Tuesday, May 1, 2012

HUD Protections in Foreclosure

Courts around the country have been dismissing foreclosure action due to the bad acts of mortgage servicing companies (e.g. PHH Mortgage Corporation).  More specifically, the failure to comply with federal regulations that specifically regulate mortgages that are insured buy the US Department of Housing and Urban Development ("HUD").  Most recently, the Virginia Supreme Court (the highest court in the state) remanded a mortgage foreclosure case due to the mortgage servicer's (PHH) failure to comply with HUD regulations.

More Information on HUD Servicing Guidelines

HUD has an interest in protecting the mortgages that it ensures, therefore the US government has granted authority for HUD to create extra protections to homeowners who have a loan insured by HUD.  One of these protections requires that:

the lender to "have a face-to-face interview" with the borrower, "or make a reasonable effort to arrange such a meeting." 24 C.F.R. § 203.604(b). However, it also states that "[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).

This means that before a lender can foreclosure, they need to meet with the homeowner to discuss loss mitigation options (loan modification, refinance, deed-in-lieu of foreclosure, sales etc.)  Lenders (and their servicers) have attempted to skirt this rule by claiming an exemption under the "200-mile rule"  this exemption allows a servicer to escape the face-to-face meeting requirement if they do not have an office located within 200 miles of the subject property (the home).

In case you are unaware, many mortgage servicing companies have only a few actual "mortgage servicing offices".  These are large facilities filled with personnel who are trained in how to service a mortgage loan (See: Collect Debts).  While you might see a Wells Fargo Mortgage storefront on every corner in your county, these are largely just sales offices where mortgage loans originate.  The mortgage companies argue that these offices do not count as "branch offices" as contemplated by HUD and under its regulations.  Many consumer attorneys such as myself disagree with this attempt to end run around the law.

In a great decision for American homeowners, the Virginia Supreme Court has sided with the homeowner!  Quoting from Mathews v. PHH Mortgage Co (April 2012):

 "The Mathewses argue the term "branch office" is unambiguous and that the plain language of the Regulation supersedes HUD's response in the FAQ. They assert that the common and popular meaning of a "branch office" is "a place for the regular transaction of business or performance of a particular service located at a different location from the business's main office or headquarters." Moreover, HUD expressly acknowledged in the FAQ that the term "branch office" encompasses not only a "servicing office" but a loan origination office as well. We agree."

The Virginia Supreme Court went out to explicitly reject PHH's argument that  because it did not have a "servicing office" within 200 miles it should be exempt from this regulation.

For the complete case follow this link to google scholar Mathews v. PHH (Virginia 2012)

Way to go Virginia!