Wells Fargo Bank, N.A. v. Cook , 87 Mass. App. Ct. 382 ( 2015 )

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14-P-381 Appeals Court
WELLS FARGO BANK, N.A. vs. NANCY B. COOK & another.1
No. 14-P-381.
Suffolk. January 7, 2015. - May 19, 2015.
Present: Kafker, Meade, & Maldonado, JJ.
Summary Process. Mortgage, Foreclosure, Acceleration clause.
Real Property, Mortgage. Regulation. Practice, Civil,
Summary judgment, Summary process.
Summary Process. Complaint filed in the Boston Division of
the Housing Court Department on August 6, 2012.
The case was heard by MaryLou Muirhead, J., on motions for
summary judgment.
Julia E. Devanthery for the defendants.
David E. Fialkow for the plaintiff.
KAFKER, J. Nancy and Abena Cook appeal from the judgment
entered in favor of Wells Fargo Bank, N.A. (Wells Fargo), in its
postforeclosure summary process action against them in the
Boston Housing Court. The Cooks contend that the judge erred in
1
Abena B. Cook.
2
granting summary judgment for Wells Fargo on its claim for
possession because (1) the judge should have considered the
United States Department of Housing and Urban Development (HUD)
Handbook No. 4330.1 REV-5, Administration of Insured Home
Mortgages (1994) (HUD Handbook), as interpretive guidance to
discern the meaning of the HUD regulations incorporated into the
mortgage, and (2) the August 12, 2008, meeting Wells Fargo held
at Gillette Stadium for defaulting mortgagors did not satisfy
the procedural or substantive requirements set out in the HUD
regulations at 24 C.F.R. § 203.604(b) (2008), as the Gillette
Stadium event was untimely and did not provide for a face-to-
face meeting with a representative of the lender authorized to
negotiate modification of payment provisions. We conclude that
the HUD Handbook should have been considered, that the meeting
was untimely, and most importantly, that there are material
disputed facts regarding whether the meeting satisfied the
substantive face-to-face meeting requirements of the HUD
regulations. Therefore, we vacate the judgment of the Boston
Housing Court in favor of Wells Fargo.2
2
The Cooks also contend that the judge erred in allowing
summary judgment in favor of Wells Fargo on the Cooks'
counterclaim pursuant to G. L. c. 93A, because there are genuine
disputes of material fact and the judge did not address the
c. 93A claim in her decision. Given the factual disputes
discussed below, we conclude that Wells Fargo's summary judgment
motion should not have been granted as to the c. 93A
3
1. Background. The facts, construed in the light most
favorable to the Cooks, are as follows. See DiPietro v. Sipex
Corp., 69 Mass. App. Ct. 29, 30 (2007). In 1971, Nancy Cook
purchased property at 38-40 Rosewood Street in Mattapan, and in
2006 became co-owner of the property with her daughter Abena
Cook. In March, 2008, the Cooks refinanced the property with a
loan from Fairfield Financial Mortgage Group, Inc. To secure
the loan, the Cooks granted a mortgage, including a statutory
power of sale, to Mortgage Electronic Registration Systems,
Inc., as nominee for the lender. The Cooks also executed a
promissory note (note) to the lender in the amount of $469,133.
The Cooks' mortgage payments were due on the first day of each
month and the lender could impose a late charge on payments not
received in full by the fifteenth day of the month (the grace
period). Because the Federal Housing Administration (FHA)
insured the mortgage, HUD regulations were expressly
incorporated into the mortgage as a limit on the mortgagee's
right to accelerate the loan and foreclose on the property.
Paragraph 9(a) of the mortgage provides, "Lender may,
except as limited by regulations issued by the [HUD] Secretary
in the case of payment defaults, require immediate payment in
full . . . ." Additionally, paragraph 9(d) of the mortgage
counterclaim. See Bank of Am., N.A. v. Rosa, 466 Mass. 613, 625
(2013).
