Laborde v. Citizens Bank, N.A.: Limiting the First‑Breach Doctrine and Clarifying Pleading Standards in Alabama Foreclosure Litigation

Laborde v. Citizens Bank, N.A.: Limiting the First‑Breach Doctrine and Clarifying Pleading Standards in Alabama Foreclosure Litigation

I. Introduction

In Laborde v. Citizens Bank, N.A., decided on December 19, 2025, the Supreme Court of Alabama addressed a cluster of important issues arising out of the nonjudicial foreclosure of a VA‑guaranteed home mortgage. The case sits at the intersection of mortgage contract law, foreclosure torts, equity (unjust enrichment), and Alabama’s pleading standards.

Miguel A. Laborde, a veteran, and his wife, Himelda Johanna Cruz‑Candelo, purchased their home in 2015 using a loan guaranteed by the U.S. Department of Veterans Affairs (VA). After a downturn in income in 2021, they defaulted in 2022. The loan servicer, Citizens Bank, N.A. (“the Bank”), accelerated the loan and conducted a foreclosure sale in February 2023, selling the home to third parties.

Laborde alleges that he attempted, more than five days before the scheduled sale, to exercise a contractual right to reinstate the loan by wiring all arrears and associated fees, but that the Bank and its foreclosure law firm refused to accept his tender. He further claims the foreclosure sale price exceeded the remaining debt, yet the Bank failed to remit any surplus.

After a post‑foreclosure ejectment suit by the purchasers, Laborde and Cruz‑Candelo asserted multiple claims against both the purchasers and the Bank. The trial court dismissed all claims against the Bank under Rule 12(b)(6), Ala. R. Civ. P. On appeal, the Alabama Supreme Court:

  • Affirmed dismissal of the independent claim for breach of the implied covenant of good faith and fair dealing; but
  • Reinstated three key claims against the Bank:
    • breach of contract (for refusing to allow reinstatement under Paragraph 18);
    • wrongful foreclosure; and
    • unjust enrichment (retention of foreclosure surplus).

The opinion is doctrinally significant in at least three respects:

  1. It limits the application of Alabama’s “first‑breach” doctrine where the alleged breach concerns a post‑default cure/reinstatement provision.
  2. It clarifies what must be pleaded to state a wrongful‑foreclosure claim and distinguishes the pleading stage from summary judgment, particularly regarding “improper purpose.”
  3. It confirms that unjust‑enrichment claims may be pleaded in the alternative to contract claims in foreclosure‑surplus disputes when the existence or ownership of the contract is contested.

Justice Wise concurred in part and dissented in part, indicating that she would have affirmed dismissal of the contract, wrongful‑foreclosure, and unjust‑enrichment claims, underscoring that the majority’s approach marks a meaningful shift in Alabama foreclosure litigation.

II. Summary of the Opinion

A. Facts and Foreclosure Background

  • 2015: Laborde obtained a $416,150 mortgage loan from North Alabama Mortgage, Inc. to purchase a home in Madison, Alabama. The loan was guaranteed and insured by the VA under its Housing Loan Program.
  • The loan documents (note and mortgage) incorporated VA statutes and regulations, including 38 U.S.C. § 3703 and 38 C.F.R. § 36.4337, and contained a conformity clause providing that inconsistent loan terms automatically conform to applicable VA regulations.
  • The mortgage named North Alabama Mortgage as lender and MERS as mortgagee/nominee; the note was endorsed to Franklin American Mortgage. The Bank later serviced the loan.
  • 2021–2022: After the U.S. withdrawal from Afghanistan, Laborde’s government‑related work dried up, leading to financial hardship and default.
  • 2023: The Bank accelerated the loan and set a foreclosure sale for February 21, 2023.
  • More than five days before the sale, Laborde allegedly contacted the Bank, was given a reinstatement quote (~$38,450), and stated he was ready to wire that amount immediately. The Bank allegedly refused direct payment and sent him to its foreclosure firm, Rubin Lublin, LLC, which never returned his calls or online inquiry.
  • The Bank proceeded with foreclosure. The property sold for $480,000—allegedly below a $625,000 appraised value, but above the outstanding debt.
  • Third‑party purchasers acquired the property and later filed an ejectment action; Laborde and Cruz‑Candelo eventually repurchased the home from them for $625,000 in a pro tanto settlement.

