Last Update: 10/10/20
Face to face meetings, and, of course, compliance with paragraph 22.
If a bank intends to file a foreclosure, there are steps (or conditions) the bank must take prior to filing a lawsuit. Some of these conditions are set forth in federal and state law and others can be contained within the mortgage itself.
Generally speaking, banks must closely adhere to these conditions. Otherwise, the bank is vulnerable to certain defenses to the foreclosure lawsuit which can result in a case being dismissed.
What are Conditions Precedent?
According to Black’s Law Dictionary, eighth edition, a condition precedent is “an act or event, other than a lapse of time, that must exist or occur before a duty to perform something promised arises.”
In all Florida contracts, including mortgages, there are agreed-upon duties and obligations that each party must perform called “conditions.” For example, before a lender, servicer or bank can take an action, such as foreclosing on your home, they have to send a notice of acceleration to the homeowner (as is requied under Paragraph 22 of most Residential Mortgages – see below for more information).
The performance of these conditions must “precede” any action taken against the other party. They are tasks or steps that a lender must perform before it can lawfully file a foreclosure lawsuit.
What Does Florida Law Say About Conditions Precedent and Foreclosure Lawsuits?
Florida law is always evolving when comes to mortgage foreclosures. In fact, two Florida appellate courts issued new holdings on “conditions precedent” relating to Florida foreclosures.
Does HUD’s Conditions Precedent Apply to Florida FHA Foreclosures?
In the recent case of Palma v. J.P. Morgan (see below), the court held that Florida banks are subject to federal regulation 24 C.F.R. § 203.604 (when it comes to FHA foreclosures) even if the mortgage documents do not specifically say this regulation is applicable.
See: Palma v. JP Morgan Chase Bank, Nat’l Ass’n, No. 5D15-3358 (Fla. Dist. Ct. App. Dec. 2, 2016) (“Palma”).
Face to Face Meeting Before Foreclosure
In Palma, the Fifth Court of Appeals ruled that a federal regulation issued by the Department of Housing and Urban Development (HUD) applies to Florida mortgages. That regulation protects borrowers facing foreclosure by requiring banks to have a face-to-face interview with the borrower as another “condition precedent” to foreclosure.
The lender must show that it complied with 24 C.F.R. § 203.604. Specifically, this regulation mandates the bank either (1) meet with the borrower for a face-to-face interview; or (2) make a reasonable effort to have that face-to-face a meeting. The meeting must take place, or good faith efforts to meet with the borrower must happen, before three full monthly mortgage payments go unpaid.
Does The Face-to-Face Meeting Mortgage Requirement Apply to All Mortgages?
The federal regulation 24 C.F.R. § 203.604 does not apply to all foreclosures. It applies only where there is language in the mortgage stating that the HUD regulation is “incorporated” or included in the terms of the document.
1. FHA Mortgages
All FHA loans incorporate the HUD regulation, so it has a bearing on a lot of Florida mortgages.
Meaning, if you have an FHA loan, then the bank must sit down and have a face-to-face meeting with you before they can start foreclosure proceedings.
2. Standard Mortgages
Some “standard” mortgages may be impacted by this rule. The Palma court noted the language regarding a required face-to-face meeting is usually found in standard mortgage paragraph 22. So, it’s important to know your documents before, during and after you borrow money from a bank.
How Was This Condition Precedent Used By the Borrower?
In Palma, the bank filed a foreclosure lawsuit and won; the borrower then appealed to the Fifth District Court of Appeals.
The borrower asserted the federal regulation as a “condition precedent” and as an affirmative defense to the foreclosure lawsuit. Meaning, the borrower asserted the mortgage incorporated the HUD requirement of bank being required to have a face-to-face meeting before a foreclosure can be filed.
The appellate court agreed with Mr. Palma and remanded the case to the trial court with instructions that the foreclosure action be involuntarily dismissed.
As the court stated, “… [the] Bank failed to meet its burden, providing no evidence that it engaged in a face-to-face interview before filing its foreclosure complaint.”
Is Substantial Compliance by the Bank Enough to Satisfy a Condition Precedent?
What does a bank have to do to satisfy a “condition precedent” under its mortgage documents?
This question was answered in another new Florida appellate court decision, Dixon v. Wells Fargo Bank, NA, No. 4D15-3974 (Fla. Dist. Ct. App. Jan. 4, 2017).
The Dixon court held that a bank’s substantial compliance is enough to satisfy a condition precedent. However, that doesn’t mean a bank can ignore the contract’s language.
What Must The Banks Do to Substantially Comply?
In Dixon, there was a standard mortgage given by the borrowers to Wells Fargo Bank, N.A. (“Bank”). After the borrowers failed to make a mortgage payment, the Bank sent the homeowners a default letter.
That default letter stated:
- it was being sent pursuant to the terms of the promissory Note and Mortgage;
- that the Bank was accelerating all sums due and owing;
- now the entire principal balance was due;
- along with “all other sums recoverable under the terms of the promissory Note and Mortgage; and
- the process of filing a foreclosure complaint had begun.
The letter also advised the borrowers that they should contact the Bank if they wanted to “bring their loan current” or pay it off. And, the debt would be assumed valid unless they challenged it within 30 days.
Eight days after the Bank sent the default letter, it filed a foreclosure lawsuit.
How Did The Bank Fail?
In their standard mortgage, there was a paragraph that explained how the lender was to give any notice of default, should the borrower fail to pay the mortgage payment. The contract language stated this had to be done before any foreclosure lawsuit could be filed. (It was a “pre-suit requirement.”)
In paragraph 22 of the mortgage, the lender agreed to (1) give 30 days’ notice and (2) give the borrower an opportunity to cure the default before it filed a lawsuit. The bank did not follow this language and therefore its lawsuit was dismissed.
(Note: Paragraph 22 (sometimes paragraph 21) of the mortgage, normally contains the following language: in order for the acceleration notice to be effective it must specify “(a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration. . .”)
The Dixon court simply ruled that the Bank had failed to comply with the conditions precedent of the mortgage. Specifically, the bank had failed to substantially comply with paragraph 22. It filed suit before the agreed-upon time period of 30 days allowed for the borrowers to cure their default (30 days is 30 days – 8 days won’t cut it!).
What Happened To These Lawsuits?
In Dixon, and in Palma, the borrowers’ motion for involuntary dismissal of the foreclosure action was granted. Meaning, the lawsuits were dismissed and the banks had to refile their cases only after they followed the law (just like the rest of us).
What Should You Do?
If you are struggling with financial difficulties regarding your Florida home or condo, and have either stopped making your mortgage payment or you’re thinking you may have to stop paying your home loan soon, then a good piece of advice is to speak with an experienced Florida real estate lawyer to learn about your rights and to learn the different foreclosure defenses that may be available to you.
Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
Do you have questions or comments? If so, feel free to ask Larry about the issues that concern you the most by sending him an email or by calling him now at (954) 458-8655.
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After involuntary dismissal, the past due payments with interest etc.continues unchanged. S.O.L
has passed. Shouldn’t payments over 5 years old be dropped from the “new billing ” ?