4
states, "[i]n many circumstances [HUD] regulations . . . will
limit Lender's rights, in the case of payment defaults, to
require immediate payment in full and foreclose if not paid.
This Security Instrument does not authorize acceleration or
foreclosure if not permitted by [HUD regulations]" (emphasis
supplied). As provided in the HUD regulations themselves, a
"mortgagee must have a face-to-face interview with the
mortgagor, or make a reasonable effort to arrange such a
meeting,[3] before three full monthly installments due on the
mortgage are unpaid." 24 C.F.R. § 203.604(b).
Wells Fargo acquired servicing rights to the Cooks'
mortgage on April 10, 2008. Thereafter, from June through
August, 2008, the Cooks failed to remit their monthly mortgage
payments of $2,775.10. On August 12, 2008, the Cooks attended a
large event at Gillette Stadium in Foxborough.4 After standing
in line and receiving a ticket, the Cooks met with a Wells Fargo
representative for approximately fifteen minutes. The Cooks
contend that they brought $10,287.14 in cash to this meeting and
attempted to cure their default by making a cash payment to the
3
The alternative of "mak[ing] a reasonable effort to
arrange" a face-to-face meeting is not at issue in this appeal.
4
Wells Fargo asserts that it also held a face-to-face
interview with the Cooks at a "Home Preservation Workshop" on
August 24, 2011. The record on this meeting is disputed,
however, and it cannot be relied on as a basis for summary
judgment.
5
Wells Fargo representative, but the representative said he was
not allowed to accept any payments at the event.5 The
representative also indicated that a letter would be sent to
them regarding modification and payment of their loan. On
August 15, 2008, the Cooks received a letter from Wells Fargo
offering them a "Special Forbearance Agreement" (agreement),
which they accepted. The agreement provided that once the Cooks
paid in accordance with the payment schedule set out in the
agreement, their loan would be "reviewed for a Loan
Modification," and would be modified so long as there were no
changes to their "income or financial situation."6 The Cooks
made the first three payments of $3,429.06 in accordance with
the agreement and attempted to pay the same amount in December
of 2008. Wells Fargo rejected their final payment under the
5
Wells Fargo disputes this claim and states that it has no
record of the Cooks' tender of any payment at the Gillette
Stadium event. Wells Fargo also notes that aside from their own
affidavits the Cooks have failed to present any evidence ("such
as bank account records, income receipts, cancelled checks, or
other information") to support this claim.
6
The meaning of this provision, and the factual disputes
surrounding its enforcement, require resolution to decide the
c. 93A claim. Wells Fargo states that the Cooks were not
offered a loan modification because their loan was not yet
eligible under the FHA guidelines. Wells Fargo claims that
instead it offered the Cooks a second special forbearance
agreement. The Cooks deny ever receiving the second agreement
proposal.
6
agreement, stating that the amount due was $5,000.7 Wells Fargo
thereafter declared the loan in default, accelerated the
payments due, and conducted a foreclosure sale.
On April 16, 2012, Wells Fargo purchased the property at
the foreclosure auction. Wells Fargo subsequently commenced a
summary process action in the Boston Housing Court seeking to
evict the Cooks. The Cooks' answer, among other things,
challenged the validity of Wells Fargo's title to the property
and counterclaimed under G. L. c. 93A. Both parties filed
motions for summary judgment and, after a hearing, the judge
allowed the motion of Wells Fargo and denied the Cooks' motion.
Judgment of summary process entered for Well Fargo, and the
Cooks appeal.
2. Discussion. We review the judge's grant of summary
judgment de novo, and construe the facts "in the light most
favorable to the nonmovant[s], drawing all permissible
inferences and resolving any disputes or conflicts in [their]
favor." DiPietro v. Sipex Corp., 69 Mass. App. Ct. at 30. At
the outset we note that a defendant in a summary process action
subsequent to foreclosure may raise as an affirmative defense a
title defect arising from the failure to foreclose in accordance
with the terms of the mortgage. "The purpose of summary process
7
It is unclear how the $5,000 was calculated because the
agreement lists this payment as $13,814.49.
