Mark A. Laws Argues to the Illinois Supreme Court

Oral arguments were heard in the case of Wells Fargo v. McCluskey two weeks ago in front of the highest court in the state of Illinois.  The Supreme Court took the case to decide an important issue for mortgage foreclosure cases within the state.  That issue: Can homeowners (defendants in mortgage foreclosure cases) bring motions to vacate (allowed under Illinois Code of Civil Procedure Section 2-1301) in mortgage foreclosure cases, after the lender (plaintiffs) has already sold a home at a judicial sale?

This ruling in this case will determine several important milestones for both sides in mortgage foreclosure cases.  The court could potentially decide the case on a few different issues.  The conflict arises between the code of civil procedure and the Illinois Mortgage Foreclosure Law (IMFL).  McCluskey, represented by Mark A. Laws, argued that the Code of Civil Procedure allows litigants in any civil law suit to bring a motion to vacate, under section 2-1301 of the code, at any time up until 30 days after the final judgment.  In a mortgage foreclosure case, the final judgment is the last order entered by the court - the order confirming the judicial sale.  Wells Fargo, represented by James Noonan of Noonan and Lieberman, argued that the IMFL is more restrictive and thus inconsistent with the general rules for the code of civil procedure.  Furthermore, that the IMFL must control over the Code of Civil Procedure.

Oral arguments were held on this matter before the Supreme Court of Illinois on September 17, 2013, The case number is 115469.  The full video of these arguments can be access on the Illinois Supreme Court website at:

http://www.state.il.us/court/media/on_demand.asp

The Case was also feature in the Chicago Law Bulletin on September 18, 2013.  The full article below:

High court takes look at foreclosure dispute

By Andrew Maloney 

Law Bulletin staff writer

The Illinois Supreme Court heard a dispute Tuesday over foreclosure proceedings in a case that could reshape the timetable for homeowners looking to challenge a default judgment.

The case stems from the actions of defendant Katie McCluskey, who stopped paying her mortgage in April 2010, prompting her bank, Wells Fargo, to file a motion to foreclose.

On Feb. 24, 2011 — the day the home was slated for auction — McCluskey filed a motion asking a court to vacate the default order and halt the sale.

Both she and the bank agreed in court to delay the sale until May 12, 2011, a 75-day period during which both parties would attempt to renegotiate the mortgage. No deal was reached, however, and Wells Fargo subsequently took over the home once the deadline had expired.

About a month later, McCluskey filed a second motion to vacate the default, which DuPage County Associate Judge Robert G. Gibson denied in August 2011, ruling that the defendant had waived her right to file such a motion after the initial compromise to delay the home sale.

McCluskey disputed that notion, arguing that her new challenge was still timely because a trial court had not yet confirmed and entered a final order on the bank’s takeover of her home.

In an opinion by Justice Mary Seminara Schostok, the 2nd District Appellate Court reversed the trial court ruling and backed McCluskey by saying that she did not waive her right to bring a second motion after the parties’ initial agreement.

“Here, the agreed order that the trial court entered on Feb. 24, 2011, did not make any reference to the defendant’s forgoing any right to bring a second … motion at a later stage in the proceedings. We believe that the waiver of this right would have been a material term in the parties’ agreement,” Schostok wrote.

James V. Noonan, a partner at Noonan & Lieberman Ltd. who represented the bank before the high court, told the justices that a homeowner essentially loses his or her stake in the property once the sale occurs.

“Our position is that the borrower’s right to vacate a default can’t be brought after the hammer falls on the sale,” Noonan said. “He or she has no rights left to protect.”

To allow challenges like the one in this case to linger after the sale would discourage buyers and make the process even more confusing, he added.

Mark A. Laws, a sole practitioner who argued on behalf of McCluskey, said in crafting mortgage and foreclosure laws, the Illinois legislature wanted a system in which the courts had broad discretion to accept and review complaints before or after the home is sold.

“I disagree with counsel. I think they have rights on the property up until the final order by the court,” Laws told the justices. “The point is, we want our trial court judges to have that discretion, and exercise that.”

One thing the parties agreed on was the existence of a conflict between the state’s Code of Civil Procedure and the Illinois Mortgage Foreclosure Law.

