Alert May 01, 2012

Virginia Supreme Court Holds Pre-Foreclosure Meetings on FHA Loans Required Under HUD Rules

The Virginia Supreme Court held that federal housing rules require a face-to-face meeting between trustees and borrowers at least 30 days before foreclosure of an FHA loan.  The Court agreed with the plaintiffs’ argument that, pursuant to Bayview Servicing, LLC v. Simmons, 654 S.E. 2d 898 (Va. 2008), a lender must comply with all conditions precedent to foreclosure in a deed of trust, even if the borrowers are in arrears, including applicable HUD regulations on pre-foreclosure meeting requirements. In Bayview, the Court held that the sale of a foreclosed property was improper because the lender and its servicer failed to provide a pre-acceleration notice, which was a condition precedent to acceleration under the deed of trust. Here, the Court held that a trustee’s power to foreclose is conferred by the deed of trust. The trustee’s power to foreclose “does not accrue until its conditions precedent have been fulfilled.” Further, according to the Court, “the fact that a borrower is in arrears does not allow the trustee to circumvent the conditions precedent.” The Court also pointed to the provision in the deed of trust, “Grounds for Acceleration of Debt,” which reference HUD regulations, and, according to the Court, “express[ed] the intent of the parties that the rights of acceleration and foreclosure do not accrue under the Deed of Trust unless permitted by HUD’s regulations.” Click here for the opinion.