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Jason Cornell Jan. 8, 2019

Home loans insured by the Federal Housing Authority (“FHA”) often contain language providing that the note which is secured by a mortgage “does not authorize acceleration when not permitted by HUD regulations …”  In the context of foreclosure actions, two regulations are of particular importance. Under 24 C.F.R. § 203.604(b), “[t]he mortgagee (i.e. the lender) must have a face-to-face interview with the mortgagor (the borrower), or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid.”  Similarly, under 24 C.F.R. § 203.500 “it is the intent of the Department that no mortgagee shall commence foreclosure or acquire title to property until the requirements of this subpart have been followed.”

Taken together, the HUD regulations’ face-to-face meeting requirement is a condition precedent to filing a foreclosure lawsuit.  Said another way, a lender cannot foreclose on applicable FHA loans without first conducting a face-to-face meeting with the borrower.  Whether a lender is required to conduct a face-to-face interview prior to foreclosure was before the Second District Court of Appeal recently in Derouin v. Universal American Mortgage Co., 254 So.3d 595 (Fla. 2d DCA 2018).

In Derouin, Universal Mortgage issued a home loan insured by the FHA.  Under the loan documents, if the borrowers (the Derouins) defaulted, Universal could accelerate the note, however, the note further provided that it did “not authorize acceleration when not permitted by HUD regulations.”  Under the HUD regulations, Universal was required to have a face-to-face interview with the borrower, or make reasonable efforts to do so, before Universal could commence foreclosure and acquire the property.

Universal sued the Derouins after they defaulted on their mortgage.  In its complaint, Universal alleged it had satisfied “all conditions precedent to commencement and maintenance of this action …”  In their answer, the Derouins denied Universal satisfied the conditions precedent to bringing the foreclosure action. Specifically, the Derouins denied that Universal failed to conduct, or otherwise attempt to conduct, a face-to-face meeting with the Derouins.

At trial, the lower court found that the Derouins had waived their right to receive a face-to-face meeting with the lender.  The court based its finding on Ms. Derouin’s testimony that she informed the loan servicer during a telephone call that she no longer wished to deal directly with the lender.  On appeal, the Second District reversed the trial court, finding that Universal never offered the Derouins an opportunity to participate in a face-to-face meeting. The court further found that there was no evidence that Universal or its loan servicer were prohibited from conducting a face-to-face meeting with the Derouins and their attorney.

The court in Derouin noted that there are exceptions to the face-to-face meeting requirement.  One exception is where a “reasonable effort to arrange a meeting is unsuccessful.”  But as the court pointed out, this exception “presupposes that an effort was made” to have a face-to-face meeting. The evidence showed that Universal never made such an attempt.

The Derouin decision is helpful as it shows the courts’ willingness to hold lenders accountable for satisfying federal regulations as a precondition to foreclosure.  In a footnote, the court noted that the regulations at issue pertain to FHA-backed loans to high-risk borrowers. The regulations insure that before lenders seek to foreclose on the borrower, the lender must engage in “loss mitigation measures” with the defaulting borrower.