz v. PNC Bank, Nat’l Ass’n , __ So. 3d __, No. 4D15-242, 2016 WL 889347 (Fla. 4th DCA Mar. 9, 2016), PNC Bank was required under its mortgage to notify its borrowers that they had “the right to assert in the foreclosure proceeding the non-existence of a default or any other defense . . . to acceleration and foreclosure.” Id. at *2. Instead, PNC Bank’s letter to the borrowers instructed the borrowers that “You . . . have the right to bring a court action if you claim that the loan is not in default or if you believe you have any other defense to the foreclosure.” Id.

On appeal from a judgment in favor of PNC Bank, the borrowers argued that PNC Bank failed to strictly comply with the conditions precedent to foreclosure. Affirming the judgment, the Fourth DCA held that substantial compliance with conditions precedent is all that is required in the foreclosure context. Id. (citing Green Tree Servicing, LLC v. Milam , 177 So. 3d 7, 13–14 (Fla. 2d DCA 2015)). The court explained that substantial compliance means “performance of a contract which, while not full performance, is so nearly equivalent to what was bargained for that it would be unreasonable to deny the [party] the [benefit].” Id. at *2 (quotation omitted). Applying that standard, the court held that the language of PNC Bank’s letter adequately appraised the borrowers of their right to assert defenses in the foreclosure proceeding and thus substantially complied with the conditions precedent in the mortgage. Id. at *2–3. The court also held that whether the borrowers were prejudiced by the lack of strict compliance with the conditions precedent is not part of the inquiry. Id. at *3.

Although substantial compliance is technically sufficient to meet any conditions precedent, mortgagees should be cognizant of all conditions precedent contained in their loan documents. Even if substantial compliance is sufficient, failure to identify any and all conditions precedent and strictly comply with such conditions can lead to unnecessary delay in obtaining foreclosure. Moreover, if the court finds the mortgagee did not substantially comply with the conditions precedent, it may dismiss the case.