Mortgagee’s Failure To Abide By Hud Regulations On Rehabilitation Loan Does Not Give Rise To A Private Cause Of Action

In Hayes v. M&T Mortgage Corp., 1-07-1063 (Ill.App.Ct.,March 25, 2009) the plaintiff filed an action against the mortgagee seeking damages for the mortgagee’s failure to abide by applicable HUD regulations relating to rehabilitation loans and cited the breach of those regulations as the basis for dismissal of the mortgagee’s foreclosure complaint. The court entered judgment for the mortgagee on all claims. On appeal the appellate court rejected the plaintiff’s contention that her mortgage agreement’s references to HUD regulations made those regulations a part of the loan agreement. To be construed as incorporating an entire second document, the mortgage contract must display an intention to completely adopt that document, not merely require compliance with specified portions. The provisions cited reflect only an acknowledgment that the lender’s foreclosure rights under the mortgage are subordinate to applicable HUD regulation; they do not demonstrate intent to make each loan regulation enforceable under the parties’ agreement. The court also noted that authority from other jurisdictions supported the view that that the HUD regulations do not support either direct or implied private causes of action for their violation. _Wells Fargo Home Mortgage, Inc. v. Neal_, 398 Md. 705, 715, 922 A.2d 538, 543-44 (2007). The court adopted the holding in Wells Fargo and concluded that because the HUD regulations were not specifically incorporated into the contract between the parties, their alleged breach by the lender did not create a cause of action. It did observe that the lender’s breach of those regulations was a defense to the foreclosure but because the plaintiff did not raise breach as an affirmative defense the trial court properly denied the plaintiff’s motion to dismiss the foreclosure complaint.

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