If you're behind in your mortgage payments and facing foreclosure, you might receive a breach letter or a Fair Debt Collection Practices Act (FDCPA) validation notice—or, in some cases, a combination letter with both types of notice.
Keep reading to learn the difference between these types of notices and what kind of information is supposed to be in the notice. If the notice you receive doesn’t comply with the law, you might have a defense to a foreclosure.
Mortgages and deeds of trust often contain a clause that requires the lender to send a notice, commonly called a “breach letter,” informing the borrower that the loan is in default before accelerating the loan and proceeding with foreclosure. (The acceleration clause in the mortgage permits the lender to demand that the entire balance of the loan be repaid if the borrower defaults on the loan.)
Typically, under the terms of the loan contract, the notice must specify:
To avoid foreclosure, the borrower must bring the loan current by paying the full past due amount shown in the letter before the 30 days expires. (Also, some states have a law allowing a borrower who's facing a foreclosure to reinstate the loan by a certain deadline, and many mortgages and deeds of trust contain language giving borrowers a certain amount of time during which they can get current on the loan. )
If the 30-day time period expires and the borrower hasn’t paid the specified amount to bring the loan current (or worked out another option with the lender), foreclosure proceedings will likely begin. (In most cases, a foreclosure can’t begin until the borrower is more than 120 days delinquent. So, lenders tend to send the breach letter around the 90th day of the delinquency. To learn more about when foreclosure can start, read How Soon Can Foreclosure Begin?)
The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects consumers from abusive collection practices by debt collectors and collection agencies. Whether the FDCPA applies to foreclosures generally depends on if the foreclosure is judicial or nonjudicial.
Judicial foreclosures. Judicial foreclosures are usually—but not always—viewed by courts as being subject to the FDCPA because creditors are generally able to get deficiency judgments.
Nonjudicial foreclosures. In a unanimous decision, the U.S. Supreme Court determined in the case of Obduskey v. McCarthy & Holthus, LLP, No. 17-1307 (March 20, 2019) that the FDCPA doesn’t generally apply to firms pursuing nonjudicial foreclosures.
If the FDCPA is applicable to the foreclosure, the party attempting to collect the debt must send a written notice to the debtor within five days of its first communication, which contains:
Sometimes the FDCPA validation notice will be combined with the breach letter. Other times it might be a separate letter or, in some cases, it might be included with the complaint for foreclosure. (To learn more about the FDCPA and whether the FDCPA can help you if you're facing foreclosure, see Fair Debt Collection Claims in Foreclosure Cases.)
If you're facing a foreclosure and think the lender violated the loan contract by not sending a breach letter (or it sent an incorrect letter or an incomplete letter) or is violating the FDCPA, consider talking to an attorney to find out options in your particular circumstances. This failure or violation could constitute a defense to the foreclosure.