The former grants a court power to “set aside any default … upon any terms and conditions that shall be reasonable” while the latter limits a court’s ability, after a sale occurs, to dismiss defaults unless “(i) a required notice (of sale) was not given, (ii) the terms of the sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done.”

Justice Charles E. Freeman asked whether that fourth provision “aims to accomplish the same goal to promote fairness, and if that is true, then why shouldn’t (it) be available as a remedy?”

Noonan responded that giving the civil code statute more weight would be akin to “basically putting a restart in the litigation” whereas, under the foreclosure law, “all it does is disallow the sale, it does not restart the foreclosure” process.

The case is Wells Fargo Bank N.A. v. Katie McCluskey, No. 115469.

New Illinois Supreme Court Rules Relating to Mortgage Foreclosure Cases

On April 11, 2011, the Illinois Supreme Court created the Special Supreme Court Committee on Mortgage Foreclosures and charged it with the following tasks: investigating the procedures used throughout the State of Illinois in mortgage foreclosure proceedings; studying relevant Illinois Supreme Court Rules and local rules that directly or indirectly affect such proceedings; analyzing the procedures adopted in other states in response to the unprecedented number of foreclosure filings nationwide; and reviewing legislative proposals pending in the Illinois General Assembly that may impact the mortgage foreclosure rules for the state. To meet this charge, the Committee established subcommittees, one of which was the Practice and Procedures Subcommittee. The Practice and Procedures Subcommittee submitted proposals for changes to the practice and procedures for mortgage foreclosure cases for discussion at a public hearing held on April 27, 2012. After consideration of comments and discussion at the public hearing, the Committee proposed new rules governing mortgage foreclosure practice and procedure in Illinois.

This article will highlight those sections of the new Rules that deal with the foreclosure of residential properties in Illinois.  More specifically, information that is helpful and relevant to homeowners who are defendants in foreclosure in Illinois.

RULE 113: Practice and Procedure in Mortgage Foreclosure cases

To read the complete rule follow this link

This rule relates to the documents that are required in order to support a mortgage foreclosure case filed in Illinois.  It is meant to supplement current existing Illinois Law.

The first part of the rule provides a "Form Prove-up Affidavit" which is an example of the affidavit that foreclosing parties (banks) must attach in support of a judgment for foreclosure.  Most relevant here is that it required that the signature page (which is to be signed by a bank agent/representative) must not be standalone.  Furthermore, this rule lays out all of the minimum requirements of a prove-up affidavit.  This forces the foreclosing party to substantiate and support the records and figures used against the defendant-homeowner.  This includes laying a proper foundation for any computer records that were used while creating the affidavit.  It goes on to clearly state the amounts that are being claimed as due or past due and owed by the homeowner.

The next part of this rule deals with default judgments.  A default judgment is where a plaintiff (here the bank) obtains a judgment (of foreclosure) against a defendant in the defendant's absence.  This is usually because the defendant failed to appear in court or hire an attorney.  In Illinois and especially Cook County, it is very common for a lender to foreclose by default and obtain judgments against absentee homeowners.  Part (d) of Rule 113 requires that the Circuit Court Clerk shall mail copies of any default judgments to the property address of the homeowner.  It is important to note that this notice is only mailed out AFTER the default judgment has been entered.  The entry of a judgment is a pivotal step in a foreclosure case and should not be taken lightly.

The next relevant section for purposes of this article is section (f) of Rule 113.  This section deals with judicial sales of foreclosed properties.  After a judgment of foreclosure has entered, the bank typically proceeds to a judicial sale (informal auction - usually held in an office building downtown).  This usually happens about 3 months after the judgment.  Section (f) requires that notice of this sale be sent to all defendants at least 10 days before the sale is to occur.  This notice shall include the date, time and location of the sale.

The remaining sections of rule 113 are not relevant to this article but the full text can be found at the link above.

RULE 114: Loss Mitigation Affidavit

This rule, is in my opinion, the best new rule to be adopted relating to mortgage foreclosures period.  Part (a) of this Rule reads as follows:

(a) Loss Mitigation. For all actions filed under the Illinois Mortgage Foreclosure Law, and where a mortgagor has appeared or filed an answer or other responsive pleading, Plaintiff must, prior to moving for a judgment of foreclosure, comply with the requirements of any loss mitigation program which applies to the subject mortgage loan.

