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Home Foreclosures: 6.2.3.2.3 Notice—24 C.F.R. § 203.602

The mandatory loss mitigation steps start with the notice requirement in 24 C.F.R. § 203.602: “The mortgagee shall give notice to each mortgagor in default on a form supplied by the Secretary or, if the mortgagee wishes to use its own form, on a form approved by the Secretary, no later than the end of the second month of any delinquency in payments under the mortgage.”

Home Foreclosures: 6.2.3.2.5 Periodic review of loss mitigation—24 C.F.R. § 203.605

Unlike the face-to-face meeting requirement, the periodic evaluation regulation at 24 C.F.R. § 203.605 is significantly underutilized in the case law. The regulation states, in part: “Before four full monthly installments due on the mortgage have become unpaid, the mortgagee shall evaluate on a monthly basis all of the loss mitigation techniques provided at § 203.501 to determine which is appropriate.”

Home Foreclosures: 6.2.3.2.6 Compliance with regulations, default in payment, acceleration notice—24 C.F.R. § 203.606

Under 24 C.F.R. § 203.606, “[b]efore initiating foreclosure, the mortgagee must ensure that all servicing requirements of this subpart have been met.” Lenders must not only take the steps listed in the regulations but must also complete these actions within the required time. These timing rules are supposed to ensure early evaluation of options to avoid large delinquencies. Courts should be more willing to uphold these timing requirements if advocates can show how the delay impacted the borrower.

Home Foreclosures: 5.11 Using Equitable Grounds to Prevent a Foreclosure

Foreclosures have historically been actions in equity.390 Despite extensive statutory regulation of foreclosures today, most states’ laws continue to recognize the equitable character of the foreclosure process. This is true even when the foreclosure is by power of sale, through provisions granting the mortgagor the right to petition the court to enjoin the foreclosure sale.391

Home Foreclosures: 6.2.5.2 Compliance with FHA Guidelines as a Condition Precedent to Foreclosure

Courts have differed on whether noncompliance should be considered as a failure of a condition precedent to foreclosure or an equitable defense, and in some jurisdictions, this difference can have an impact on litigation issues, such as which party has the burden of proof for establishing compliance (or non-compliance) with the regulations.116 For borrowers with mortgage contracts that do not incorporate FHA regulations, it will be crucial to make equity-based arguments in order to avoid claims that the presence of c

Home Foreclosures: 6.2.5.4 Burdens of Proof and Pleading

Borrowers should establish a record of lender noncompliance whether or not they bear the burden of proof. As stated above, in “condition precedent” jurisdictions, the lender may bear the ultimate burden of proof while the borrower bears the burden of proof in “equity” jurisdictions. No matter what, lenders will often point to some loss mitigation steps and claim that these steps are enough to satisfy the regulations.

Home Foreclosures: 6.2.6.1 Introduction

While courts in judicial foreclosure states have consistently upheld the defensive use of FHA-regulations, courts in non-judicial foreclosure states have not provided the same consistent protection.147 Advocates in non-judicial or quasi-judicial foreclosure states generally bring affirmative actions to stop foreclosure, and this places a heavier burden on borrowers than the one placed on borrowers in judicial foreclosure.

Home Foreclosures: 6.2.6.3 Responding to Common Lender Arguments Against Borrowers’ Enforcement of Their Contract Rights

Of course, while the case law has improved for borrowers bringing contract-based claims, there are still cases coming out both ways.173 Because claims based on contract terms are necessarily state law claims, the application of the law will vary in each jurisdiction. Moreover, some Courts may still allow for affirmative litigation to stop a non-judicial foreclosure sale based on regulatory non-compliance even if the borrower does not meet the breach of contract elements.174

Home Foreclosures: 6.2.7.1 Responding to Lenders’ “Substantial Compliance” Arguments

Lenders commonly argue that they have “substantially complied” with the regulations when they clearly have not satisfied them. Typically, they will point to hundreds of collection calls or other letters and claim that the borrower would not have responded to an invitation to a face-to-face meeting.216 Alternatively, they will claim that the borrower is not eligible for loss mitigation as demonstrated by some postforeclosure review of options, and therefore any face-to-face meeting would be unproductive.

Home Foreclosures: 6.2.7.2 Lenders’ Efforts to Re-Start Failed Foreclosures—The Importance of Loss Mitigation Timing

Lenders who have their foreclosure cases dismissed or non-judicial foreclosure proceedings enjoined do not give up easily, and borrowers may face a second court action or foreclosure proceeding. In the second or even subsequent actions or proceedings, lenders do not typically waive any of the past-due payments or fees that they claimed due in the initial action. Instead, between the two actions, the lender may (or may not) make some effort to arrange a meeting or evaluation loss mitigation options in order to succeed in the second action.

Home Foreclosures: 6.2.8 Practical Matters in FHA Litigation

Advocates should pursue discovery of the lender’s preforeclosure or pre-acceleration actions to determine whether it complied with FHA loss mitigation requirements. Because lenders frequently drag out the discovery process, it is important to make requests early.

Home Foreclosures: 6.2.9.2 Challenges to the Law

This law raises serious due process issues, particularly for borrowers in states that otherwise require a lender to foreclose by judicial process. No provision is made for a preforeclosure hearing, which due process would seem to require.274

Home Foreclosures: 6.2.10.3 Legal Claims Arising from the DASP Program

Borrower advocates should not give up on legal arguments based on non-compliance with FHA regulations upon learning that a loan has been sold through DASP and is no longer FHA insured. A critical question for an advocate to consider is whether the loan was still FHA-insured during the period in which the regulations imposed specific duties on the lender. According to HUD, loans sold through DASP are at least six months behind on payments. By that time, the lender of an FHA-insured loan was already required to send a specific notice (24 C.F.R.

Home Foreclosures: 6.3.3.1 Introduction

Foreclosure of VA-guaranteed mortgages are generally conducted in accordance with the laws of the state in which the property is located.338 Some courts have held that VA regulations preempt or override state foreclosure law.339 To the extent that VA regulations offer more protection than the application of weaker state laws, borrowers may benefit.