In 2019, Bank of America (“BOA” or “the bank”) appealed the involuntary dismissal of its foreclosure action. The lower court dismissed BOA’s action because it found the bank failed to conduct a face-to-face meeting with the borrowers prior to foreclosing as required by 24 C.F.R. § 203.604. Section 203.604 applies to Federal Housing Administration (FHA) backed loans and requires a mortgagee “have a face-to-face interview with the mortgagor or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid.”
Below and on appeal, BOA argued it was not required to conduct the face-to-face meeting because after defaulting on the note and mortgage the borrowers demanded “the bank cease all communication” with them. The borrowers also threatened to sue the bank if it contacted them. As a result, “the bank updated its system not to contact the borrowers and did not proceed with the face-to-face interview.”
As the basis for not conducting the face-to-face meeting, the bank relied upon § 203.604(c) which includes a list of reasons under which a face-to-face meeting will not be required. Those exceptions are:
- The mortgagor does not reside in the mortgaged property,
- The mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either,
- The mortgagor has clearly indicated that he will not cooperate in the interview,
- A repayment plan consistent with the mortgagor’s circumstances is entered into to bring the mortgagor’s account current thus making a meeting unnecessary, and payments thereunder are current, or
- A reasonable effort to arrange a meeting is unsuccessful.
BOA argued the borrowers’ cease and desist letter “…was a clear expression that…[they] would not cooperate with the Bank to conduct a face to face meeting…” and therefore such a meeting was not required under subsection (c)(3) of the rule. The Fourth DCA agreed, concluding “the borrowers’ cease and desist letter [could] ‘only be interpreted as indicia of an unwillingness to commit to such a meeting.’” The court noted this was a novel issue and relied upon the Illinois Appellate Court’s decision in JP Morgan Chase Bank, N.A. v. Moore, in its analysis.
The court found the bank’s interpretation of the borrower’s letter was reasonable and that based on the Borrower’s letter, engaging the borrowers in conversation about the face-to-meeting was likely to result in a lawsuit against the Bank. The Court explained any other interpretation of the language in the cease and desist letter would put the Bank in “an untenable situation and would render the regulatory exception meaningless.”
The court reversed the involuntary dismissal and remanded the matter to the trial court for further proceedings. This decision provides helpful guidance for application of one of the more subjective exceptions to the requirements of § 203.604 and we anticipate this decision will reduce litigation on the issue. That being said, the effect of COVID-19 on the banks’ pre-foreclosure requirements, including the face-to-face interview, is still to be determined.