hud

A Mortgage Servicer Must Show Compliance with Housing and Urban Development Regulations Prior to Initiating Foreclosure Action

A Mortgage Servicer Must Show Compliance with Housing and Urban Development Regulations Prior to Initiating Foreclosure Action

In Wells Fargo, N.A., vs. Awadallah, 41 N.E.3d 481 (2015), the Ninth District held that where a note and mortgage requires compliance with HUD regulations, such compliance is a condition precedent to bringing a foreclosure action. A condition precedent is something that must occur before something else will or can occur. Ms. Awadallah’s promissory note and mortgage were prepared on Federal Housing Administration forms and required that the bank, as a condition of receiving federal money, meet all HUD requirements prior to filing a foreclosure action. Under HUD, Wells Fargo was required to have a face-to-face interview with Ms. Awadallah, or make a reasonable effort to arrange such. At minimum, Wells Fargo was required to send a certified letter to Ms. Awadallah and make at least one trip to see her at the mortgaged property. It failed to do so.

Wells Fargo failed to present evidence to the Ninth District regarding their reasonable effort to make a visit to Ms. Awadallah’s home, which is expressly required under her note and mortgage and federal regulation. Wells Fargo argued that they didn’t need to meet that requirement because after the foreclosure action was filed, the parties attempted to settle the case in mediation. Wells Fargo argued that the purpose of the in-person meeting, as required under HUD, is to consider loss mitigation and that court-sponsored mediation serves the same purpose. The Ninth District disagreed, stating that mediation after the foreclosure action has been initiated does not show compliance with the federal regulation. Wells Fargo failed to strictly comply with standard regulations set forth to protect consumers. Thus, Wells Fargo did not satisfy the conditions precedent to filing a foreclosure action against Ms. Awadallah. Therefore, Wells Fargo was not entitled to succeed on its motion for summary judgment. The Ninth District reversed the judgment and sent the case back for further proceedings.

 

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Brunner Dissent in Hazel May Add Foreclosure Defense for FHA Homeowners

Brunner Dissent in Hazel May Add Foreclosure Defense for FHA Homeowners

Homeowners facing foreclosure would do well to read Judge Jennifer Brunner’s thorough dissent in Wells Fargo Bank, N.A. v. Hazel [1].  Hazel defended an action in foreclosure in Franklin County by herself (pro se) and, though ultimately unsuccessful, might have marked a path to defending certain foreclosures for future defendants.

Hazel’s home loan was a Federal Housing Administration (FHA) loan.  These loans are governed by the Department of Housing and Urban Development (HUD), and require lenders to follow very specific steps in order to properly foreclose on a home.  The loan contract, also known as a promissory note, contained a vague reference to the HUD regulations:

If Borrower defaults by failing to pay in full any monthly payment, then Lender may, except as limited by regulations of the Secretary in the case of payment defaults, require immediate payment in full of the principal balance remaining due and all accrued interest * * * In many circumstances regulations issued by the Secretary will limit Lender’s rights to require immediate payment in full in the case of payment defaults. This Note does not authorize acceleration when not permitted by HUD regulations. As used in this Note, “Secretary” means the Secretary of Housing and Urban Development or his or her designee.[2]

It is settled Law in Ohio that following HUD regulations prior to initiating foreclosure on FHA loan houses constitute “conditions precedent” under Ohio Civ.R. 9(C).[3] However, Judge Brunner would rule that this vague reference to the HUD regulations actually requires lenders to attach the regulations to a Complaint for foreclosure to be in compliance with the pleading requirements of Ohio Civ.R 10(D). She writes:

Even if Wells Fargo were to assert that the conditions precedent were incorporated by reference to HUD regulations, in order to take advantage of Civ.R. 9(C), Wells Fargo would have   needed first to comply with Civ.R. 10(D) and attach the documents that are the basis of its claim-including terms set down elsewhere that are incorporated by reference. In other words, Wells Fargo having made a “claim,” was required by Civ.R. 10(D)(1) to “attach to the pleading” a copy of the operative document.[4]

Brunner’s analysis, and Hazel’s efforts, may have created another avenue to challenge the complaint by forcing lenders to attach the regulations to the complaint itself or be subject to dismissal. If nothing else, Homeowners who have FHA loans should be aware of HUD regulation 24 C.F.R. 201.50, know where to find it, and hold the lenders to it.

 

[1] Wells Fargo Bank, N.A. v. Hazel, 2016-Ohio-305, cause dismissed, 2016-Ohio-915, 145 Ohio St. 3d 1412, 46 N.E.3d 705, (10th Dist. 2016) (J. Brunner, dissenting).

[2] Id., at ¶14, emphasis added.

[3] See for example: BAC Home Loans Servicing, LP v. Taylor, 9th Dist. No. 26423, 2013-Ohio-355, 986 N.E.2d 1028, U.S. Bank, N.A. v. Detweiler, 5th Dist. No. 2010CA00064, 191 Ohio App.3d 464, 2010-Ohio-6408, 946 N.E.2d 777.

[4] Wells Fargo Bank, N.A. v. Hazel, at ¶36.

 

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