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Financial Services Law Insights and Observations

New Jersey Supreme Court Holds That Foreclosures Can Proceed Despite Notice Defects

Foreclosure TILA Mortgage Servicing

Lending

On February 27, the New Jersey Supreme Court held in U.S. Bank, N.A. v. Guillaume, No. 068176, 2012 WL 603307 (N.J. Feb. 27, 2012), that state trial courts are not required to dismiss foreclosure actions if there are defects in the notice of foreclosure, and affirmed the denial of the borrowers’ motion to vacate a default judgment of foreclosure. The decision overturned an August ruling from a New Jersey appeals court, Bank of New York v. Laks, 422 N.J. Super. 201 (App. Div. 2011), holding that dismissal was mandatory if a notice did not strictly comply with the requirements of the New Jersey Fair Foreclosure Act. In Guillaume, the borrowers sought to avoid foreclosure in part because the Notice of Intention to Foreclose identified only the servicer’s name and contact information and not the name and address of the lender. At the trial level, the court gave the lender an opportunity to cure the defects in the Notice in lieu of dismissal. A panel of the New Jersey Appellate Division affirmed the trial court outcome based on its analysis that listing the name of the loan servicer rather than the name of the lender substantially complied with the statutory requirements. The New Jersey Supreme Court disagreed and held that the Fair Foreclosure Act requires that a Notice of Intention to Foreclose include the name and address of the actual lender, in addition to contact information for any loan servicer with responsibility to collect payments and negotiate resolution of a dispute between the lender and homeowner. Nonetheless the New Jersey Supreme Court determined that dismissal without prejudice was not the exclusive remedy for service of a defective notice and upheld the trial's court authority to craft an appropriate remedy for notice defects. The New Jersey Supreme Court also rejected the homeowners’ argument that their original lender's $120 fee overcharge was a TILA violation that entitled them to rescission and held that courts adjudicating TILA claims have discretion to deny rescission if the homeowner cannot tender the full amount due on the loan.