Cases Examine HUD Regulation

Investor Update
April 10, 2018

Illinois App. Court Rules Factual Question Precluded Summary Judgment in HUD/FHA Face-to-Face Challenge

Mickey J. Lee
Attorney, Maurice Wutscher

Source: Maurcie Wutscher

The Appellate Court of Illinois, Second District recently concluded that two borrowers failed to rebut the foreclosing mortgagee’s prima facie case of standing to pursue foreclosure against the borrowers, and affirmed the trial court’s determination that the plaintiff mortgagee established as a matter of law that it had standing.

The Second District, however, reversed the trial court’s order of summary judgment by concluding there were issues of fact as to whether the plaintiff complied with HUD’s face-to-face interview requirement at 24 C.F.R. § 203.604.

As to the standing issue, the Second District held that the plaintiff established a prima facie case of standing by establishing that it possessed the note that was endorsed in blank.  The borrowers offered no substantive evidence to the contrary and they could not rely on circumstantial inferences.

With regard to compliance with section 203.604, the Second District held there were issues of fact as to whether the letter to the borrowers had been “dispatched,” as required under 203.604(d).  Accordingly, the Second District reversed the summary judgment and judgment of foreclosure and sale, and remanded the matter to the trial court to address the issues of fact related to section 203.604.

A copy of the opinion in U.S. Bank Trust National Ass’n v. Hernandez is available at:  Link to Opinion.

On Jan. 2, 2014, the plaintiff mortgagee, the trustee for the asset securitization trust, filed its complaint to foreclose a mortgage on property owned by the borrowers. The plaintiff mortgagee identified the original mortgagee and attached a copy of the subject mortgage. In support of its claim to be the current mortgagee, the plaintiff mortgagee attached a copy of a note. The note bore two indorsements. The first was an indorsement from the original mortgagee to a previous mortgage servicer. The second was a blank indorsement from that mortgage servicer. Neither indorsement was dated.

The borrowers asserted two affirmative defenses.  Their first affirmative defense was that the plaintiff lacked standing because the indorsements on the note were inadequate to show that the plaintiff held the debt when it filed its complaint. The second defense was that the plaintiff failed to comply with section 203.604, which requires for FHA loans that the mortgagee have, or reasonably attempt to have, a face-to-face meeting with the borrowers before seeking foreclosure.

The plaintiff mortgagee subsequently moved for summary judgment, attaching several documents to its motion. First, the mortgagee attached multiple affidavits from a foreclosure supervisor with the current mortgage servicer. The affidavits were all dated in 2015. According to the supervisor, the servicer was currently servicing the borrowers’ loan on behalf of the plaintiff and it had “acquired the servicing rights for [the] loan on 09/16/13.”  The affidavits also stated that, in April 2012, the mortgagee’s agents “visited the subject property” in an attempt to have a face-to-face meeting with the borrowers.

The affidavits also attached a copy of an April 2012 letter addressed to borrowers at the subject property. The sender was the then mortgage servicer. The letter advised the borrowers that a representative from the servicer would attempt to visit the borrowers regarding their loan. The affidavits also attached what was claimed to be “a copy of the FedEx Label for the package in which the letter was sent.”  The label was computer-generated and showed a “ship date” of April 20, 2012.

In addition to the affidavits, the plaintiff attached copies of two assignments of the subject mortgage. The first was an Aug. 15, 2013, assignment from a prior mortgage servicer to the Secretary of Housing and Urban Development, and the second assignment was a Jan. 16, 2014, assignment from HUD to the plaintiff.

The borrowers responded to the motion for summary judgment by contending that the August 2013 assignment to HUD raised an issue of material fact whether plaintiff owned the debt on Jan. 2, 2014, when it filed its complaint.

The borrowers also asserted that a genuine question of fact existed as to the plaintiff’s compliance with section 203.604(d) because, according to the mortgagee’s affidavits, the April 2012 letter was sent by Federal Express when section 203.604(d) expressly provides that the letter offering a face-to-face meeting should be sent through the United States Postal Service.

The borrowers attached an affidavit from one of the borrowers who asserted she had never received a certified letter by mail from the plaintiff, or anyone acting on the mortgagee’s behalf, nor had been offered a face-to-face meeting.

The trial court granted summary judgment for the mortgagee, and entered a judgment of foreclosure and sale. The borrowers filed a motion to reconsider, which the trial court denied.

Subsequently, the mortgagee purchased the subject property at a judicial sale and moved the court to approve the sale.  The borrowers filed an objection. They attached documentation showing that the August 2013 assignment of the subject mortgage to HUD was recorded on Jan. 23, 2014, several days after the plaintiff instituted the foreclosure proceeding. The trial court rejected the borrowers’ arguments and entered an order confirming the sale.  The borrowers appealed.

