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Court: First notice of intent to foreclose not enough

Second NOI required to foreclose after dismissal, CSA holds

Mortgage lenders who dismiss a foreclosure action must send the borrower a new notice of intent to foreclose before reviving the action, even if they had given notice earlier, a Maryland appeals court has held.

Setting aside a foreclosure sale of a Bowie home, the Court of Special Appeals cited a 2010 Maryland law designed to stem the tide of foreclosures by ensuring distressed homeowners receive notice before lenders initiate foreclosure proceedings.

Under the new law, the notification document must be sent at least 45 days before the foreclosure filing and must include an application for loan modification or loss mitigation.

The court’s decision was a victory for Ramon Granados, who challenged the 2013 foreclosure of his home based on the failure of substitute trustees from the Law Offices of Jeffrey Nadel to send notice of their intent to foreclose. Other substitute trustees had sent notice before a prior foreclosure action against Granados’ home in 2009, which the lender later dismissed.

The Court of Special Appeals held the 2009 NOI did not provide sufficient notice of the second foreclosure proceeding.

“We decline to set an expiration date for a notice of intent to foreclose,” Judge Andrea M. Leahy wrote for the intermediate court.

“However, when a lender institutes a foreclosure action, and then dismisses that action, the lender should issue a new NOI,” Leahy added in the decision Tuesday. “The NOI is not a blank check that will allow a lender to initiate a foreclosure proceeding against a borrower at any point in the future. It has a specific function — to give borrowers notice of a potential foreclosure and allow them to pursue remediation of the default.”

The court said a second NOI was “especially” important in Granados’ case due to the new law, Real Property Article Section 7-105.1, which went into effect between the foreclosure actions. The law made additions to the information that must accompany the notice, including telephone numbers for government and nonprofit resources.

Thus, the original trustees’ notice provided incomplete information with regard to the second foreclosure proceeding, the court added.

“The requirements of RP Section 7-105.1 must be effectuated to give borrowers an opportunity to avoid foreclosure,” Leahy wrote. “A lender who relies on an old, incorrect notice of intent to foreclose flouts this requirement. Appellees would have saved themselves time and expense had they initially sent another notice of intent, with correct information and in compliance with the new law.”

Granados’ attorney, Douglas N. Gottron of Morris Palerm LLC in Rockville, did not return telephone messages seeking comment.

Attorney Cheryl Hystad, Civil Justice’s executive director, said the decision helps fulfill the law’s goal of ensuring homeowners receive notice and an opportunity for loan modification before lenders can file for foreclosure.

“The statute is very clear,” said Hystad, whose Baltimore-based group represents low-income homeowners facing foreclosure and was not involved in the litigation. “These notices provide homeowners with the opportunity to find a way to prevent the foreclosure from going forward.”

Both foreclosure proceedings against Granados stem from his default on a construction loan that was collateralized by his home. In March 2010, Select Portfolio Servicing Inc., PNC Bank’s loan servicer, sent Granados a notice of intent to foreclose under Maryland’s prior statute; the notice stated the lender might file for foreclosure in 45 days if Granados did not bring the loan current or negotiate a resolution.

On April 8, 2010, substitute trustees from the Bethesda law firm Bierman Geesing & Ward LLC filed a foreclosure action in Prince George’s County Circuit Court, which they dismissed July 19, 2010.

The 2010 law took effect July 1, 2010.

The Calverton-based Nadel firm, the new trustees, filed the second foreclosure proceeding in the circuit court on Feb. 24, 2011, without providing another notice of intent. Granados moved to dismiss the proceeding, noting the absence of the notice. The court denied the motion April 11, 2011.

The trustees sold the home at a Nov. 16, 2012, foreclosure sale to Wells Fargo, the note holder, for $315,783.29. The circuit court ratified the sale March 1, 2013. Granados’ appealed.

In setting aside the sale, the appellate court said the trustees can send Granados a new notice of intent, file their case 45 days later and complete the sale in a new foreclosure proceeding.

Substitute trustee Jeffrey Nadel said Thursday he has not decided how he will proceed following the decision. Nadel declined further comment.

Judges Christopher B. Kehoe and Kevin F. Arthur joined Leahy’s opinion in Granados v. Nadel et al., No. 242 Sept. Term 2013.