B. Procedural Posture

  • In the ejectment action, Laborde and Cruz‑Candelo:
    • asserted defenses and counterclaims against the purchasers; and
    • brought the Bank in as a third‑party defendant, asserting:
      1. breach of the duty of good faith and fair dealing;
      2. breach of contract (including breach of VA‑related obligations and Paragraph 18 reinstatement rights);
      3. wrongful foreclosure;
      4. equitable/statutory redemption; and
      5. declaratory relief (invalidity of foreclosure).
  • After an initial dismissal, they timely amended under Rule 78, Ala. R. Civ. P., and added a sixth claim: unjust enrichment.
  • On October 3, 2024, the trial court:
    • granted summary judgment to the purchasers on ejectment; and
    • dismissed all of Laborde and Cruz‑Candelo’s claims against both the purchasers and the Bank under Rule 12(b)(6).
  • They appealed. During the appeal, they settled with the purchasers and dismissed the appeal as to them, leaving only the Bank.

C. Holdings

Applying Alabama’s liberal Rule 12(b)(6) standard from Nance v. Matthews, 622 So. 2d 297 (Ala. 1993), the Court held:

  1. Implied Covenant of Good Faith and Fair Dealing: Alabama recognizes an implied duty of good faith and fair dealing in contracts, but it is “directive, not remedial”: there is no independent cause of action solely for breach of this covenant. The Court affirmed dismissal of this count.
  2. Breach of Contract: Laborde and Cruz‑Candelo adequately alleged breach of Paragraph 18 (the contractual right to reinstate up to five days before sale). Allegations that the Bank blocked their attempt to cure, despite their readiness and ability to pay, were sufficient. The borrowers’ prior default did not, as a matter of law, bar the claim under the “first‑breach” doctrine. Dismissal was reversed.
  3. Wrongful Foreclosure: They adequately alleged that the Bank both lacked authority (as noteholder) and exercised the power of sale for a purpose other than securing the debt. Under Rule 9(b), “purpose,” a condition of mind, may be alleged generally. Dismissal was reversed.
  4. Unjust Enrichment: They sufficiently alleged that the Bank may have retained more than it was entitled to from the foreclosure sale proceeds. Because they dispute the Bank’s ownership of the note (and thus the contractual relationship), they may plead unjust enrichment as an alternative to contract. Dismissal was reversed.
  5. Declaratory Relief: Not pursued on appeal and therefore waived.

The Court thus affirmed in part, reversed in part, and remanded for further proceedings on breach of contract, wrongful foreclosure, and unjust enrichment.

III. Detailed Analysis

A. Standard of Review and Pleading Framework

The Court reaffirmed the classic Nance v. Matthews standard for Rule 12(b)(6) dismissals:

  • No presumption of correctness attaches to a dismissal.
  • The question is whether, assuming the truth of the complaint’s allegations and construing them in the plaintiff’s favor, there exists any set of circumstances under which the plaintiff may be entitled to relief.
  • The Court does not assess likelihood of ultimate success, only legal sufficiency.
  • Dismissal is proper only when “it appears beyond doubt” that the plaintiff can prove no set of facts entitling relief.

This standard is critical: many of the Bank’s arguments sounded more like summary‑judgment arguments (contesting factual inferences and legal entitlement) rather than pure sufficiency of pleading. The Court repeatedly emphasizes the limited role of a 12(b)(6) motion.

B. The Implied Covenant of Good Faith and Fair Dealing

1. Precedents Cited

The Court relied on a line of Alabama cases establishing that:

  • Sellers v. Head, 261 Ala. 212, 73 So. 2d 747 (1954), and Lloyd Noland Found., Inc. v. City of Fairfield Healthcare Auth., 837 So. 2d 253 (Ala. 2002), recognize an implied covenant that neither party may do anything to destroy the other’s right to receive the “fruits of the contract.”
  • Government St. Lumber Co. v. AmSouth Bank, 553 So. 2d 68 (Ala. 1989), and Tanner v. Church’s Fried Chicken, Inc., 582 So. 2d 449 (Ala. 1991), hold that this implied duty is not an independent cause of action – it is “directive, not remedial.”
  • Lake Martin/Alabama Power Licensee Ass’n v. Alabama Power Co., 601 So. 2d 942 (Ala. 1992), underscores that “there is no good faith contractual cause of action.”

