Mortgagees who may find themselves with a need to foreclose on property secured by a mortgage, as well as potential purchasers of property at a foreclosure sale, should pay attention to the recent decision in King v. Virginia Housing Dev. Authority, No. CL-11-8895 (Norfolk (Va.) Cir. Ct., Sept. 6, 2012). King mitigates a risk that a foreclosure sale will be set aside due to failure to have a face-to-face meeting with the mortgagor, as may be required by HUD regulation 24 C.F.R. § 203.604(b).

The principal issue in King was whether a foreclosure sale could be set aside due to the alleged failure by the mortgagee and the trustee of the mortgage to comply with a regulation promulgated by HUD, 24 C.F.R. § 203.604(b). That regulation provides, in sum and substance, that a mortgagee must 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. The mortgagee and trustee conceded that the regulation was incorporated into the mortgage in question and, as such, was a condition precedent to foreclosure under Virginia law.

Nonetheless, the King court rejected the plaintiff’s attempt to rescind the foreclosure sale despite noncompliance with the HUD rule. Among other factors that it took into consideration in reaching its decision, the court noted that the plaintiff had not alleged, that (1) the advertisement of the foreclosure sale was deficient; (2) there was fraud or collusion in the foreclosure sale; (3) the trustee lacked authority to conduct the foreclosure sale; (4) the mortgage loan had been paid before the sale; or (5) the sale price was grossly inadequate.

Additionally, the court recognized the inherent unfairness to the purchaser in overturning the foreclosure noting that the purchaser of the foreclosed property did not have prior notice of any procedural defects in the foreclosure, that it had paid value for the property, and it had improved the property. Under those circumstances, according to the court, the purchaser’s title in the property should not lightly be disturbed.

 Finally, and perhaps most importantly, the court took into account that plaintiff had never alleged that she was ready and able to redeem the property or cure the default before the sale. Accordingly, the court disregarded the violation of the HUD regulation and decisively held that

the failure to conduct or arrange the face-to-face meeting, although perhaps a sufficient ground to enjoin a foreclosure sale, for the imposition of a regulatory sanction, or for an award of nominal damages, is not a sufficient grounds to award compensatory damages or to set aside a foreclosure sale to a stranger to the [mortgage] without notice of any defect in the sale.....