RICHARD MATHEWS, ET AL.

v.

PHH MORTGAGE CORPORATION

FROM THE CIRCUIT COURT OF NELSON COUNTY

J. Michael Gamble, Judge

EXCERPT:

In addition, the Regulation itself provides that “[t]he mortgagee 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 due on the mortgage are unpaid.” 24 C.F.R. § 203.604(b) (emphasis added).4 The Regulation is codified in Subpart C and therefore is a servicing requirement that PHH must meet “[b]efore initiating foreclosure.” 24 C.F.R. § 203.606(a) (emphasis added).

Accordingly, the face-to-face meeting requirement is a condition precedent to the accrual of the rights of acceleration and foreclosure incorporated into the Deed of Trust. Cf. Manufacturers Hanover Mortgage Corp. v. Snell, 370 N.W.2d 401, 404 (Mich. Ct. App. 1985) (suggesting that HUD’s servicing requirement regulations may be a defense to foreclosure if they are made terms of a mortgage contract).

PHH also argues that the language in the Deed of Trust should not be construed to incorporate the Regulation because the language was not bargained for by the parties; rather, it is language imposed by HUD, which requires the use of a standardized form deed of trust. We again disagree.

As noted above, the lender-beneficiary and trustee under a deed of trust have only those powers that it confers upon them. Riekse, 281 Va. at 445-46, 707 S.E.2d at 829 (2011). As a matter of Virginia law, when a deed of trust expressly states on its face that it “does not authorize acceleration or foreclosure if not permitted by” some external set of conditions identified within the deed of trust, those conditions are fully incorporated as conditions precedent to acceleration and foreclosure. HUD requires this language to be incorporated into deeds of trust which secure its federally insured loans. 24 C.F.R § 203.17(a). Doing so makes its regulations enforceable by borrowers as conditions precedent to acceleration and foreclosure as through a state-law action for breach of contract. This is entirely consistent with the intention expressed in 24 C.F.R §§ 203.500 and 203.606(a).

Conversely, PHH offers no explanation for HUD’s decision to require this language in deeds of trust which secure its insured loans if, as PHH contends, the regulations govern only the relationship between the lender and the government, rather than the lender and the borrower. The regulations themselves govern the relationship between the lender and the government; there is no reason to refer to them in the deed of trust other than to affect the duties of the parties to it. If, as PHH asserts, HUD has a contrary intention, it may either (a) cease to require or allow language that incorporates its regulations as conditions precedent to acceleration or foreclosure in the deeds of trust or (b) require or allow language that expressly states its intent that its regulations are not conditions precedent. It has done neither.

In conclusion, the terms used in Paragraphs 9 and 18 of the Deed of Trust clearly state that the rights of acceleration and foreclosure accrue only if permitted by HUD’s regulations.

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