In a decision affecting all lenders in Virginia that issue FHA-insured home loans, the Supreme Court of Virginia has adopted an expansive reading of HUD’s requirement of face-to-face meetings prior to foreclosure.
Rejecting the lender’s argument that no face-to-face meeting was required because it did not have a “branch office” within 200 miles of the mortgagee, the justices held in Mathews v. PHH Mortgage Corporation that the term “branch office” includes not only “servicing offices,” but also “originating offices.”
For many lenders, the April 20, 2012, ruling means that every foreclosure on a Virginia FHA-insured loan could require such a face-to-face meeting. The court’s expansive reading of the term “branch office” will effectively eliminate the possibility that the 200-mile exception would ever apply.
In Mathews, the borrowers sought a declaratory judgment that foreclosure sale of their home was void because the lender had not satisfied conditions precedent to foreclosure set forth in the Deed of Trust. The borrowers had defaulted on their FHA-insured home loan, yet they asserted HUD regulations incorporated into the Deed of Trust required a face-to-face meeting between lender and borrower at least 30 days before commencement of foreclosure proceedings.
Under 24 C.F.R. Section 203.604(b), a lender is required to “have a face-to-face interview” with the borrower, “or make a reasonable effort to arrange such a meeting.” The statute creates an exception, however, that a face-to-face meeting is not required if the mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either.
PHH argued that it did not have a “branch office” within 200 miles of the mortgagee based on the definition of “branch office.” It cited FAQs on HUD’s website that explain “branch offices” staffed by individuals “that deal only with loan origination … are not familiar with servicing issues and are not trained in debt collection or HUD’s Loss Mitigation Program,” and that ”therefore … the face-to-face meeting requirement … relates only to those mortgagors living within a 200-mile radius of a servicing office.”
The court disagreed with PHH, however, stating that administrative interpretations such as those on the HUD website should be given deference only when the language of the regulation is ambiguous. Concluding that the term “branch office” is unambiguous, the court held that the term includes within its scope “every type of business and service supplied by the mortgagee, including loan origination.”
The court suggested video or teleconferencing for face-to-face meetings in offices where the staff is not trained to handle it. “If an originating office within the 200-mile radius lacks staff with the appropriate training, appropriately trained staff could participate in a face-to-face meeting between the borrower and the staff of the originating office by tele- or videoconference … thereby imposing a minimal burden on the lender while furthering the loss mitigation purpose of the Regulation and its underlying statutory authority.”