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Illinois App. Court (1st Dist) Holds HUD ‘Face-to-Face’ Compliance May Not Have Been Excused by Letter from Borrower’s Counsel

HUD face to face meetingThe Appellate Court of Illinois, First District, recently vacated a judgment of foreclosure entered against a homeowner borrower, concluding that the mortgagee failed to conduct a face-to-face meeting with her prior to initiating foreclosure proceedings, as required for mortgage loans insured by the Department of Housing and Urban Development (HUD).

In so ruling, the Appellate Court held that the trial court erred in entering summary judgment in the mortgagee’s favor because a genuine issue of material fact existed as to whether a letter from the borrower’s former counsel was a “stop communications” letter that exempted the mortgagee from the face-to-face meeting requirement.

A copy of the opinion in Fifth Third Mortgage Co. v. McCord is available at:  Link to Opinion. 

In July 2016, a mortgagee filed a foreclosure action against husband and wife homeowners alleging a default under their mortgage loan.  The wife (“borrower”) was the only signer on the loan’s promissory note, and individually entered into a second loan modification agreement with the mortgagee individually in October 2014.

The borrower and her husband moved to dismiss the foreclosure complaint on the basis that the mortgagee failed to conduct a face-to-face meeting with them prior to filing the foreclosure complaint, as required for mortgages insured by HUD.  In response, the mortgagee argued that it was exempt from this requirement because it received a cease-and-desist letter from the borrower’s attorney in February 2014 requesting that it stop all communications with the borrower regarding the collection of the debt, which it acknowledged in a responsive letter to the borrower’s counsel.

The trial court struck the motion to dismiss and granted leave to file an answer to the foreclosure complaint, wherein the borrower and her husband again alleged that the mortgagee failed to conduct the required face-to-face meeting prior to initiating foreclosure as an affirmative defense.

The mortgagee moved for summary judgment and judgment of foreclosure, arguing it was not required to conduct a face-to-face meeting with the borrower because she requested that it cease communications with her, triggering the exceptions to the face-to-face meeting under 24 C.F.R. § 203.604(c)(3) (2018). (“A face-to-face meeting is not required if the mortgagor has clearly indicated that he will not cooperate in an interview.”).

The borrower and her husband filed a response in opposition to the mortgagee’s motion, as well as their own cross-motion for summary judgment, arguing that the mortgagee was still required to arrange a face-to-face meeting prior to initiating foreclosure proceedings because the February 2014 letter sent by the borrower’s former counsel was not a “stop communications” letter, but a limited power of attorney letter and third-party authorization, only requesting communications from the mortgagee to be made directly to counsel.  In support of their claims, the borrower and her husband noted that even after receipt of the February 2014 letter, the mortgagee negotiated a modification agreement that was entered and executed by the borrower in October 2014.

After hearing arguments on the parties’ respective motions for summary judgment, the trial court entered summary judgment in the mortgagee’s favor, concluding that the February 2014 letter sent by the borrower’s former counsel did, in fact, constitute a request to halt communications, which relieved the mortgagee of its duty to conduct a face-to-face meeting because it was never withdrawn.  The property was subsequently sold at a judicial foreclosure sale which was later confirmed by court order.  The borrower appealed.

The lone issue on appeal was whether the trial court erred in granting summary judgment in the mortgagee’s favor, and more specifically, whether receipt of the purported “stop communications” letter in February 2014 exempted the mortgagee from the requirements of arranging a face-to-face meeting prior to initiating foreclosure. 

As you may recall, federal regulations for HUD-insured loans require that the mortgagee make a reasonable effort to conduct a face-to-face meeting with the borrower prior to initiating foreclosure proceedings, which “shall consist at a minimum of one letter sent to the mortgagor certified by the Postal Service as having been dispatched [and]… [shall] also include at least one trip to see the mortgagor at the mortgaged property, unless the mortgaged property is more than 200 miles from the mortgagee, its servicer, or a branch office of either, or it is known that the mortgagor is not residing in the mortgaged property.” 24 C.F.R. § 203.604(b)-(d) (2018).

The Appellate Court noted that the February 2014 letter from the borrower’s counsel authorized her attorney to interact with the mortgagee on all matters pertaining to the mortgage loan, but notably, did not include the words “cease-and-desist.”  The borrower’s counsel argued before the Appellate Court that the letter demonstrated the borrower’s willingness to work with the mortgagee by authorizing her former counsel to speak with it given the potential foreclosure and did not relieve it of its obligation to make a reasonable effort for a face-to-face meeting with the borrower, but rather instructed that any such meeting be coordinated through counsel. 

The borrower’s counsel further noted at oral argument that the mortgagee’s position that the letter required all communications to stop was undermined by its efforts to work with the borrower to modify the loan in October 2014. 

In response, the mortgagee took the position that the February 2014 letter still allowed it to have loss mitigation discussions with the borrower’s former counsel but was prevented from arranging a face-to-face meeting through counsel because the federal regulations at issue require the lender to contact the homeowner directly, and not through an authorized agent.

With no established Illinois law on this issue, the Appellate Court turned to cases from Florida appellate courts for guidance.  In Derouin v. Universal American Mortgage Co., 254 So. 3d 595 (Fla. Dist. Ct. App. 2018), a Florida appellate court held that a borrower’s telephonic instruction to its bank to contact her attorney for future communications was not the same as indicating to the mortgagee that the borrowers were not open to a face-to-face meeting and did not exempt the bank from the face-to-face meeting requirement. Derouin, 254 So. 3d at 602.  However, in Bank of America, N.A. v. Jones, 294 So.3d 341 (Fla. Dist. Ct. App. 2020), another Florida appellate court concluded that the borrowers’ cease-and-desist letter sent before the foreclosure proceedings could “‘be interpreted as indicia of an unwillingness to commit to’” a face-to-face meeting. Jones, 294 So. 3d at 343.

Considering argument on both sides, the Appellate Court here found that an issue of material fact existed as to the meaning and interpretation of the February 2014 letter in which the mortgagee relied upon in eschewing its obligation to conduct a face-to-face meeting with the borrower prior to initiating foreclosure proceedings on the HUD-insured loan.

Accordingly, the Appellate Court concluded that the trial court erred in granting summary judgment in the mortgagee’s favor and vacated the trial court’s judgment and remanded the case for further proceedings.

Photo: Andriy Blokhin – stock.adobe.com

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions. For more information, see https://mauricewutscher.com/attorneys/christopher-p-hahn/

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