7
is to enable the holder of the legal title to gain possession of
premises wrongfully withheld. Right to possession must be shown
and legal title may be put in issue. . . . Legal title is
established in summary process by proof that the title was
acquired strictly according to the power of sale provided in the
mortgage; and that alone is subject to challenge." Bank of New
York v. Bailey, 460 Mass. 327, 333 (2011), quoting from Wayne
Inv. Corp. v. Abbott, 350 Mass. 775, 775 (1966). "Failure to
comply strictly with the power of sale renders the foreclosure
sale void." U.S. Bank Natl. Assn. v. Schumacher, 467 Mass. 421,
428 (2014).
In this case, the Cooks' mortgage contained a power of sale
and authorized the mortgagee to exercise it only upon certain
conditions precedent. Specifically, paragraph 9 of the mortgage
expressly preconditioned acceleration and foreclosure on
compliance with HUD regulations. Where such regulations have
been incorporated into the mortgage, compliance with the
regulations has been held to be a condition precedent to
foreclosure of FHA-insured mortgages. See, e.g., Pfeifer v.
Countrywide Home Loans, Inc., 211 Cal. App. 4th 1250, 1255
(2012); Lacy-McKinney v. Taylor, Bean & Whitaker Mort. Corp.,
937 N.E.2d 853, 864 (Ind. Ct. App. 2010); Wells Fargo Home
Mort., Inc. v. Neal, 398 Md. 705, 721-728 (2007); Mathews v. PHH
Mort. Corp., 283 Va. 723, 736-737 (2012). Accordingly, courts
8
have specifically held the "face-to-face meeting requirement [to
be] a condition precedent to the accrual of the rights of
acceleration and foreclosure incorporated into" the operative
instrument. Id. at 736. See Pfeifer v. Countrywide Home Loans,
Inc., supra at 1268, 1277-1278. We concur.
a. The judge's failure to consider the HUD Handbook. The
Cooks first contend that the judge erred in refusing to consider
the HUD Handbook as interpretive guidance when construing 24
C.F.R. § 203.604(b). We agree. Although the HUD Handbook is
not binding on the court, it is relevant interpretive guidance
that should be used when construing the HUD regulations. See
Global NAPs, Inc. v. Awiszus, 457 Mass. 489, 496-497 (2010)
("[T]he [Massachusetts Commission Against Discrimination]
Guidelines . . . are entitled to substantial deference, [but]
they do not carry the force of law"). Indeed, Federal and State
courts have routinely considered HUD handbooks when interpreting
HUD regulations. See, e.g., Burroughs v. Hills, 741 F.2d 1525,
1529 (7th Cir. 1984) (HUD handbook not binding on court "but is
entitled to notice so far as it is an official interpretation of
statutes or regulations with which it is not in conflict"
[citation omitted]); Kolbe v. BAC Home Loans Servicing, LP, 738
F.3d 432, 449-451 & n.18 (1st Cir. 2013); Wells Fargo Bank, N.A.
v. Goebel, 2015-Ohio-38, at ¶ 30 (Ct. App. 2015); Squire v.
Virginia Hous. Dev. Authy., 287 Va. 507, 516-517 (2014).
9
Because the HUD Handbook does not conflict with the plain
language of the HUD regulations, we conclude that the judge
erred in declining to consider it as persuasive interpretive
guidance when construing the face-to-face interview requirement
set forth in 24 C.F.R. § 203.604(b).
b. The face-to-face interview requirements. We conclude
that the Gillette Stadium meeting was not timely even though it
occurred before expiration of the fifteen-day grace period (set
out in the note) for the August, 2012, mortgage payment.8
Pursuant to 24 C.F.R. § 203.604(b), the face-to-face meeting
between mortgagor and mortgagee must take place "before three
full monthly installments due on the mortgage are unpaid." The
Cooks' note provides that payment is due "on the first day of
each month." This language unambiguously indicates that a
payment is "unpaid" if it is not received on or before the first
of the month. Moreover, although we need not rely on the HUD
Handbook to reach that conclusion, our interpretation is
consistent with the handbook, which provides that face-to-face
interviews must be held "[n]o later than the 62nd day of
8
In concluding that the meeting was timely, the judge
relied on the grace period provision in the note, which
provides, "[i]f Lender has not received the full monthly payment
. . . by the end of fifteen calendar days after the payment is
due, Lender may collect a late charge . . . ."
