Wells Fargo Bank, N.A. v. Cook

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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.