This means that it is now a Supreme Court Rule in Illinois for banks to comply with loss mitigation efforts.  Furthermore, the bank is required to complete and file with the court, and affidavit which verifies what loss mitigation steps were taken.  A form affidavit is provided in the text of the Rule.

Section (d) of this rule provides the teeth for the homeowner:

 (d) Enforcement. The court may, either sua sponte or upon motion of a mortgagor, stay the proceedings or deny entry of a foreclosure judgment if Plaintiff fails to comply with the requirements of this rule.

This means that court may, on its own, or at the request of the homeowner, stay the foreclosure case if the bank is not in compliance with this rule.  Stop the case!

Conclusion

These new rules are great victories for justice and fairness in the foreclosure process in Illinois.  There is still disagreement among some of my colleagues as to the effectiveness (or should I say potential effectiveness) of these rules, but for now they look like strong consumer protection provisions.  The Supreme Court recently pushed back the effective date of these rules to May 1, 2013 in order to better assess applicability.  Even still, they should be going live on that date.  

I applaud the work of the Illinois Supreme Court and the work done by the committee relating to these rules.  It is a tribute to Illinois homeowners and another historic milestone on the road to recovery for the American family.

Wells Fargo v. McCluskey - A Big Win for Illinois Homeowners in Foreclosure

Second District Appeals Court Declines to Adopt MERS v. Barnes

In what will surely be a landmark decision in Illinois mortgage foreclosure law, the Appellate Court of Illinois for the Second District recently ruled, in Wells Fargo Bank, N.A. v. McCluskey, 2012 IL App (2d) 110961, that homeowners in foreclosure may file motions to vacate (known as 2-1301 motions in Illinois) even after the foreclosure sale has been conducted. 

This is a HUGE victory for homeowners facing foreclosure in the Second District (Jo Daviess, Stephenson, Winnebago, Boone, McHenry, Lake, Carroll, Ogle, Lee, De Kalb, Kane, Kendall and DuPage counties).  The Second District Court departed from a decision in the First District, See Mortgage Electronic Registration Systems Inc. v. Barnes, 406 Ill.App.3d 1 (2010).  The Second District court found:

"...[W]e disagree with the Barnes court's reasoning that permitting a defendant to file a section 2-1301(e) motion following a judicial sale would threaten to 'evicerate' section 15-1508 of the Foreclosure Law."  McCluskey at 6.

This decision has created a split of authority among the districts in Illinois.  In Cook County (the First District), Barnes tells us that we cannot file 1301 motions after the sale has been conducted.  In the Second District, McCluskey says that Defendants may continue to file these motions under the standards and rules that apply to any 1301 motion (meritorious defense, due diligence, timeliness, discretion of the court etc.)

The lesson for homeowners here remains the same.  If you are facing foreclosure, it is important that you seek the advice of a competent attorney in your area.  Timelines and paperwork are very important in a foreclosure case (and indeed any lawsuit).  You should always make every effort to adhere to the rules set by the court.  For most non-attorneys, this means you should seek to hire an attorney or at least consult with one.



Mark A. Laws is a consumer protection and foreclosure defense attorney based in Chicago Illinois.  He was the lead attorney for the Appellant in Wells Fargo v. McCluskey.


Please email comments to mark@lawsatlaw.com

The Illinois Mortgage Foreclosure Process

Most people know very little about the process behind foreclosing on a mortgage.  Sure, many have heard the term "foreclosure" and they know that it means the bank is coming to take the house, but what does that mean to the homeowner?

Foreclosure is different from state to state.  Some states use what is called a "judicial foreclosure" (this is what we have in Illinois), while others use what is known as "non-judicial foreclosure" or "statutory foreclosure".  For purposes of this article, I will be focusing on the Illinois mortgage foreclosure process.

As an attorney practicing in Chicago, Illinois, I regularly deal with the judicial foreclosure process in Illinois - particularly in Cook County and the collar counties surrounding Chicago.  In Illinois, we have a law called the Illinois Morgage Foreclosure Law ("IMFL") which governs the manner in which a mortgage lender (a/k/a lien holder, mortgagee, bank) is able to foreclose on a mortgage.  I won't bore you with the intricate details about the law - leave that to the lawyers.  As a homeowner who might be facing foreclosure, this is what you need to know.

