In a decision issued Dec. 2, Florida’s Fifth Court of Appeal became the first Florida state appellate court to find that the Housing and Urban Development (HUD) regulation, requiring a face-to-face interview with borrowers, is a condition precedent to foreclosure for Florida mortgages containing a provision incorporating HUD regulations into the mortgage. Specifically, in Palma v. JPMorgan Chase Bank, Nat’l Ass’n, et al., the Fifth District reversed the trial court’s grant of final judgment of foreclosure, and remanded the matter for an entry of involuntary dismissal.

Although this decision is not yet final and rehearing is likely, this decision has far-reaching impacts on the conditions and evidence required for foreclosure trials throughout Florida and is the latest in a borrower affirmative defense trend that has been gaining ground in Florida state trial courts. This ruling, if made final, will impact any foreclosure case involving Federal Housing Authority (FHA) insured loans for which the HUD regulations are incorporated by reference.

Although the Fifth District noted that no other Florida appellate court has previously found that the HUD face-to-face interview requirement is a condition precedent to foreclosure, it analogized the face-to-face interview requirement to the most commonly cited condition precedent in standard mortgages (usually paragraph 22), requiring the lender to send a default letter to a borrower prior to instituting foreclosure. The Fifth District specified, “[w]e find no meaningful reason to treat compliance with section 203.604 [face-to-face meeting requirement] in an FHA mortgage differently than compliance with paragraph 22 in a standard mortgage, which our court has determined is a condition precedent to foreclosure.” The court also distinguished its holding from its prior decision in Diaz v. Wells Fargo Bank, N.A., which held that the face-to-face interview was not a condition precedent to foreclosure, because, in that case, the note did not specifically incorporate the HUD regulations and it was unclear whether the HUD regulations actually applied to the loan at issue.

The impact of this ruling, if finalized, would require lenders to prove, at trial, compliance with 24 C.F.R. § 203.604, which specifies that lenders must conduct a face-to-face interview with the borrower, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid. Today’s decision places the burden on the lender to introduce sufficient evidence that it has complied with the face-to-face interview or that one of the exceptions applies if the borrower generally denies that the lender has complied with all conditions precedent prior to foreclosure. It remains unclear how courts will treat post-dismissal actions and whether and how the failure to conduct the face-to-face interview within the required three-month default period can be cured prior to a newly filed foreclosure action.