The Second District first addressed the borrowers’ standing defense.  According to the Court, it has been long accepted that possession of the note, indorsed in blank, is sufficient to establish standing absent evidence to the contrary.  And, it was well-settled that attaching a copy of the note to the foreclosure complaint is prima facie evidence the plaintiff owns the note.

The borrowers offered no evidence to support their conclusory arguments.  The Second District first rejected the borrowers’ argument that the plaintiff was required to produce the original note, holding that “[f]or over 25 years, the [Illinois Mortgage] Foreclosure Law has been interpreted as not requiring plaintiffs’ production of the original note, nor any specific documentation demonstrating that it owns the note or the right to foreclose on the mortgage, other than the copy of the mortgage and note attached to the complaint.”

Next, the Appellate Court also rejected the borrowers’ argument that the dates of the mortgage assignments implied the plaintiff did not possess the note at the time the complaint was filed. Specifically, the borrowers alleged that the August 2013 assignment of the subject mortgage to HUD created an issue of fact as to whether the plaintiff could have possessed the mortgage in January 2014 when the complaint was filed.  The mortgagee responded by asserting that the affidavits used in support of the motion for summary judgment established the plaintiff possessed the note when the complaint was filed.

The Second District concluded that the plaintiff’s standing was established as a matter of law, irrespective of what was contained in the affidavits.  The Court noted that the “[borrowers] fail to appreciate the force of the blank indorsement. The presumption of ownership conferred by the indorsement meant that plaintiff could sue on the note without setting forth its history. [Borrowers], rather, had the burden of providing as much of that history as necessary to demonstrate that the transfer of the note did not occur before the complaint was filed.” Because the borrowers had not introduced any evidence to contradict the presumption of ownership, their argument failed.

The Court noted, “[a]ssuming arguendo that the August 15, 2013, assignment conveyed the subject debt to HUD, it simply did not rebut the possibility that plaintiff became the owner of that debt sometime between August 15, 2013, and January 2, 2014, whether from HUD or another entity in the chain of ownership. Even the recording of the August 2013 assignment as late as January 23, 2014, did not rebut plaintiff’s ownership of the debt on January 2nd.”

Finally, the Second District rejected the borrowers’ argument that the Jan. 16, 2014 assignment of mortgage from HUD to the plaintiff created an issue of fact.  “We agree with plaintiff that it is plausibly explained as a memorialization of a prior transfer of the note to plaintiff.”

Turning its attention to the issue of whether the plaintiff mortgagee complied with section 203.604, the Appellate Court concluded there were issues of fact to preclude summary judgment.

As you may recall, section 203.604(b) requires 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).

“A reasonable effort to arrange a face-to-face meeting with the mortgagor” has two elements. 24 C.F.R. § 203.604(d).  First, it “shall consist at a minimum of one letter sent to the mortgagor certified by the Postal Service as having been dispatched.” Second, it “shall also include at least one trip to see the mortgagor at the mortgaged property.”

The borrowers argued that sending the letter via Federal Express, instead of “the Postal Service” failed to comply with the requirements of 203.604(d).  The Appellate Court, however, did not take issue with whether the use of FedEx substantially complied with section 203.604(d).  Instead, the Court concluded that issues of fact existed as to whether the letter was “dispatched,” as required.

The only evidence the plaintiff mortgagee offered in support of sending the letter was a shipping label that included a shipping date and tracking number.  The plaintiff mortgagee did not offer anything to show that the letter was actually sent with the delivery, and the Second District recognized that shipping labels can be created and printed without ever being used.

“In short, a shipping label – complete with shipping date and tracking number – can be generated independently of actual shipment. …The shipping label does not demonstrate conclusively that plaintiff sent [borrowers] a letter offering a face-to-face meeting.”  In the absence of any proof the letter was actually shipped or received, according to the Court, summary judgment was not appropriate.

In addition, the Second District also rejected the plaintiff mortgagee’s argument that noncompliance with section 203.604 may be excused in cases of inevitable foreclosure.  According to the Appellate Court, the only case that had reached that conclusion did so on the basis of an Illinois statute. In the absence of additional support for that argument on a federal regulation, the Court rejected the mortgagee’s argument.

Accordingly, the Second District vacated the summary judgment and remanded the case for further evaluation.

