precedent

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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Banks Must be Cautious with Conditions Precedent: the Alliterative Way to Defend against Foreclosure

Banks Must be Cautious with Conditions Precedent: the Alliterative Way to Defend against Foreclosure

Put simply, foreclosure is a contractual remedy to a breach (i.e. default) on a note that is secured by a home. Thus, in order for the bank to succeed in a foreclosure action, it must prove the elements for a breach of contract. In Ohio, to prevail on a breach of contract claim, the plaintiff must prove:

 

  1. The existence of a valid contract;
  2. That the plaintiff performed their obligations under the contract;
  3. That the defendant did not perform their obligations; and
  4. Injury resulting from the defendant’s breach.[1]

 

Conditions precedent stem from the second prong. Many notes or mortgages will require notice of a default and/or acceleration. If a note or mortgage has such a notice clause, the lender must comply with the notice terms or the complaint may be dismissed.[2] Further, certain federal regulations issued by the Secretary of Housing and Urban Development (HUD)[3] may impose additional requirements on the party seeking a foreclosure.

In BAC Home Loan Servicing, LP. v. Taylor, the Ohio Ninth District Court of Appeals held that the bank’s failure to comply with HUD’s regulations could be successfully used as a defense against a foreclosure action.[4] The Taylors’ note and mortgage were subject to the HUD regulations for default and acceleration, and on appeal, they submitted affidavits that no attempt had been made for the required face-to-face meeting, while conversely BAC offered no contradictory evidence.[5] Thus, the court reversed the trial court and found a genuine issue of material fact as to whether BAC had performed all conditions precedent in order to continue with foreclosure.

This ruling is in line with many other Ohio appellate courts[6] and stands for the notion that the foreclosing party must comply with all of the conditions of the note and mortgage contract, or the homeowner may successfully defend against the foreclosure action.

[1]Jarupan v. Hanna, 173 Ohio App.3d 284, 2007-Ohio-5081.

[2] Fifth Third Mtge. Co. v. Bell, 2013-Ohio-3678.

[3] See 24 C.F.R. §203.604, which requires a face-to-face meeting or a reasonable attempt for a face-to-face meeting prior to foreclosure.

[4] BAC Home Loan Servicing. LP v. Taylor, 2013-Ohio-355.

[5] Id. at ¶ 21.

[6] See Wells Fargo v. Phillabaum, 192 Ohio App.3d 712, 2011-Ohio-1311, ¶ 11 (4th Dist.); Wells Fargo Bank, N.A. v. Isaacs, 1st Dist. No.C-100111, 2010-Ohio-5811, ¶ 10; U.S. Bank, N.A. v. Detweiler, 191 Ohio App.3d 464, 2010- Ohio-6408, ¶ 53 (5th Dist.); Washington Mut. Bank v. Mahaffey, 154 Ohio App.3d 44, 2003- Ohio-4422, ¶ 22 (2d Dist.)

 

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