TIMELINE FOR A FORECLOSURE IN ILLINOIS

• The process begins when you fall behind on your mortgage payments (or in some cases, where the mortgage company makes an accounting mistake).
• You will start to receive phone calls and letters from your bank or third party companies that work for the bank (mortgage servicing companies/debt collection agencies - people in call centers).
• GRACE NOTICE: After falling behind 30-90 days, you will receive a letter from your mortgage company, this letter is required under Illinois Law.  It will inform you that you have 30 days to come current on your loan or the mortgage company will file a foreclosure lawsuit against you.
• Note: that this letter will come regular U.S. mail and looks relatively innocuous.  THEY MUST SEND IT BEFORE THEY FILE A FORECLOSURE SUIT AGAINST YOU
• LAWSUIT: At this point, you are probably about 90 days delinquent on your loan payments.  The case has been referred to local attorneys who will handle filing the lawsuit against you.
• You will soon be served with a summons to appear in court.  If you have not already sought local counsel, this is the time to get on the phone.
• Note: Illinois recently passed a law specifically regarding defendant-homeowners in mortgage foreclosure law suits.  (see the next lines).
• If you appear in court even once you may waive defenses to your foreclosure case.
• If you file one paper in court, you may waive defenses to your foreclosure case.
• Please call an experienced foreclosure attorney before you go to court.
• We have come to a fork in the road.  You can choose to fight your foreclosure (either on your own, or with the help of legal counsel), or you can choose to ignore this lawsuit.
• OPTION 1: DO NOTHING
• If you do nothing, the attorneys for the bank will obtain a judgment of foreclosure against you.  
• This will happen about 2-4 months after you were served with the summons and complaint.  
• Note: This could be longer or shorter depending on which county your property is in.
• Typically about 3 months after judgment, the bank (through its attorneys) will put the property up for sale at auction.  
• 30-45 days after sale, the bank will come back into court and ask the judge to confirm the sale of the property.
• You (as the former owner) have 30 days from the confirmation date to vacate the premises.  The new owner has a legal right to occupancy.
• TOTAL TIME FROM COMPLAINT TO CLOSE: 6-9 MONTHS.
• OPTION 2: FIGHT THE FORECLOSURE SUIT
• The first thing you should do when you get served with a lawsuit is call an attorney.  If you don't know an attorney, call your local bar association.
• Your attorney will file documents on your behalf with the court to defend the foreclosure lawsuit.
• On average, the effect of raising appropriate defenses and filing the correct documents with court, will extend a foreclosure case by 12-18 months (in addition to the 6-7 months it normally takes).
• Additionally, many counties are now offering mediation programs for homeowners facing foreclosure.  These programs can be great tools if you know how to navigate them.
• TOTAL TIME FROM COMPLAINT TO CLOSE: 24-30 MONTHS.

THE BOTTOM LINE

Most people will only ever face foreclosure one time.  They are not familiar with the process because it is long, complicated and unfamiliar.  In most cases, the cost of consulting an attorney is far less than the cost of going through a foreclosure alone.  Beyond the monetary value of hiring an attorney, there is additional value that the homeowner can receive.

By hiring a professional, a homeowner gains the following:

• Knowledge about the process through each step of the case.
• Well-informed opinion about options for the homeowner.
• Loss Mitigation (i.e. Loan modifications, short sales, deeds-in-lieu)
• Is mediation right for you?
• Where will you go next, what is the timeline for MY case?
• A stringent legal defense, ensuring the bank respects your rights as a consumer.
• Protection from harassing calls from mortgage company debt collectors.
• Peace-of-mind knowing that a professional is representing your interests.

Consumer Bankruptcy Part 2: Chapter 13

This is the second part of my three part breakdown of consumer bankruptcy cases.  These pieces are meant as informational tools for consumers who are considering bankruptcy or are looking to find out more information about what bankruptcy is.  I will remind the readers that in order to determine the best options for any given person, it is very important to consult with a local professional bankruptcy attorney.  There is no substitute for learned local counsel.

