Illinois court holds that HUD requirement for a face to face meeting excused where the mortgagors were discharged in Bankruptcy

An Illinois appellate court in PNC Bank, v. Wilson, No. 2-15-1189, 2017 IL App (2d) 151189 (March 2, 2017) determined that a mortgage servicer’s failure to strictly comply with the HUD regulations requiring the servicer to request a face to face meeting with the mortgagor prior to instituting a foreclosure, did not prevent it from foreclosing where the mortgage debt was discharged.

In the foreclosure proceeding, the servicer supplied evidence from its records that it attempted to comply with the regulations by sending a certified letter to the mortgagors requesting a meeting and by sending its agent to meet with the mortgagors. Based on this evidence, the trial granted the servicer’s motion for summary judgment.

On appeal the court observed that one of the requirements of the HUD servicing requirements is that the servicer 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 are unpaid. 24 C.F.R. § 203.604(b). Section 203.604 provides, in part:”(d) A reasonable effort to arrange a face-to-face meeting with the mortgagor shall consist at a minimum of one letter sent to the mortgagor certified by the Postal Service as having been dispatched. Such a reasonable effort to arrange a face-to-face meeting shall also include at least one trip to see the mortgagor at the mortgaged property ***.” (Emphases in original.) 24 C.F.R. § 203.604.

The mortgagors argued on appeal that the servicer did not make a reasonable effort to arrange a face-to-face meeting because there was no “proper evidence” of a letter being certified by “the Postal Service.” It was undisputed that the servicer failed to provide this proof, but the court nonetheless determined that the failure did not bar the foreclosure under the facts of the case. “Where the mortgagor alleges only a technical defect in notice and fails to allege any resulting prejudice, vacating the foreclosure to permit new notice would be futile.”

The record reflected that the mortgagors’ debts were discharged in bankruptcy and eight months later the servicer sent the letter. According to the court, “the requirement of a face-to-face meeting contemplates that there is a contract between the parties that could be remediated or ameliorated. Because the [mortgagors] did not reaffirm the debt, there was no contract to remediate or ameliorate. Sending the letter seeking a face-to-face meeting would be meaningless and futile.”

The mortgagors’ discharge in bankruptcy without reaffirmation meant they were no longer bound by the mortgage contract between the parties and should not be allowed to enjoy the benefits of the contract that their own volitional act has nullified. Thus, to send notice in order to remediate or ameliorate a mortgage contract when the contract has been nullified by the act of the mortgagor is futile and meaningless.

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