2. Court’s Reasoning

Laborde and Cruz‑Candelo framed a separate count for “breach of the duty of good faith and fair dealing.” They effectively conceded Alabama law does not recognize such a standalone claim, but argued that the duty is actionable when tied to a specific contractual obligation.

The Court agreed only in part:

  • The implied duty can be a theory or interpretive principle supporting a breach‑of‑contract claim when anchored in specific contractual terms (e.g., the reinstatement clause).
  • But it is not a freestanding tort or contract cause of action in Alabama.

Accordingly, the dedicated “good faith” count was properly dismissed. Importantly, this does not prevent Laborde from invoking lack of good faith as part of his breach‑of‑contract theory regarding Paragraph 18.

3. Concept Simplified

Think of the implied covenant as an interpretive rule, not a separate lawsuit. It tells courts: “Read and apply the contract so that each side gets what they reasonably bargained for, and don’t let a party sabotage those benefits in bad faith.” But if a plaintiff sues only for “breach of good faith” without tying it to a contract term, that claim fails under Alabama law.

C. Breach of Contract and the First‑Breach Doctrine

1. The Contractual Right to Reinstate (Paragraph 18)

To state a claim for breach of contract under Alabama law, a plaintiff must allege:

  1. a valid contract;
  2. his own performance, or that he was ready, willing, and able to perform;
  3. the defendant’s nonperformance (breach); and
  4. resulting damages. (Shaffer v. Regions Fin. Corp.; Reynolds Metals Co. v. Hill.)

Paragraph 18 of the mortgage is a “cure” or reinstatement provision. It states that the borrower:

“shall have the right to have enforcement of this Security Instrument discontinued at any time prior to the earliest of: (a) five days before sale of the Property pursuant to any power of sale …”

In other words, even after default and acceleration, the borrower contractually retains the right to restore the loan by meeting specified conditions, up to a deadline (five days before sale).

Laborde alleged:

  • He contacted the Bank more than five days before the sale to reinstate;
  • The Bank quoted arrears, fees, and late charges totaling about $38,450;
  • He was prepared to wire the full amount immediately;
  • The Bank refused to accept his payment and instead referred him to its foreclosure counsel;
  • The firm never responded, effectively blocking his attempt to cure; and
  • The Bank foreclosed anyway.

These facts, if true, plausibly allege that:

  • Laborde was “ready, willing, and able to perform” (Beauchamp v. Coastal Boat Storage; Winkleblack v. Murphy); and
  • The Bank’s conduct prevented his performance.

Under Big Thicket Broad. Co. of Alabama v. Santos, 594 So. 2d 1241 (Ala. Civ. App. 1991), a party cannot take advantage of a failure in the other’s performance if it caused that failure. That principle applies neatly here: if the Bank’s refusal to accept funds caused Laborde’s non‑performance of the cure condition, the Bank cannot use non‑performance as a defense.

2. The Bank’s “First‑Breach” Argument

The Bank invoked the “first‑breach doctrine,” arguing that because Laborde first breached the mortgage by missing payments, he could not sue for breach of contract at all. The Bank relied on:

  • Embry v. Carrington Mortg. Servs., LLC (N.D. Ala. 2023), aff’d in part & vacated in part on other grounds (11th Cir. 2025), where summary judgment was granted because the borrower had failed to make payments for three years and alleged only that the servicer mishandled payment application and notice obligations.
  • Tidmore v. Citizens Bank & Trust, 250 So. 3d 577 (Ala. Civ. App. 2017), where the borrower alleged breach of notice provisions, but evidence showed he repeatedly made late or incomplete payments and then defaulted.

The Court distinguished both cases:

  • Neither involved a breach of a post‑default cure provision like Paragraph 18.
  • Both concerned different contractual duties and were decided at or after the summary‑judgment stage.

More fundamentally, the Court turned to basic contract‑interpretation principles:

  • Contracts must be read as a whole, giving effect to each provision if possible (Davis v. City of Montevallo; City of Pinson; Ex parte Exxon Mobil Corp.).
  • As Scalia & Garner note in Reading Law, context and the holistic reading of an instrument are key.