Chapter 13

The sometimes less popularized version of a consumer bankruptcy is Chapter 13.  As opposed to liquidation (See Chapter 7), a Chapter 13 is a reorganization or repayment plan.  Chapter 13 provides a way that people can keep property and pay back creditors over the course of the plan (over a term of 36-60 months).  This type of bankruptcy is also very helpful to people who experienced a temporary loss of income and who now have regular income and can make regular monthly payments.  Chapter 13 can:

• Help a homeowner to prevent or stop a mortgage foreclosure
• Help a driver reinstate their license through repayment on parking tickets
• Allow a consumer debtor to pay back some of their debts over time
• Grant a debtor a discharge of debts upon completion of a plan (3-5 years)

REQUIREMENTS

The requirements for filing chapter 13 are few.  A person need only have "regular income" and less than $336,900 in unsecured debt.  Unsecured debts are typically things such as credit cards, medical bills and other regular loans and lines of credit that are not backed up with collateral.  There is also a requirement of less than $1,010,650 in total secured debt.  Please note that these debt limits are subject to change on a regular basis as determined by Congress and as permitted by law.  It is important that you consult with a local bankruptcy lawyer before making any determinations.

FILING THE CASE

Filing the chapter 13 case is very similar to a Chapter 7.  A few forms are required to start the case and the debtor must have also completed the required credit counseling course previous to filing the petition.  The main difference in filing a chapter 13 case is with the repayment plan which is proposed by the debtor.

THE PLAN

The Chapter 13 Plan is the document which is created by the debtor which is proposed to the court in the Bankruptcy case.  This Plan is the document which set forth the manner in which debts will be repaid over the next 3-5 years.  The Debtor is generally given great leeway in constructing this plan, but there are certain requirements and restrictions, some of which are:

• All priority claims must be paid in full (i.e. taxes, child support payments, and other special debts)
• The present value payments must equal at least what the creditors would receive through a chapter 7. This means that you cannot propose to pay less in a chapter 13 than you would in a 7.
• Secured creditors must accept the plan. (your mortgage company)
• additionally, you are required to continue to pay your regular payments (i.e. mortgage) as well as make payments on the arrearages.
• Usually, the debtor must pay ALL of their available disposable income each month toward the plan (through the U.S. Trustee).

These restrictions are sometimes more complicated and there are exceptions to these rules.

CONFIRMATION

Assuming that you have followed all the rules and filed all the proper forms, you will be all set to go in front of a bankruptcy judge for confirmation of your plan.  Hopefully, you or your attorney has done all of the legwork required to create a successful and feasible plan for you.  by this point you should have already made a payment or two to the Trustee based on the proposed plan.  Barring any objections from the creditors or the Trustee, the court should confirm your plan, Congratulations!

CONVERSION/AMENDMENTS

3-5 years can be a long time.  Over that period of time, it is common for circumstances to change.  If they do, the debtor may experience a change in income or financial status.  This might mean that the original plan needs to be amended.  Don't worry, this is allowed and common.  It is important that you make sure to keep making payments to the trustee or else your case can be dismissed or converted to a chapter 7.  In order to avoid this, you should consult with your attorney or the trustee's office to make payment arrangements.  If you fail to make timely payments each and every month in the plan, your case will be dismissed and you be back to square one.  DONT MISS YOUR PAYMENTS!!!

DISCHARGE

Assuming that you made it through 3-5 years of monthly payments, the final step in the case is discharge.  The discharge is the order from the bankruptcy court which releases the debtor from any further obligations under debts which were properly included in the bankruptcy petition and plan.  A Chapter 13 discharge is often broader than a discharge in chapter 7 (some additional types of debts are included) but it is also more difficult to obtain.  Some of these additional types of debts are:

• debts arising from injury to property
• marital property settlements
• certain fines or penalties

There are, of course, exceptions to a discharge in a chapter 13 as there are in a chapter 7.  Please consult with a local bankruptcy attorney to find out if a Chapter 13 is right for you.

For more information about Chapter 7, please see my separate article Here

My next article will discuss how to decide if bankruptcy is right for you and if so, what chapter you should file.

