Subsequent Mortgagee Excused from Face-to-Face Meeting

October 14, 2014

The 5th U.S. Circuit Court of Appeals affirmed a favorable ruling for banks and loan servicers, holding that a mortgagee is excused from complying with Housing and Urban Development (HUD) regulations that were triggered prior to assumption of the mortgage.

In some jurisdictions, failure to comply with HUD regulations that are generally referenced in a deed of trust can form the basis of a lawsuit against the mortgagee. One particular HUD regulation that has garnered attention recently requires a mortgagee to conduct a face-to-face meeting with the borrower, or make a reasonable effort to arrange such a meeting, before three monthly installments due on the mortgage are unpaid. 24 C.F.R. § 203.604.

In Johnson v. JP Morgan Chase Bank, 570 Fed. Appx. 404 (5th Cir. 2014) (unpublished), the obligation to conduct a face-to-face meeting accrued prior to JP Morgan’s assumption of the mortgage. In affirming dismissal of the case, the Fifth Circuit held that, because the borrower “was already more than three months behind when the loan was assigned to JP Morgan . . . the timing of the particular obligation had already passed when JP Morgan received the loan, and thus the obligation did not apply to JP Morgan.” Johnson, 570 Fed. Appx. at 406.

This decision suggests that there is an argument to be raised when defending claims filed by borrowers related to alleged violations of HUD regulations that accrued prior to assumption of a loan or loan servicing obligations.