Virginia Supreme Court: Lender's Failure To Have Face-To-Face Meeting With FHA-Financed Homeowner Before Starting Enforcement Process Sinks F'closure

In Lynchburg, Virginia, The News & Advance reports:

• The Supreme Court of Virginia ruled in favor of a Lovingston-area couple in their fight against the foreclosure of their property. On April 20, the court decided the lender failed to comply with terms of the mortgage taken out by Richard M. and Karin L. Mathews that required a face-to-face meeting before beginning the foreclosure process.
  
  
• It also overturned Circuit Court Judge Michael Gamble’s ruling the meeting wasn’t required under U.S. Department of Housing and Urban Development regulations because the mortgage company’s offices were too far away.
  
  
• Court records show the Mathewses fell behind on their loan payments and the holder of their note, PHH Mortgage Corp., appointed another company to begin foreclosure. A foreclosure sale was set for early November 2009. The day before the sale, the couple filed a complaint in Nelson County Circuit Court to stop it, noting PHH representatives were required to meet with them at least 30 days before beginning foreclosure but did not.
  
  
• The mortgage company responded under Virginia common law, the person who first breaks a contract cannot sue to enforce it. It also said it was excluded from the meeting requirement because HUD had determined it was only required if the lender had a servicing office within 200 miles of the mortgaged property. The company had no such office. Gamble agreed, and dismissed the Mathews’ complaint in February 2011.
  
  
• The Supreme Court of Virginia agreed in October to hear an appeal. An opinion rendered by Justice William Mims reverses both of the circuit-court rulings and sends the case back to be reheard.
  
  
• The Mathewses and the attorney for PHH Mortgage Corp. could not be reached for comment. The Mathews’ attorney declined to comment about the decision. Although the couple could not be reached, Nelson County records show they still own a home in the Lovingston area.
  
  
• The justices opined that under a similar 2008 case,(1) lenders must comply with all terms in a contract leading up to foreclosure and nonpayment of a mortgage is not the sort of material breach precluding borrowers from seeking to enforce the terms.
  
  
• The HUD meeting requirements were incorporated into the couple’s loan because it was backed by the Federal Housing Administration. Under the regulation, the meetings are not required if the mortgaged property is not within 200 miles of a lender’s branch office. HUD, however, attempted to limit the definition of “branch” office to be a servicing office with staff trained to discuss options with the borrower behind on his payments. Department interpretations noted many “branch” offices are not staffed with properly trained employees.
  
  
• “The regulation itself does not support this limitation,” Mims wrote. “To accept HUD’s interpretation would amount to allowing it to create a new regulation or tacitly amend (the regulation) without following the proper statutory procedure.” The court noted borrowers should be able to travel to a lender’s branch office and meet with properly trained employees via tele- or video-conference.
  
  
• A re-hearing of the issue in NelsonCountyhas not yet been set. A HUD spokeswoman had no comment about the ruling except to say the department is studying it.

Source: Lovingston couple wins state Supreme Court case.

For the ruling, see Mathews v. PHH Mortgage Corp., No. 110967 (Va. April 20, 2012).

(1) Bayview Loan Servicing, LLC v. Simmons, 275 Va. 114, 654 S.E.2d 898 (2008).