10
delinquency."9 HUD Handbook, par. 7-7(C). Accordingly, we
conclude that Wells Fargo was required to hold a face-to-face
interview with the Cooks by August 3, 2008, at the very latest,
and thus, the August 12, 2008, meeting at Gillette Stadium was
untimely.
Untimeliness alone, however, is not dispositive of the
summary judgment question here. A delay of a few days, for
example, followed by a face-to-face meeting in conformance with
the regulations, with no resulting demonstrated prejudice to the
mortgagors, would not be sufficient to defeat summary judgment.
Cf. Rivas v. Chelsea Hous. Authy., 464 Mass. 329, 337 (2013)
(requiring a demonstration of prejudice arising from an agency's
disregard of its rules); PNC Mort. v. Garland, 2014-Ohio-1173,
at ¶ 30 (Ct. App. 2014) (describing the "specific time
deadlines" set out in the HUD regulations as "aspirational,"
whereas the obligation to perform the face-to-face meeting prior
to foreclosure is "mandatory"). A late face-to-face meeting,
such as the one that occurred here, would, nonetheless, have to
consider and address the consequences of the delayed meeting on
the borrower in order to satisfy the regulatory requirements.
Here, however, it is difficult to identify any prejudice arising
9
As further described in the HUD Handbook, "[w]hen a
payment is not made on or before its due date, the account is
considered delinquent" (emphasis supplied). HUD Handbook, par.
7-2(C). "Payments on insured mortgages are always due on the
first day of the month." Id. par. 7-2(A).
 11
from the time delay between August 3 and August 12, 2008, as the
grace period for the August payment had not expired when the
Gillette Stadium meeting took place.10
Regardless, we agree with the Cooks that summary judgment
should not have been allowed as there are material disputed
facts regarding whether the substantive elements of the face-to-
face meeting requirement set out in the regulations at 24 C.F.R.
§ 203.604(b) were satisfied by the Gillette Stadium event here.
The HUD Handbook makes clear that representatives conducting the
face-to-face interview must "have the authority to propose and
accept reasonable repayment plans . . . [because] [t]he
interview has little value if the mortgagee's representative
must take proposals back to a superior for a decision." HUD
Handbook, par. 7-7(C)(3). Here, the Cooks state that the
10
We also decline to adopt the suggestion raised in the
briefing in this case that the regulatory deadline if missed
prevents a lender thereafter from ever conducting a lawful
foreclosure sale. We recognize that the regulations impose an
obligation for a timely face-to-face meeting shortly following
the initial default in part to assure that it will occur before
the amount of the arrearage (including penalties and interest)
grows so large that it might impede as a practical matter any
realistic prospect of loan restructuring. That being said, the
regulations obviously do not state or require that the deadline
specified in the regulations, once missed, could never again be
met thereby forever precluding the lender from accelerating the
loan or exercising its right of foreclosure. Even the Cooks
recognize that a lender who misses the three-payment window in
which to conduct the face-to-face meeting still "has a viable
path to foreclosure . . . [by] giving the borrower an
opportunity to access loss mitigation services that she should
have been offered through a face-to-face meeting."
12
representative told them he was not able to accept payments at
the event, nor did the representative propose a loss mitigation
solution at the meeting. They therefore contend the Wells Fargo
representative "was unable [to] propose or accept any
forbearance or modification options, or arrange a payment plan."
