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California: Appellate Decision Upholds HUD Regulated Face-to-Face Meeting with Borrower

Posted By USFN, Wednesday, February 6, 2013
Updated: Monday, November 30, 2015

February 6, 2013


by Kimberley V. Deede
Pite Duncan, LLP – USFN Member (California)

The California Court of Appeals has adopted an expansive application of HUD’s requirement of face-to-face meetings prior to foreclosure for FHA-insured home loans. Pfeifer v. Countrywide Home Loans, 2012 WL 6216039 (Cal. Ct. App. Dec. 13, 2012). The face-to-face meeting requirement applies to loans secured by deeds of trust with language that specifically references compliance with “regulations of the Secretary” or HUD.

The Pfeifer court, relying heavily on the Virginia Supreme Court opinion in Mathews v. PHH Mortgage Corporation, 283 Va. 723 (April 20, 2012), rejected a multitude of defenses presented by the lender and held that HUD regulations were incorporated by reference into the deed of trust and, thus, a failure to satisfy the face-to-face meeting required under HUD regulations is grounds for injunctive and declaratory relief precluding foreclosure until the lender complies with the HUD servicing regulations. (See 24 CFR 203.604(b)).

The regulation provides five exceptions to the face-to-face meeting requirement. 24 CFR 203.604(d). The most notable exception subject to interpretation provides that the face-to-face meeting is not required when the mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either. 24 CFR 203.604(d)(2). The regulation, however, fails to identify what constitutes a “branch office.”

HUD had previously released an article noting that, for the purposes of face-to-face meetings, the term “branch office” is only to be interpreted as a “servicing office.” Notwithstanding, the Mathews court held that the common definition is controlling and the term “branch office” includes “every type of business and service supplied by the mortgagee, including loan origination,” despite whether the office holds qualified or adequately trained staff. The Pfeifer court noted the issue but declined to rule as to the proper interpretation of “branch office.” Thus, it is unclear whether the 200-mile exception applies in relation to loan servicing offices, loan origination offices, or offices providing general banking services. However, if the California courts follow the expansive interpretation of the term “branch office” as proposed in the Mathews decision, the exception would essentially be eliminated for those lenders and servicers who have loan origination, bank branch, and servicing offices throughout the state of California.

Finally, the Pfeifer court noted that violation of the face-to-face requirement only provides grounds for injunctive and declaratory relief and does not provide a basis for a claim for monetary damages. Furthermore, the decision appears to be limited to pending foreclosures and is likely inapplicable to invalidate completed foreclosure sales.

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