The majority reasoned that:

  • The parties anticipated borrower default and allocated that risk contractually via Paragraph 18.
  • By design, the reinstatement right arises because the borrower missed payments; it is triggered by default, not extinguished by it.
  • Using the first‑breach doctrine to nullify Paragraph 18 would render that provision meaningless, since it would never function in the very circumstances it was intended to govern.

The Court found persuasive the Eleventh Circuit’s treatment of Georgia’s first‑breach doctrine in Bates v. JPMorgan Chase Bank, NA, 768 F.3d 1126, 1130 n.3 (11th Cir. 2014), quoted by the Court:

“[T]aken to its logical conclusion, such a rule would prohibit any mortgagor from ever enforcing any contract terms governing acceleration and foreclosure, as these terms by definition come into play following a breach.”

While Alabama had not squarely addressed the doctrine in the context of a cure provision, the Court adopted Bates’s logic by analogy.

3. New Legal Principle: First‑Breach Doctrine Limited

The central doctrinal development is this:

A borrower’s prior payment default does not, as a matter of law, bar a breach‑of‑contract claim to enforce a contractual cure/reinstatement provision that is expressly designed to operate after default.

Stated differently, the first‑breach doctrine cannot be deployed to erase or neuter contractual protections that are triggered by the borrower’s breach, such as reinstatement or cure clauses. These are independently enforceable promises.

This holding will be pivotal in future Alabama foreclosure disputes involving:

  • reinstatement clauses;
  • loan‑modification obligations expressly set to arise upon default; and
  • contractual pre‑foreclosure loss‑mitigation duties.

4. VA Regulations as Contractual Background

The Court notes, but does not fully decide, another potentially significant contractual dimension:

  • VA regulations (38 U.S.C. § 3703; 38 C.F.R. § 36.4337) require meaningful pre‑foreclosure servicing to avoid foreclosure.
  • The mortgage includes a conformity clause: any inconsistent loan terms are “amended and supplemented” to conform to VA regulations.

Thus, VA servicing obligations are arguably incorporated into the mortgage itself and may supply additional theories of breach (e.g., failure to properly explore loss‑mitigation or reinstatement options). The Court, however, explicitly declined to rest its decision on those regulatory allegations because the Paragraph 18 theory alone sufficed to survive dismissal.

D. Wrongful Foreclosure

1. Elements and Precedent

Alabama defines wrongful foreclosure as arising when a mortgagee:

“uses the power of sale given under a mortgage for a purpose other than to secure the debt owed by the mortgagor.”
— Jackson v. Wells Fargo Bank, N.A., 90 So. 3d 168, 171 (Ala. 2012), quoting Reeves Cedarhurst Dev. Corp. v. First Am. Fed. Sav. & Loan Ass’n, 607 So. 2d 180, 182 (Ala. 1992).

Improper purposes include using the power of sale to serve “ill motive” or the purposes of others, which constitutes “fraud in the exercise of the power” (Paint Rock Props. v. Shewmake, 393 So. 2d 982, 983–84 (Ala. 1981)).

The Court further engaged with:

  • Harris v. Deutsche Bank Nat’l Tr. Co., 141 So. 3d 482 (Ala. 2013), where this Court emphasized:
    • a trustee must receive an assignment of the note to exercise the power of sale in its own name; and
    • in the absence of evidence the power of sale was used for any purpose other than securing the debt, summary judgment for the trustee on wrongful foreclosure was proper.
  • Coleman v. BAC Servicing, 104 So. 3d 195, 205 (Ala. Civ. App. 2012), which famously quoted the Restatement:
    “The note is the cow and the mortgage the tail. The cow can survive without a tail, but the tail cannot survive without the cow.”
    underscoring that the right to foreclose follows the note, not merely the recorded mortgage.

2. Laborde’s Allegations

Laborde and Cruz‑Candelo alleged that:

  • “the foreclosure proceeding by the Bank was negligent, wanton or intentional;”
  • the “power of sale was exercised for a purpose other than to secure the debt;”
  • the Bank relied on an assignment of the mortgage from MERS, as nominee for the original lender, to assert it was the “Lender” with power to foreclose; and
  • they disputed that the Bank was actually the party to whom the debt was owed (i.e., holder of the note).

