The Alabama Supreme Court recently addressed whether a lender
must own a mortgage when it initiates foreclosure proceedings and,
if not, whether that would invalidate the ownership rights in the
property that the lender obtained through foreclosure. This article
addresses the rights a lender must possess when it initiates a
foreclosure pursuant to a mortgage.
When a lender forecloses, it generally does so under the
mortgage's "power of sale" provision, which allows it
to foreclose without court involvement. Section 35-10-1 of the
Alabama Code addresses the power of sale provision and in pertinent
Where a power to sell lands is given
to the grantee in any mortgage, . . . the power is part of the
security, and may be executed by any person, or the personal
representative of any person who, by assignment or otherwise,
becomes entitled to the money thus secured; and a conveyance of the
lands sold under such power of sale to the purchaser at the sale,
executed by the mortgagee, any assignee or other person entitled to
the money thus secured, . . . vests the legal title thereto in such
In Reginald A. Patterson and Diana V. Patterson v.
GMAC Mortgage, LLC, the Alabama Supreme Court
addressed the rights of a lender that owns a mortgage and related
debt at the time of the actual foreclosure but not when
the foreclosure proceedings are initiated. In the case, the
borrowers originally obtained a loan from their lender, Option One
Mortgage Corporation. The loan was secured by a mortgage on the
borrowers' home. When the borrowers defaulted on the loan, GMAC
provided them notice of default and notice of the upcoming
foreclosure sale, as required by statute. GMAC foreclosed on the
property on August 7, 2007, but Option One didn't actually
assign the mortgage to GMAC until August 6, the day before the
The trial court ruled that GMAC's foreclosure was proper and
that title to the property vested in GMAC. However, the Alabama
Court of Appeals reversed, stating "GMAC Mortgage lacked
authority to foreclose the mortgage when it initiated the
foreclosure proceedings, and, therefore, the foreclosure and the
foreclosure deed upon which GMAC based its ejectment claim are
invalid." The Alabama Supreme Court agreed to review the
appellate court's decision and decide exactly when a lender
must own the mortgage in order to foreclose.
The Alabama Supreme Court agreed with the trial court's
decision and ruled in favor of GMAC. The Alabama Supreme Court
based its decision in favor of GMAC on several factors. First, the
court recognized that case law in Alabama has never required that a
lender own a mortgage before foreclosure proceedings are initiated.
Although a recent case in Alabama found to the contrary, the
Alabama Supreme Court ruled that the finding was misplaced, as
Alabama law only requires the mortgage holder to own the mortgage
when actual foreclosure takes place.
The court's review of applicable statutory law led to the
same result. Specifically, the Alabama Supreme Court recognized
that Section 35-10-1 of the Alabama Code does not require a lender
to own the mortgage until the power of sale takes
place—that is, at foreclosure. Nothing in the section applies
to the time at which the foreclosure proceeding was initiated. In
fact, the court recognized that since a mortgagor has the right to
satisfy his debt at any time prior to the property being
foreclosed, a foreclosure cannot be deemed to have taken place
until the foreclosure deed is granted; otherwise, actions such as
providing notice would terminate the right of a mortgagor to pay
the debt in order to stop the foreclosure.
Based on these reasons, the Alabama Supreme Court held that
notices of default and publication of an upcoming foreclosure do
not constitute the act of foreclosure. Rather, a foreclosure is
accomplished only by the execution and delivery of the foreclosure
deed at the time of foreclosure. GMAC had the full right to
exercise the power of sale on the date of foreclosure, even if only
by one day. Thus, the foreclosure was proper, and title vested in
GMAC by virtue of the foreclosure deed.
By addressing exactly when a lender must own a mortgage for a
foreclosure to be valid, the Alabama Supreme Court has provided
clarity for lenders when deciding whether to foreclose. Further,
this decision will preserve judicial time and resources, as courts
will not be called upon to require foreclosure proceedings to
restart based on a technicality or to determine if the correct
party sent out the required notice of default and notice of
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
With corporate data security breaches on the rise, the NYDFS has adopted rules requiring financial institutions to take certain measures to safeguard their data and inform state regulators about cybersecurity incidents.
The United States District Court for the Southern District of Florida granted preliminary approval of a nearly $31 million FACTA class action settlement against Doctor's Associates, Inc., doing business as...
The New York State Department of Financial Services recently promulgated cyber regulations for financial institutions that are likely to increase the risks to directors & officers, resulting in an increase in claims.
One of the regulatory pillars of the EMIR is the requirement for parties to collateralize the marked-to-market exposure in over-the-counter derivatives transactions that are not cleared by a central clearing system.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).