Breach letter: a notice informing the homeowner that the loan is in default.
Breach letter: A notice from the bank informing the homeowner that the loan is in default. A breach letter is sent before accelerating the loan and proceeding with foreclosure. The acceleration clause in the mortgage allows banks to demand that the entire balance of the mortgage loan be repaid if the homeowner defaults on the loan.
What to Do When Receiving a Breach Letter
Breach letters are sent at the start of the foreclosure process to inform the homeowner that they are in default of their loan. The breach letter will list the actual default, the steps to cure the default, the date for payment, and it will also state that failure to make payment will result in a foreclosure sale.
Once a breach letter has been sent, the bank must provide send a notice of the timeline of the foreclosure, which will include all of the important milestones and their dates as the foreclosure process leads up to the actual sale.
Not receiving a breach letter can serve as a defense in a foreclosure hearing.
According to real estate attorney Jeff Harrington, who has prosecuted foreclosures in Florida, “Almost every mortgage contains a provision which requires the lender to send any borrowers that are currently in default a “breach letter” at least 30 days before filing a lawsuit.
“Among other things, the breach letter must advise the borrower that they have the right to reinstate the loan after acceleration and that failure to do so would result in foreclosure and sale by judicial proceeding. The letter must inform the borrower that they have the right to assert the non-existence of a default or any other defense to acceleration and foreclosure.
“However, while prosecuting foreclosure cases, I came across a multitude of breach letters that failed to relay this simple message. Many of the breach letters that are sent to borrowers in Florida are non-judicial breach letters, meaning they are for States that do not have formal judicial proceedings to finalize foreclosures.
“Sending a non-judicial breach letter to a Florida borrower in default has the effect of informing them that they need to file an entirely separate lawsuit to defend the foreclosure. This violates the language of paragraph 22 and the essence of the provision, to inform the borrowers of their rights.”
In conclusion, though a breach letter can be discomforting for a homeowner, it is also an important tool in a foreclosure defense, therefore it pays to go over it with a fine-tooth comb.