The complaint incorporated the mortgage assignment by reference under Rule 10(c), Ala. R. Civ. P., allowing the Court to consider it at the pleading stage. The note’s chain of assignment and the Bank’s status as noteholder remain fact questions.

3. Pleading vs. Proof: Distinguishing Harris

The Bank argued that under Harris, the absence of evidence of improper purpose warranted dismissal of wrongful foreclosure. The Court responded by:

  • Reaffirming that Harris was decided at the summary‑judgment stage, where the plaintiff must present evidence of improper purpose; and
  • Explaining that at the pleading stage, Rule 9(b) allows mental states like purpose and intent to be averred generally.

Thus, while a wrongful‑foreclosure plaintiff must ultimately prove an improper purpose, they need not detail that purpose with particularity at the 12(b)(6) stage. It is enough to allege, in substance, that:

  • the foreclosing entity lacked authority (e.g., was not the noteholder); and
  • the power of sale was exercised for a purpose other than debt collection.

Laborde’s complaint did both. That sufficed to state a plausible wrongful‑foreclosure claim.

4. Practical Effect

This part of the opinion clarifies that:

  • Authority to foreclose remains central: borrowers may challenge whether the foreclosing party is in fact the holder or assignee of the note, not merely the mortgage.
  • Pleading burden is modest: generic allegations of improper purpose and lack of authority will avoid dismissal, leaving those issues to be fleshed out in discovery and resolved at summary judgment or trial.

The decision, therefore, likely increases the number of wrongful‑foreclosure claims that survive motions to dismiss in Alabama, especially in securitized and serviced loan contexts where the note’s chain of title is often opaque.

E. Unjust Enrichment and Foreclosure Surplus

1. Doctrinal Background

Unjust enrichment is an equitable remedy preventing one party from being enriched at another’s expense in circumstances where it would be unjust. Alabama’s formulation, as summarized in:

  • Avis Rent A Car Sys., Inc. v. Heilman, 876 So. 2d 1111, 1123 (Ala. 2003);
  • Matador Holdings, Inc. v. HoPo Realty Invs., L.L.C., 77 So. 3d 139, 145 (Ala. 2011) (plurality), quoting Portofino Seaport Vill., LLC v. Welch, 4 So. 3d 1095, 1098 (Ala. 2008):
To prevail on unjust enrichment, a plaintiff must show that:
(1) the defendant knowingly accepted and retained a benefit;
(2) provided by another;
(3) who had a reasonable expectation of compensation.

In addition, under Kennedy v. Polar‑BEK & Baker Wildwood P’ship, 682 So. 2d 443, 447 (Ala. 1996), Alabama generally precludes unjust‑enrichment claims when an express contract governs the same subject matter; contract and quasi‑contract claims are “generally incompatible.” However, where the existence or applicability of the contract is disputed, plaintiffs may plead in the alternative.

2. Laborde’s Allegations and the Court’s Reasoning

Laborde alleged that:

  • the Bank foreclosed and sold the property for $480,000;
  • the outstanding debt was less than that amount (their original purchase price was $416,150);
  • the Bank retained the difference instead of paying the surplus to them; and
  • the Bank was not, in fact, the owner of the note (i.e., no valid contract between them or no contractual entitlement to those funds).

This plausibly alleges that:

  • the Bank “knowingly accepted and retained a benefit” (the surplus);
  • that benefit was generated at Laborde’s expense through the foreclosure of his property; and
  • Laborde reasonably expected that any surplus from the sale would be paid to him, not retained by the Bank.

The Bank argued that unjust enrichment is barred because the mortgage is an express contract covering the subject. The Court responded:

  • Laborde disputes that the Bank is the noteholder and therefore disputes the Bank’s contractual status;
  • Where the existence of an express contract between the litigants is disputed, plaintiffs may plead both contract and unjust enrichment in the alternative at the pleading stage (Kennedy); and
  • Under the Nance standard, it cannot be said “beyond doubt” that no set of facts would entitle Laborde to equitable relief.

Accordingly, dismissal of the unjust‑enrichment claim was improper. The door is left open for the Bank to later argue (e.g., on summary judgment) that:

  • it was entitled to the full sale proceeds under the note and mortgage; or
  • no surplus in fact existed after fees, costs, and advances.

