Posted By USFN,
Thursday, August 13, 2020
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by Alyssa Szymczyk, Esq.
Orlans PC
USFN Member (DC, DE, MA, MD, MI, NH, RI, VA)
On April 20, 2020, in a case of first impression, the United States Court of Appeals for the Fourth Circuit in Jacqueline Dawn Stepp v. U.S. Bank National Association and ALG Trustee, LLC, (No. 19-1067) added to the significant body of case law surrounding claimed exceptions by servicers to the HUD pre-foreclosure face to face meeting requirement. Under HUD regulation, 24 C.F.R.§203.604 (b) and (c), the mortgagee of a FHA mortgage must make reasonable efforts to conduct a face to face interview with the borrower within 90 days of default if the mortgagee, its servicer or a “branch office” of either, is located within 200 miles of the mortgaged property. Click here for the case.
Stepp, whose mortgaged property was within 200 miles of a bank office of U.S. Bank National Association (the “Bank”) in Richmond, VA, filed a complaint in Federal Court against the Bank and ALG Trustee, LLC (“ALG”) seeking damages and rescission of the foreclosure arguing that the Bank initiated foreclosure without first offering her a face-to-face meeting. The Bank and ALG moved to dismiss the complaint arguing that the Bank was exempt from the face-to-face requirement and the U.S. District Court for the Western District of Virginia agreed, holding a bank office that conducts no mortgage-related business is not a mortgagee’s “branch office” under federal law and dismissed the complaint. Stepp filed a timely appeal. On appeal, Alyssa Szymczyk and Jason Murphy of Orlans PC represented ALG.
The 4th Circuit affirmed the decision of the District Court, holding that while the bank office at issue was within 200 miles of the mortgaged property, it was not a “branch office” pursuant to 24 C.F.R. §203.604(c)(2) as it was devoted exclusively to the management of constructive trusts and no mortgage-related business was conducted there. Both courts adopted the Bank and ALG’s argument that the court must look to the specific type of activities that are conducted at the location, rejecting Stepp’s assertion that the term “branch office” should be broadly construed, essentially deeming any bank office a “branch office.”
The court reasoned that words in a statute are to be read in context, not isolation, and in order to properly ascertain the application of the regulation and its exception, there should be at minimum, “an office at which some business related to mortgages is done.” Thus, a bank office carrying on no mortgage-related business, “even if within 200 miles of a mortgagor’s home, will be poorly positioned to discuss the mortgage-specific loss mitigation options outlined by the statute, ‘such as special forbearance, loan modification, pre-foreclosure sale…’.” The Court also noted its characterization of a “branch office” as one requiring conducting of mortgage-related business (accepting checks, paying checks and lending money) is in accord with the definition of “branch offices” in other banking statutes and that the lower court’s common sense definition was consistent with the regulatory text and its purpose.
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