The Appellate Court of Illinois, Second District, recently affirmed summary judgment in favor of a mortgagee that failed to meet the FHA requirement to either have a face-to-face meeting with the borrowers or to make “a reasonable effort” to arrange a face-to-face meeting before filing foreclosure, because doing so would have been a futile act after the borrowers’ mortgage loan debt was discharged in bankruptcy and they did not reaffirm the debt.

A copy of the opinion in PNC Bank National Ass’n v. Wilson is available at: Link to Opinion.

A mortgagee initiated a foreclosure action against borrowers based upon a mortgage loan between the parties. The Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD), insured the mortgage.

Before the foreclosure, the borrowers filed for Chapter 7 bankruptcy protection. They did not reaffirm their mortgage. The bankruptcy court discharged the borrowers’ debt to the mortgagee.

The parties in the foreclosure filed cross-motions for summary judgment. The borrowers argued that the mortgagee violated HUD’s pre-foreclosure requirements because (1) before the mortgagee filed its foreclosure complaint neither borrower received written information from the mortgagee about HUD’s counseling programs or written information from the mortgagee about a request to meet face-to-face, and (2) the mortgagee made no effort to arrange such a meeting.

The mortgagee claimed that it complied with HUD’s pre-foreclosure requirements.

As you may recall, HUD’s FHA regulations, specifically, title 24, section 203.604, of the Code of Federal Regulations (24 C.F.R. § 203.604 (2014)), among other things require a mortgagee, before filing a foreclosure action against a defaulting borrower, either to have a face-to-face meeting with the borrower or to make “a reasonable effort” to arrange a face-to-face meeting.

The trial court granted summary judgment in favor of the mortgagee and denied the borrowers’ motion. Thereafter, the property was sold at a judicial sale to the mortgagee and the trial court granted the mortgagee’s motion for an order approving the sale of the property.

This appeal from the husband borrower followed.

First, the Appellate Court noted that the failure to comply with HUD’s FHA mortgage servicing requirements contained in its regulations is a defense to a mortgage foreclosure action as to an FHA-insured mortgage loan.

Specifically, HUD’s FHA rules require the mortgagee to conduct “a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments are unpaid.” 24 C.F.R. § 203.604(b) (2014). A reasonable effort is defined as dispatching a minimum of one certified letter by the Postal Service to the mortgagor and making at least one trip to see the mortgagor at the mortgaged property. 24 C.F.R. § 203.604(d) (2014).

The mortgagee did not meet face-to-face with the borrowers, so the issue for the Appellate Court was whether the mortgagee made a reasonable effort to arrange a face-to-face meeting as required by section 203.604(d).

The Appellate Court took judicial notice that the U.S. Postal Service provides a proof of mailing form certificate. Here, the mortgagee lacked a proof of mailing form certificate that it sent the required certified letter. Thus, the Appellate Court determined that the mortgagee did not make a reasonable effort to arrange a face-to-face meeting because it did not have proof that it sent the letter to the borrower by certified mail.

However, this did not end the Appellate Court’s inquiry because it may affirm the circuit court for any reason in the record. The Appellate Court observed that where the borrower claims only a technical defect in notice and there is no resulting prejudice, it would be futile to vacate the foreclosure to permit new notice. See Aurora Loan Services, LLC v. Pajor, 2012 IL App (2d) 110899.

Here, the borrowers’ mortgage loan debt was discharged in bankruptcy and they did not reaffirm the debt. The Appellate Court noted that the borrowers’ “discharge in bankruptcy without reaffirmation means that they are no longer bound by the mortgage contract between the parties and should not be allowed to enjoy any benefits of the mortgage contract that their own volitional act has nullified.”

As such, the Appellate Court reasoned that “[s]ending the letter seeking a face-to-face meeting would be meaningless and futile.” Further, the Appellate Court found that in this situation “[t]here is neither purpose nor policy that would countenance a determination of prejudicial error.”

As the law does not require performing useless acts as a prerequisite to file a legal proceeding, the Appellate Court concluded that the trial court correctly entered summary judgment in favor of the mortgagee.

Accordingly, the Appellate Court affirmed the trial court’s judgment in favor of the mortgagee.