The U.S. Department of Housing and Urban Development (HUD) issued a temporary and partial waiver of regulation on December 19, 2022. This waiver applies specifically to 24 CFR § 203.6041, which deals with servicing responsibilities and contact with the mortgagor.
Reasoning Behind the Temporary Changes
The HUD waiver2 is an extension of a temporary waiver that was already put in place due to the COVID-19 pandemic and related concerns regarding in-person contact. The current waiver was prompted by numerous factors, including continued COVID-19 concerns, increased seasonal flu infections, and a surging Respiratory Syncytial Virus (RSV) season3.
Further, HUD recognized that, in addition to the increase in illnesses, employee and resource shortages4 are affecting industries throughout the country, including the mortgage servicing industry. Thus, enabling alternative methods of communication to be used during the lending process is also beneficial for mortgagors whose resources may already be stretched thin. What does the waiver, which is set to extend through December 31, 2023, mean for mortgage lenders?
The Temporary Changes for Mortgagors
Mortgage lenders are still required to establish contact with borrowers, but they may now do so using alternative methods such as:
These remote or telephonic meetings allow the mortgagor to assess the borrower’s circumstances and create a repayment plan. Lenders must also use these meetings to inform the borrower of the following things:
The documentation requirement for lenders still stands, as they must keep a record of their contact with borrowers. The waiver now also requires that the method of communication be documented.
HUD’s extended waiver does not apply to the Section 248 insurance program requirements, which still require face-to-face contact.
1. 24 CFR § 203.604.
2. Temporary, Partial Waiver of 24 CFR § 203.604.
3. Yale Medicine. ‘Tripledemic:’ What Happens When Flu, RSV, and COVID-19 Cases Collide?
4. CNBC. Worker shortages, supply chain crisis fuel 2022 Top States for Business battle.
The Second District Court of Appeals recently held that so long as judgment is not entered in favor of Plaintiff and the Note has not been cancelled, the Note should be returned. See Wilmington Savings Fund Society FSB v. Morroni, — So. 3d —, 2021 WL 2171756 (Fla. 2d DCA May 28, 2021).
In Morroni, Wilmington was unable to prove standing at non-jury trial. Morroni provided expert testimony at trial who opined that the signature on the note offered into evidence was a photocopy. Despite the expert testimony, the circuit court originally ruled in favor of Wilmington and granted a judgment of foreclosure. Morroni appealed, and the appellate court found that the trial court had no basis to rule in favor of Wilmington and reject the expert testimony. The case was remanded for entry of judgment in favor of Morroni.
Wilmington subsequently petitioned the trial court to release the loan documents. The court denied Wilmington’s Motion to Release Originals, believing the prior ruling by the appellate court included a factual determination that the Note was not an original. The appellate court disagreed as to that interpretation. In addition, the court found other recent cases persuasive and ruled Wilmington was entitled to the release of the loan documents in the absence of a final judgment cancelling the note. See Id. citing MTGLQ Investors, L.P., v. Merrill, 312 So. 3d 986, 990-91 (Fla. 1st DCA 2021); Santiago v. U.S. Bank Nat’l Assoc. as Tr. For Banc of Am. Funding Corp., 257 So. 3d 1145, 1147 (Fla. 5th DCA 2018); U.S. Bank Nat’l Assoc. v. Rodriguez, 256 So. 3d 882, 884 (Fla. 4th DCA 2018); and Kajaine Ests., LLC, v. U.S. Bank Nat’l Assoc., 198 So. 3d 1010, 1011 (Fla. 5th DCA 2016).
In Cook v. Bank of America, N.A., 2021 WL 1148816 (Fla. 5th DCA 2021), the Appellants raised the affirmative defense that Appellee, Bank of America, failed to comply with mailing a notice of default pursuant to paragraph 22 of the mortgage. At trial, over the Appellants’ objections, Bank of America presented the testimony of a customer representative who had no first-hand knowledge regarding the mailing of the notice of default. Rather, the witness testified that she had reviewed information in a document, in Bank of America’s computer system, which indicated the letter had been mailed. However, the document referenced by the witness was not introduced into evidence.
While the witness testified that she was familiar with the Bank’s business practices, her testimony did not include an explanation of the mailing procedures used in order to send the notice of default. No other evidence, such as affidavit of mailing, mail logs, or return receipts, were offered into evidence.
The trial court entered final judgment in favor of the Bank. Upon appeal, the Fifth District Court reversed the final judgment, ruling that the evidence submitted at trial was not substantial, competent evidence proving the mailing of the notice of default by the Bank. The Court noted that a mortgagee may prove that a default letter was sent by providing: (1) the testimony of a witness with personal knowledge that a default letter was sent; (2) evidence of a routine business practice of the entity drafting and mailing the letter; or (3) evidence in the record such as an affidavit or a return receipt to prove that the letter was sent. Here, none of these were presented or entered into evidence. Furthermore, the Court found that where, as here, a timely hearsay objection is made, a witness may not testify about the contents of a business record if that record was not properly introduced into evidence.
Plaintiff’s bar should note that witness testimony regarding the mailing of a notice of default should include (a) personal knowledge testimony of the default letter being sent; or (b) testimony of the entity’s specific routine business practice and procedures for drafting and mailing the notice of default. Alternatively, record evidence may be admitted, such as a return receipt or mailing logs, which prove that the letter was sent.
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In PennyMac Loan Services LLC v. Ustarez, the 4th DCA addressed whether the HUD “face to face” meeting requirement of 24 C.F.R. §203.604(b) was a condition precedent to foreclosure. While the Court stated that 24 C.F.R. §203.604(b) is not in and of itself a condition precedent to foreclosure, it held that the regulation becomes one when the express wording of the Note and Mortgage makes it a condition precedent to foreclosure. As the provision contained within the Note and Mortgage in PennyMac expressly stated that it did “not authorize acceleration or foreclosure if not permitted by regulations of the Secretary,” the Court held that “PennyMac contractually agreed to self-impose the HUD regulation on itself before accelerating and foreclosing.” Accordingly, compliance with HUD regulations was required prior to initiating the foreclosure action. Notably, the PennyMac decision made clear that in the absence of a contractual provision expressly incorporating HUD Regulations, 24 C.F.R. §203.604(b) would not act as a condition precedent to foreclosure, but merely “an administrative regulation subject to monetary sanction.”