“United States Court of Appeals for the Fourth Circuit – HUD Face-to-Face Requirements “
On April 20, 2020, the United States Court of Appeals for the Fourth Circuit (Maryland, North Carolina, South Carolina, Virginia, West Virginia) held in Stepp v. U.S. Bank Trust, National Association , No. 19-1067 , 2020 WL 1907769 (4th Cir. Apr. 20, 2020) that a mortgage lender must have a “branch office” that conducts at least some kind of “mortgage-related business” within 200 miles of a borrower’s property before the HUD requirement of a “face-to-face” meeting is triggered.
Prior to initiating a foreclosure, Department of Housing and Urban Development regulations require lenders to “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,” and in any event, “at least 30 days before foreclosure is commenced.” There are exceptions to these regulations, including when “[t]he mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either.” 24 C.F.R. § 203.604(c)(2).
These regulations, and the relevant exception, have been struggled with by various Courts and lenders on how they are to be applied in situations where a lender has an office within 200 miles of the property; but that office does not engage in mortgage-related business. The purpose of the rule is that an in person meeting is the most effective way to facilitate loss mitigation that might avoid a foreclosure. However, in circumstances where it would be arguably unreasonable to conduct such a meeting (in this case when the lender is more than 200 miles away from the borrower) the lender is excused from the required face-to-face meeting. Effectively, HUD determined that it would be unreasonable to require lenders to send personnel more than 200 miles to meet with a borrower to facilitate a face-to-face meeting. In instances where there is an office that does not engage in mortgage related business; lenders would still have to send personnel more than 200 miles to facilitate the meeting, as, by the nature of the business of the branch office there would be no personnel qualified to conduct a face-to-face meeting available at that office.
The decision in Stepp resolves this issue for mortgage servicers who do business in the Fourth Circuit states of Maryland, North Carolina, South Carolina, Virginia, and West Virginia. Mortgage lenders and servicers who do not maintain offices that conduct at least some kind of “mortgage-related business” within 200 miles of a subject property will not need to conduct a face-to-face meeting with borrowers in default prior to initiating foreclosure proceedings.
HUD has issued a partial waiver of 24 CFR 203.604 due to concerns over the spread of COVID-19. However, servicers still must establish contact via alternate methods, such as phone interviews, email, or video conferencing technology. This partial waiver is limited to a 12-month period ending in March of 2021 and does not apply to face-to-face requirements in place for the Section 248 insurance program.
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This Greenspoon Marder LLP Client Alert is issued for informational purposes only and is not intended to be construed or used as general legal advice nor a solicitation of any type. Please contact the author(s) or your Greenspoon Marder LLP contact if you have any questions regarding the currency of this information. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer’s legal qualifications and experience.
