Fla. App. Court (1st DCA) Holds Borrowers Waived FHA’s ‘Face to Face’ Requirement as Affirmative Defense

The District Court of Appeal of Florida, First District, recently held that borrowers waive their affirmative defense that a mortgagee did not comply with HUD’s “face-to-face” condition precedent to foreclosure when they fail to raise the defense until their closing argument at trial.

The First District also held that even if the borrowers had timely raised compliance with HUD regulations as an affirmative defense, the mortgagee was not required to comply because the property was more than 200 miles from the mortgagee and its servicing branches.

A copy of the opinion in Sarah J. Harris and Bradley C. Harris v. U.S. Bank National Association, etc. et al. is available at:  Link to Opinion.

A mortgagee sought to foreclose a mortgage secured by a promissory note issued to the borrowers. The Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD), insured the mortgage.

The note provided that in the event of default, the mortgagee may require immediate payment in full of the principal balance remaining due and all accrued interest, “except as limited by regulations of the Secretary in case of payment defaults.”  In addition, the note stated it “does not authorize acceleration when not permitted by HUD regulations.”

The mortgage also contained two nearly identical provisions requiring the mortgagee to comply with HUD regulations before initiating foreclosure.

As you may recall, HUD’s FHA regulations, at 24 C.F.R. § 203.604, among other things require a mortgagee, before filing a foreclosure action against a defaulting borrower, to have a face-to-face meeting with the borrower.  However, a face-to-face meeting is not required if: “[t]he mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either.” 24 C.F.R. § 203.604(c)(2).

The mortgagee’s complaint did not allege compliance with any HUD regulation.  However, the borrowers did not move to dismiss the complaint due to the mortgagee’s failure to allege compliance with HUD regulations, nor did the borrower assert this alleged non-compliance as an affirmative defense.

At trial the mortgagee presented the only witness.  The mortgagee’s representative did not know whether the face-to-face meeting occurred, but stated that no mortgagee or servicer branch was within 200 miles of the property.

During closing argument, the borrowers for the first time raised the mortgagee’s alleged non-compliance with HUD regulations as an affirmative defense.  The mortgagee responded that HUD regulations are not a condition precedent to foreclosure and, in any event, the “face-to-face” meeting requirement did not apply here because no branch existed within 200 miles of the property.

The trial court found that HUD’s “face-to-face” requirement was a condition to foreclosure here, but that the borrowers failed to timely raise this affirmative defense.  The trial court entered final judgment in favor of the mortgagee.  This appeal followed.

Initially, the First District examined whether HUD’s “face-to-face” requirement was a condition precedent to foreclosure in this case.  The First District noted that “[p]rovisions of a contract will only be considered conditions precedent or subsequent where the express wording of the disputed provision conditions formation of a contract and or performance of the contract on the completion of the conditions.” Gunderson v. Sch. Dist. of Hillsborough Cnty., 937 So. 2d 777, 779 (Fla. 1st DCA 2006).

The mortgagee argued that HUD regulations are mere guidelines, not conditions precedent to foreclosure.  See Cross v. Federal National Mortgage Association, 359 So. 2d 464, 465 (Fla. 4th DCA 1978) (“It seems clear now that the HUD guidelines are not mandatory procedures constituting conditions precedent to foreclosure.”).

The First District distinguished Cross, because here the note and mortgage referenced and incorporated HUD’s guidelines, thereby “making them mandatory versus merely persuasive guidelines.”

Specifically, the note stated that it “does not authorize acceleration when not permitted by HUD regulations.”  Further the mortgage twice expressly stated HUD’s regulations limit the mortgagee’s rights to foreclose.  Thus, the Appellate Court held, the mortgagee’s “right to foreclose on the mortgage does not arise unless and until these conditions have been satisfied, making the HUD regulation at issue a condition precedent.”

The First District next examined whether the borrowers waived their affirmative defense that the mortgagee allegedly did not comply with HUD’s face-to-face condition precedent to foreclosure.

As you may recall, Florida requires that “[i]n pleading the performance or occurrence of conditions precedent, it is sufficient to aver generally that all conditions precedent have been performed or have occurred. A denial of performance or occurrence shall be made specifically and with particularity.” Fla. R. Civ. P. 1.120.

Here, the mortgagee did not plead compliance with conditions precedent, but the First District found that the borrowers did not timely raise non-compliance as an affirmative defense as they raised the issue for the first time in closing argument at trial.

A defendant’s claim that a plaintiff “failed to satisfy conditions precedent necessary to trigger contractual duties under an existing agreement is generally viewed as an affirmative defense, for which the defensive pleader has the burden of pleading and persuasion.” Custer Med. Ctr. v. United Auto. Ins. Co., 62 So. 3d 1086, 1096 (Fla. 2010).  As the borrowers failed to raise the mortgagee’s non-compliance in their answer, affirmative defenses, or at any time before closing argument, the First District held that they waived and failed to preserve the defense.

The First District also found that even if the borrowers had timely raised compliance with HUD regulations as an affirmative defense, the mortgagee “wasn’t required to comply because the property was more than 200 miles” from the mortgagee, servicer, or any of their respective branches.

Accordingly, the First District affirmed the trial court’s judgment in favor of the mortgagee.

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Ernest Wagner practices in Maurice Wutscher's Commercial Litigation and Consumer Litigation groups, and leads the firm’s Insurance Recovery and Advisory group. Based in Chicago, he also supports the firm’s litigation matters in its Miami office. Ernest has substantial experience in various types of commercial and insurance recovery litigation. He has conducted more than 35 jury trials, and more than 150 arbitrations for plaintiffs and defendants. He has also successfully represented clients in numerous appeals, in various jurisdictions. Ernest earned his Juris Doctor from Emory University School of Law in Atlanta, Georgia, and his Bachelor of the Arts from the University of Iowa.