Editor's note: This story originally appeared in the January edition of DS News.
Florida’s Fourth District Court of Appeals has recently issued two new opinions concerning the “HUD Face-to-Face Provision.”
Both actions involved the involuntary dismissal of foreclosure cases at trial based upon the lender’s failure to present prima facie evidence showing it complied with 24 C.F.R 203.604(b), specifically those minimum actions required to comply with the reasonable efforts expectation of the rule when a face-to-face interview has not been conducted. (It should be noted that Malcolm Harrison was the appellee in both cases and the servicer prevailed in both cases by overturning the circuit courts’ ruling.) 24 C.F.R 203.604(d) illuminates the specific actions required to comply with the reasonable efforts exception: (d) A reasonable effort to arrange a face-to-face meeting with the mortgagor shall consist at a minimum of one letter sent to the mortgagor certified as dispatched by the United States Postal Service (USPS). A reasonable effort shall also include at least one trip to see the mortgagor at the mortgaged property unless the mortgaged property is more than 200 miles from the mortgagee, its servicer, or a branch office of either; or it is known that the mortgagor is not residing in the mortgaged property.
Based on the above rule, a lender must meet a two-prong test: (1) visit the borrower(s) at least once to attempt a face-to-face interview, and (2) demonstrate a letter was sent via USPS to the borrower(s) asking to schedule the face-to-face interview.
New FL Case: Ustarez The Fourth District Court of Appeal in Penny Mac Loan Servs. LLC v. Ustarez, 2020 Fla. App. LEXIS 13329 (Fla. 4th DCA 2020), overturned the involuntary dismissal and found the lender submitted prima facie evidence in
the form of the certified face-to-face letter mailed to the borrower and made the minimum one visit to the property as required by the regulation. However, the court went further and ruled in favor of the lender’s argument that 24 C.F.R 203.604 did not operate as a condition precedent to foreclose upon a residential mortgage.
The court expounded on its ruling by observing that the subject note and mortgage involved in the case incorporated HUD language, which did not authorize acceleration of the loan if not permitted by regulation of the secretary of HUD. The language contained in the mortgage and note created a “self-imposed” condition precedent requiring the lender to comply with HUD regulations when, in actuality, no true condition precedent existed based upon a solitary interpretation of 24 C.F.R 203.604. In other words, the “self-imposed” condition precedent was a creature created by mere contract alone.
Second FL Case: WalCott-Barr The court followed up its ruling in Ustarez with its ruling in Lakeview Loan Servicing v. WalCott-Barr, 2020 Fla. App. LEXIS 14512 (Fla. 4th DCA 2020). Like the case of Ustaez, the court reviewed 24 C.F.R 203.604(d); however, in this case, the court specifically analyzed what the terms “certified” and “dispatched” meant in relation to the manner of establishing the mailing of the face-to-face letter.
Upon reviewing the terms based on their plain language, the court determined that “certify a letter has been dispatched” generally means to confirm or attest to the prompt or speedy sending off of something. Utilizing the aforementioned definition, the court concluded 24 C.F.R 203.604(d) did not require a certified mail receipt from the USPS in order to establish compliance with mailing requirement of the regulation, nor did the definition limit how a lender can prove such compliance.
The court found the servicer’s established compliance via its employee’s testimony. The corporate witness identified the face-to-face letter, explained the letter was sent to the borrowers at the subject property address, and was sent via USPS, as the witness identified the USPS tracking number on the letter. It should also be noted that the face-to-face letter was admitted into evidence without objection.
Once again, encouraging case law from Florida has emerged; however, I would urge leaders to approach these cases with much trepidation, as a case-by-case analysis should be conducted to determine whether the condition precedent—as outlined under 24 C.F.R203.604—applies to their cases. Likewise, treating the rulings a blatant decree that HUD regulations are no longer conditions a precedent is a misnomer. As the courts in Florida have previously observed, where a note or mortgage incorporates HUD regulations, such incorporation renders compliance with the regulation a condition precedent to foreclosure. See, e.g., Harris v. U.S.Bank Nat’l Ass’n, 223 So. 3d 1030, 1032 (Fla. 1stDCA 2017); Palma v. JPMorgan Chase Bank, 208So.3d771, 774-75 (Fla. 5th DCA 2016); Diaz v. Wells Fargo Bank, N.A., 189 So. 3d 279, 284-85 (Fla. 5th DCA 2016).
Lenders should also take care to ensure that the evidence used to prove the certification of mailing or dispatching of the face-to-face letter under 24 C.F.R 203.604(d) is supported by competent testimony. This should include knowledge as to the mailing process at the particular lender’s institution in addition to record evidence in the form of letter logs, collection comments, face-to-face letter, or certified mail receipts. Counsel would be remiss to rely solely on corporate witness’ testimony to prove the mailing of the face-to-face letter. Nothing from these cases should deter a lender or counsel from providing full record evidence in the form of business records and corporate witness testimony to create a record that can be supported from an appellate standpoint.