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Lender’s Failure To Comply With HUD’s Face-To-Face Meeting Requirement Dooms Indiana Mortgage Foreclosure Action

Lesson. A borrower/mortgagor may be able to defeat a foreclosure action if a lender/mortgagee does not comply with HUD regulations designed to be conditions precedent to foreclosure. For example, in certain cases, a failure to have an in-person meeting with the borrower/mortgagor before the borrower becomes more than three full months delinquent in payments, could lead to the dismissal of a subsequent foreclosure case.

Case cite. Gaeta v. Huntington, 129 N.E.3d 825 (Ind. Ct. App. 2019). NOTE: Gaeta is a so-called “memorandum decision,” meaning that, under Indiana law, the opinion is not supposed to be regarded as precedent or cited before any court. Nevertheless, the analysis and outcome are noteworthy.

Legal issue. Whether, in the context of a HUD-insured loan, a lender violated 24 C.F.R. 203.604 by failing to have a face-to-face meeting with the borrower before three monthly installments due on the loan went unpaid and, if so, whether the violation constituted a defense to the lender’s subsequent foreclosure suit.

Vital facts. The nine pages summarizing the underlying facts and the litigation in the Gaeta opinion tell a long and complex story. From the view of the Indiana Court of Appeals, the keys were: (1) the borrower defaulted under the loan by missing payments, (2) the lender failed to have a face-to-face interview with the borrower before three monthly installments due on the loan went unpaid, and (3) the lender filed a mortgage foreclosure action without ever having the face-to-face meeting.

Procedural history. This residential mortgage foreclosure case proceeded to a bench trial, and the court entered a money judgment for the lender and a decree foreclosing the mortgage. The borrower appealed.

Key rules.

24 C.F.R. 203.604(b) requires certain lenders to engage in specific steps before they can foreclose. One of those steps is to seek a face-to-face meeting with the mortgagor (borrower) “before three full monthly installments due on the mortgage are unpaid….” Click here for the entire reg.

There are exceptions to the face-to-face requirement, one of them being if the parties enter into a repayment plan making the meeting unnecessary. See, Section 604(c)(4).

The Court cited to and relied upon its 2010 opinion in Lacy-McKinney v. Taylor, Bean & Whitaker Mortgage, 937 N.E.2d 853 (Ind. Ct. App. 2010). Please click on the “related post” below for my discussion of that case.

“Noncompliance with HUD regulations [can constitute] the failure of the mortgagee to satisfy a HUD-imposed condition precedent to foreclosure.”

Not all mortgages are subject to HUD regs – only loans insured by the federal government.

Holding. The Court of Appeals reversed the trial court’s in rem judgment that foreclosed the mortgage. However, the Court affirmed the money judgment.

Policy/rationale. The Court concluded that the lender’s failure to conduct, or even attempt to conduct, a face-to-face meeting with the borrower before he became more than three months delinquent was a “clear violation” of applicable HUD regs. The lender made several arguments – very compelling ones in my view – as to why it substantially complied with the reg or did not violate the reg to begin with. The trial court agreed. The Court of Appeals disagreed, choosing to apply a strict reading of the law.

See the opinion for more because no two cases are the same, and the outcome could be different in your dispute. The silver lining, if there was one, for the lender was that the in personam judgment on the promissory note stood and thus created a judgment lien on the subject property. The debt was not extinguished - only the mortgage.

Related post. In Indiana, Failure To Comply With HUD Servicing Regulations Can Be A Defense To A Foreclosure Action 
Part of my practice includes representing lenders, as well as their mortgage loan servicers, entangled in contested residential foreclosures and servicing disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.