Wells Fargo disputes this claim, and suggests that a loss
mitigation plan did eventually "result" from the meeting. On
this record, the question whether the representative had
sufficient authority, and whether the agreement resulted from
the meeting, are determinations properly left to the fact
finder. Moreover, a recurring theme throughout the regulations
and HUD Handbook is that face-to-face interviews should involve
personalized consideration of the mortgagors. See 24 C.F.R.
§ 203.600 (2008) ("Collection techniques must be adapted to
individual differences in mortgagors and take account of the
circumstances peculiar to each mortgagor"); HUD Handbook, pars.
7-1, 7-3, & 7-4. See also Lacy-McKinney v. Taylor, Bean &
Whitaker Mort. Corp., 937 N.E.2d at 860. No such personalized
consideration appears to have taken place during the fifteen
minutes allotted to the Cooks at the stadium event, or at least
on the present summary judgment record it is not established
beyond factual dispute that any did.11
11
The same appears to be true for the "Home Preservation
Workshop" held on August 24, 2011. See note 4, supra.
13
c. The statutory power of sale. Wells Fargo also argues
that even if it did not conduct a timely face-to-face meeting
with the Cooks, such noncompliance would not as a matter of law
render a foreclosure sale void, that a standard of less than
strict compliance should be applied, and that summary judgment
thus would still be appropriate. We disagree. Pursuant to
G. L. c. 183, § 21, a mortgagee may only sell mortgaged premises
by public auction after default if it "first compl[ies] with the
terms of the mortgage and with the statutes relating to the
foreclosure of mortgages by the exercise of a power of sale"
(emphasis supplied). See U.S. Bank Natl. Assn. v. Schumacher,
467 Mass. at 430. See also Mathews v. PHH Mort. Corp., 283 Va.
at 736 ("face-to-face meeting requirement is a condition
precedent to the accrual of the rights of acceleration and
foreclosure incorporated into" the governing instrument); Lacy-
McKinney v. Taylor, Bean & Whitaker Mort. Corp., 937 N.E.2d at
864. Indeed, it has long been recognized that "one who sells
under a power [of sale] must follow strictly its terms," and the
failure to do so renders the foreclosure void. U.S. Bank Natl.
Assn. v. Ibanez, 458 Mass. 637, 646 (2011), quoting from Moore
v. Dick, 187 Mass. 207, 211 (1905). See Eaton v. Federal Natl.
Mort. Assn., 462 Mass. 569, 580-581 (2012). Here, the HUD
regulations were specifically incorporated into the mortgage.
Accordingly, Wells Fargo was required to comply with the HUD
14
regulations as terms of the mortgage before obtaining the
authority to foreclose pursuant to the statutory power of sale.
We reject Wells Fargo's contention that the Supreme
Judicial Court decision in U.S. Bank Natl. Assn. v. Schumacher,
supra, requires a different result. In Schumacher, the court
rejected the mortgagors' attempt to "engraft the required notice
provisions of [G. L. c. 244,] § 35A[,] onto the power of sale"
as "one of the statutes 'relating to the foreclosure of
mortgages by the exercise of a power of sale.'" 467 Mass. at
430, quoting from G. L. c. 183, § 21. In Schumacher, § 35A was
not incorporated into the terms of the mortgage. Also, the
court concluded that § 35A is not a statute "relating to the
foreclosure of mortgages," because it instead involves a
"preforeclosure undertaking" (the homeowner's right to cure a
default). Id. at 431. Here, the Cooks do not claim that the
HUD regulations should be considered a statute "relating to the
foreclosure of mortgages," but rather, that the HUD regulations
are express terms of the mortgage and thus fall under the first
clause of § 21 (requiring compliance "with the terms of the
mortgage"). We agree. In sum, we reject Wells Fargo's argument
that it would still be entitled to summary judgment even where
material issues of disputed facts exist, as they do here,
regarding its compliance with HUD's face-to-face meeting
requirement.
15
3. Conclusion. The judgment of summary process in favor
of Wells Fargo is vacated. We remand the matter to the Boston
Housing Court for further proceedings consistent with this
opinion.
So ordered.