3. Implications for Foreclosure Surplus Cases

The opinion reinforces that:

  • Foreclosure surplus funds are not automatically the lender’s property; they generally belong to the borrower or other lienholders, depending on priority and applicable law.
  • If a financial institution wrongfully retains proceeds beyond the debt and authorized charges, unjust enrichment is a viable theory, especially where contract rights are contested.
  • At the pleading stage, borrowers need only allege a plausible surplus and retention, not prove exact figures.

F. VA‑Guaranteed Loans and Incorporated Federal Regulations

Although not the main basis of the Court’s holding, the opinion underscores a notable structural feature of VA‑guaranteed mortgages:

  • VA regulations governing home loans (e.g., servicing, loss‑mitigation, pre‑foreclosure interventions) are expressly incorporated into the loan documents.
  • The mortgage’s conformity clause states that loan instruments are “amended and supplemented” to conform to 38 C.F.R. § 36.4337 and other applicable VA regulations.

Consequences:

  • Failure to follow VA servicing or loss‑mitigation requirements may double as a breach of contract, not merely a regulatory violation.
  • VA‑backed borrowers may have contract‑based remedies for noncompliance with federal standards, at least to the extent they are incorporated into their loan agreements.

While the Court declined to decide whether laborde could recover damages specifically under these VA‑regulation theories at this early stage, its recognition that such regulations shape the contractual landscape signals that future litigants may press those points more explicitly.

IV. Simplifying Key Legal Concepts

  • Acceleration: When a borrower defaults, the lender can “accelerate” the loan: instead of monthly payments, the entire outstanding balance becomes immediately due.
  • Reinstatement / Cure Provision: A clause (like Paragraph 18) giving the borrower the right, after default and acceleration, to “cure” by paying arrears and certain fees and thereby restore the loan as if no acceleration occurred, up to a specified deadline.
  • Power of Sale: A clause in a mortgage allowing the lender to foreclose and sell the property without going to court, usually after specified notice and default conditions.
  • Ejectment: A legal action by the property’s titled owner to remove occupants from real property and obtain possession.
  • Statutory Right of Redemption: Under Alabama law, certain parties (including the former homeowner) have a limited time after foreclosure to “redeem” the property by paying specified amounts, essentially buying it back.
  • First‑Breach Doctrine: A principle that a party who first materially breaches a contract generally cannot sue the other party for a later breach of the same contract. Laborde clarifies it does not automatically wipe out contractual protections (like cure rights) that only arise after the first breach.
  • Wrongful Foreclosure: A tort claim asserting that the lender used its contractual foreclosure power for an improper purpose (e.g., to profit, to harm the borrower, or without proper authority), not simply to collect the debt.
  • Unjust Enrichment: An equitable claim that someone has received and kept a benefit that, in fairness, should be returned or paid for, even absent a valid contract.
  • Alternative Pleading: Under Alabama rules, a plaintiff can allege, in the same case, both (a) that a valid contract exists (breach‑of‑contract claim) and (b) that if no contract is found, the defendant is liable under unjust enrichment. These are inconsistent theories but can coexist at the pleading stage.
  • Note vs. Mortgage; MERS:
    • The note evidence the debt; the mortgage is the security interest in property securing that debt.
    • “The note is the cow and the mortgage the tail” means the right to enforce the mortgage follows the note. Holding the mortgage alone (e.g., via a MERS assignment) is not enough; the foreclosing party must also own or hold the note.
  • Rule 12(b)(6): A motion arguing that, even if all factual allegations are true, the complaint states no legal claim. It is not about proving or disproving facts; it is about whether the claim is legally cognizable.

V. Impact and Future Implications

A. For Borrowers and Consumer Advocates

  • Enforceability of Cure Provisions: Borrowers can sue to enforce reinstatement rights even if they previously defaulted. Servicers cannot rely on “you breached first” to evade contractual obligations triggered by default.
  • Wrongful Foreclosure Claims More Likely to Survive Dismissal: General allegations that the foreclosing party lacked authority and misused the power of sale, coupled with assertions of improper purpose, are enough to reach discovery.
  • Surplus Proceeds Scrutiny: Borrowers have a clearer pathway to challenge a lender’s retention of foreclosure proceeds beyond the debt and authorized charges via unjust enrichment, at least where contractual entitlements are disputed.
  • VA‑Backed Mortgages: VA borrowers can highlight incorporated federal regulations as part of the contractual framework, potentially strengthening arguments about required pre‑foreclosure servicing and reinstatement efforts.