Consumer Bankruptcy: Part 1 - Chapter 7

As a consumber bankruptcy firm, one of the most common questions asked by clients is about the different kinds of bankruptcy (called chapters).  The most common types of cases filed by individual consumer debtors are chapters 7 and 13.  Choosing the right type of case to file is a decision that is based on your financial situation, your goals, the types of debts you owe and your intentions relating to your property.  This decision can be very important and for many people, very difficult.  It is important that you seek professional advice from an experience bankruptcy attorney regarding which may be right for you.  I will provide a general idea of what each chapter involves and who typically qualifies to file.  Remember, this is a general information article.  Each person has a specific set of circumstances that alter the following criteria.  Furthermore, bankruptcy rules (even though through a federal court) are very different from state to state and district to district. Please consult with a local attorney in-person or on the phone in order to properly assess your personal situtation.

Chapter 7

Most people, when thinking of bankruptcy, think of a chapter 7 (also called a liquidation).  During the years of 2008-2012, more than 1 million consumer debtors file for Chapter 7 bankruptcy protection per year. US Courts BK Stats.  Any person residing in or having property in the US (including a business) may file for Ch. 7 bankruptcy protection (11 USC sec. 109).  Before filing, the person muct have received a credit counseling briefing from an approved non-profit agency.  US Trustee Approved Credit Counseling Agencies. 

FILING

There are a number of forms that consumer debtors must fill out in order to complete a chapter 7 filing but in order to start the case, a person only needs to fill out a 3 page petition with an attached proof of credit counseling along with a court assessed filing fee of $306 (current as of May 2012).  The proper place ("venue") to file a petition in bankruptcy is the "domicile, residence, principal place of business or where the principal assets are located" for 180 days prior to petition.  This means that if you have recently moved, the proper place to file and more importantly, the proper rules and exemptions that apply to you might not be where you actually are.  Again, you should consult with a local bankruptcy expert in order to assess your case.

POST-FILING

Upon filing the petition, the debtor is automatically granted immediate protection from creditors.  This includes garnishments, levies, seizures and attachments.  Additionally, the assets and property of the debtor are generally frozen (there are always exceptions to any rule).  Within a few weeks of filing, the court will notify all creditors of a meeting to be held with the trustee (an attorney who represents creditors in bankruptcy court).  This meeting is sometimes called the "meeting of creditors" or the "341 meeting"  This notice also sets certain deadlines with the court and the important filing dates with the court.

341 MEETING

The 341 meeting is often the only hearing that a consumer debtor has to appear for in a straight chapter 7 case.  At this meeting, debtors and their attorneys meet with the bankruptcy trustee to verify information that was filed with the petition.  The trustee is tasked with administering the bankruptcy estate of debtors and if appropriate, she will distribute assets to creditors that are owed money by the debtor's estate.  Typically, trustees will ask debtors about property they own, law suits that are pending, tax returns for a few years prior to filing, pay stubs (or other proof of income) and questions relating to monthly expenses.  Debtors are required to appear in person with a photo ID and proof of social security number.  Despite being called the "meeting of the creditors", creditors rarely actually appear a the 341 meetings, instead the trustee acts on behalf of the creditors.

EXEMPTIONS

What many people don't know is that you can keep much of your personal property even after filing for Ch. 7 protection.  Each state provides that debtors are allowed to protect or "exempt" certain property from creditors.  This means that people who file for bankruptcy can still keep things such as:

• A primary home up to a certain amount of equity
• A vehicle up to a certain value
• Government benefits such as social security or unemployment
• Retirement funds
• Clothes
• Tools used for a trade profession

The bottom line here is that, if you file for Ch. 7, the creditors will not literally take the clothes off of your back.  Bankruptcy protection exists so that people can get a fresh start and unburden themselves from a mountain of debts that seem unsurmountable.

For more information about what you can protect in bankruptcy, you should consult with a local bankruptcy attorney.  For an easy and quick look at Illinois Exemptions follow this Link to Illinois Exemptions.

DISCHARGE

The final step in the Chapter 7 process is the discharge.  This is the final order from the federal court which grants the debtor relief from any pre-petition debts that were included ("scheduled") in the bankruptcy petition.  Generally, the discharge applies to all debts EXCEPT:

• Tax Debts and other debts owed to governmental units
• Debts for domestic support obligations (alimony and child support)
• Student Loans
• Debts involving fraud
• Debts involving personal injury
• Other debts ruled to be non-dischargeable in a bankruptcy proceeding

Mark A. Laws is a consumer attorney and bankruptcy practitioner in Chicago, Illinois.  For more information visit lawsatlaw.com.

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!