January 10, 2017
by Matthew L. Kahl
Aldridge Pite, LLP – USFN Member (California, Georgia)
The Fifth District Court of Appeals of Florida recently ruled that where the note and mortgage specifically incorporate Housing and Urban Development (HUD) regulations, compliance with these regulations is a condition precedent to foreclosure. [Palma v. JPMorgan Chase Bank, National Association, Case No. 5D15-3358 (Fla. 5th D.C.A. Dec. 2, 2016).]
In 2013, JPMorgan Chase Bank initiated a foreclosure action against a borrower (Palma). The borrower filed an answer to the complaint wherein she denied the bank’s allegation that all conditions precedent to foreclosure had been met, specifically: “Plaintiff failed to comply with the regulations of the Secretary of Housing and Urban Development including but not limited to the obligation to provide face-to-face counseling in 24 CFR 203.604(b).” The lower court entered judgment in favor of JPMorgan Chase, finding that the borrower’s allegations should have been pled as an affirmative defense.
The Fifth District reversed the lower court’s entry of judgment, determining that the borrower’s specific denial of the general condition precedent allegation shifted the burden to JPMorgan Chase to prove its compliance with HUD’s face-to-face meeting requirements, and the bank “wholly failed” to meet this burden.
As a result of the decision in Palma, it is important for lenders whose servicing portfolios include FHA loans to thoroughly and accurately notate its servicing records to explain all actions or inactions relating to the face-to-face interview. This includes, but is not limited to, results of the face-to-face interview, the reasonable efforts taken to arrange the interview (including copies of all correspondence sent to the borrower and evidence of at least one trip to the subject property), and explanations as to why such interview was not required if it did not occur. This information should be provided and/or available to counsel upon referral and should be incorporated into the servicer’s document execution procedures for the verification of foreclosure complaints.
Please note that this Palma opinion is not final until the time expires for rehearing and, if a motion for rehearing is filed, then upon the determination of that rehearing.
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