B. For Lenders and Servicers

  • Operational Practices Around Reinstatement:
    • Servicers must ensure that when borrowers timely request reinstatement and are ready to pay, there is a clear, responsive process to accept payment.
    • Refusal to provide wiring instructions or leaving reinstatement requests unanswered can expose lenders to breach‑of‑contract and wrongful‑foreclosure liability.
  • Documentation of Authority:
    • Because note ownership is central, lenders should maintain clear documentation of note transfers and be prepared to demonstrate authority to foreclose.
    • Reliance solely on MERS mortgage assignments, without clear note assignment evidence, invites challenges.
  • Foreclosure Proceeds Accounting:
    • Servicers must track foreclosure sale proceeds and promptly remit any surplus to the appropriate parties.
    • Defensible, documented accounting of the payoff amount, fees, and disbursements will be essential in rebutting unjust‑enrichment claims.
  • Litigation Exposure at Pleading Stage:
    • Motions to dismiss in foreclosure‑related suits may be less successful as courts allow wrongful‑foreclosure and unjust‑enrichment claims to proceed to discovery based on general allegations.
    • This may increase litigation costs but also incentivize better pre‑foreclosure servicing and communication practices.

C. For Courts and Practitioners

  • Doctrinal Clarification:
    • Laborde sharpens the distinction between pleading and proof in wrongful‑foreclosure cases and cabins the first‑breach doctrine.
    • Trial courts must resist the temptation to resolve disputed factual inferences on 12(b)(6) motions.
  • Predictable Contract Interpretation:
    • By insisting that cure provisions remain enforceable despite prior default, the Court underscores a commitment to preserving the full benefit of bargained‑for contract protections.
    • This promotes clearer expectations in mortgage transactions and discourages drafting “illusory” protections for borrowers.
  • Divided Court Signals Ongoing Debate:
    • Justice Wise’s partial dissent (joined by Justices Sellers and Mendheim) signals that there is disagreement on how far to extend borrower protections at the pleadings stage.
    • Future cases may further refine where the line lies between adequately pleaded allegations and conclusory assertions, particularly in wrongful‑foreclosure claims.

VI. Conclusion

Laborde v. Citizens Bank, N.A. is a significant Alabama Supreme Court decision in the foreclosure and mortgage‑servicing arena. While reaffirming that Alabama does not recognize an independent claim for breach of the implied covenant of good faith and fair dealing, the Court simultaneously strengthens the enforceability of concrete contractual protections and clarifies pleading standards in favor of borrowers.

The key takeaways are:

  • First‑Breach Doctrine Limited: A borrower’s prior payment default does not bar a contract claim to enforce a reinstatement clause or other provisions designed to operate post‑default.
  • Wrongful‑Foreclosure Pleading: Allegations of lack of authority and improper purpose, even stated generally, suffice at the 12(b)(6) stage; Harris governs proof at summary judgment, not initial pleading sufficiency.
  • Unjust Enrichment Survives When Contract Status is Disputed: Borrowers can pursue unjust enrichment in the alternative, particularly in foreclosure‑surplus cases where the foreclosing party’s contractual entitlement is contested.
  • VA Regulations as Contractual Context: Incorporation of VA regulations into loan documents enhances the contractual framework against which lenders’ conduct is judged, even if those issues are not fully resolved here.

By restoring Laborde and Cruz‑Candelo’s breach‑of‑contract, wrongful‑foreclosure, and unjust‑enrichment claims, the Court sends a clear message: when lenders bargain for strong foreclosure rights, they must also honor the reciprocal contractual safeguards they have agreed to provide, including good‑faith opportunities to cure defaults and accurate handling of foreclosure proceeds. The opinion will shape Alabama foreclosure litigation and mortgage‑servicing practices for years to come.

Case Details

Year: 2025
Court: Supreme Court of Alabama

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