HUD Regulation Requiring Face-to-Face Meeting Presents Compliance Challenge for Lenders Seeking Mortgage Foreclosure

Valerie N. Doble
Associate, Hinshaw & Culbertson LLP

Source: Hinshaw & Culbertson LLP

In Dan-Harry v. PNC Bank, the Rhode Island federal court concluded that a mortgagor may bring a claim for damages and other remedies against a mortgagee on allegations of failure to conduct a pre-foreclosure face-to-face meeting required for breach of an FHA-insured mortgage. Dawari Dan-Harry obtained an FHA-insured mortgage loan to purchase property in Providence, Rhode Island, which included in Paragraph 9(d) the following provisions: “Regulations of HUD Secretary. In many circumstances regulations issued by the Secretary 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 regulations of the Secretary.” PNC Bank foreclosed on the mortgage and sold the property at auction to a third-party in January 2017. While continuing to occupy the property, Dan-Harry sued PNC for damages and to void the foreclosure sale on allegations that PNC failed to comply with HUD regulation 24 C.F.R. § 203.604(b), which requires a mortgagee to have a face-to-face meeting with the mortgagor or make a reasonable effort to arrange such a meeting before the mortgage becomes three months delinquent in payments.

The federal court denied PNC’s motion to dismiss plaintiff’s state law causes of action for breach of contract claim and demand for punitive and emotional distress damages. To do so, the court concluded that Paragraph 9(d) unambiguously creates a contractual obligation to comply with 24 C.F.R. §203.604(b) as a condition precedent to foreclosure. Because Rhode Island law requires strictly compliance with conditions precedent to foreclosure, and failure to comply renders a foreclosure sale void, the court held that Dan-Harry sufficiently alleged non-compliance with HUD regulations and stated a claim for punitive and emotional distress damages. Whether Dan-Harry will ultimately prevail is to be determined after development of the factual record.

This decision is significant because there is no private right of action under 24 C.F.R. § 203.604(b) and because Rhode Island law does not recognize a cause of action for breach of good faith and reasonable diligence in foreclosure. Nevertheless, Rhode Island federal courts effectively allow these claims through breach of contract claims and, in doing so, confirm an expanding demand for strict compliance with the terms of a mortgage in foreclosure.



Alan Jaffa

Alan Jaffa is the chief executive officer for Safeguard, steering the company as the mortgage field services industry leader. He also serves on the board of advisors for SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Alan joined Safeguard in 1995, learning the business from the ground up. He was promoted to chief operating officer in 2002, and was named CEO in May 2010. His hands-on experience has given him unique insights as a leader to innovate, improve and strengthen Safeguard’s processes to assure that the company adheres to the highest standards of quality and customer service.

Under Alan’s leadership, Safeguard has grown significantly with strategies that have included new and expanded services, technology investments that deliver higher quality and greater efficiency to clients, and strategic acquisitions. He takes a team approach to process improvement, involving staff at all levels of the organization to address issues, brainstorm solutions, and identify new and better ways to serve clients.

In 2008, Alan was recognized by Crain’s Cleveland Business in its annual “40-Under-40” profile of young leaders. He also was named a NEO Ernst & Young Entrepreneur of the Year® finalist in 2013.


Chief Operating Officer

Michael Greenbaum

Michael Greenbaum is the chief operating officer for Safeguard. Mike has been instrumental in aligning operations to become more efficient, effective, and compliant with our ever-changing industry requirements. Mike has a proven track record of excellence, partnership and collaboration at Safeguard. Under Mike’s leadership, all operational departments of Safeguard have reviewed, updated and enhanced their business processes to maximize efficiency and improve quality control.

Mike joined Safeguard in July 2010 as vice president of REO and has continued to take on additional duties and responsibilities within the organization, including the role of vice president of operations in 2013 and then COO in 2015.

Mike built his business career in supply-chain management, operations, finance and marketing. He has held senior management and executive positions with Erico, a manufacturing company in Solon, Ohio; Accel, Inc., a packaging company in Lewis Center, Ohio; and McMaster-Carr, an industrial supply company in Aurora, Ohio.

Before entering the business world, Mike served in the U.S. Army, Ordinance Branch, and specialized in supply chain management. He is a distinguished graduate of West Point (U.S. Military Academy), where he majored in quantitative economics.



Sean Reddington

Sean Reddington is the new Chief Information Officer for Safeguard Properties LLC. Sean has over 15+ years of experience in Information Services Management with a strong focus on Product and Application Management. Sean is responsible for Safeguard’s technological direction, including planning, implementation and maintaining all operational systems

Sean has a proven record of accomplishment for increasing operational efficiencies, improving customer service levels, and implementing and maintaining IT initiatives to support successful business processes.  He has provided the vision and dedicated leadership for key technologies for Fortune 100 companies, and nationally recognized consulting firms including enterprise system architecture, security, desktop and database management systems. Sean possesses strong functional and system knowledge of information security, systems and software, contracts management, budgeting, human resources and legal and related regulatory compliance.

Sean joined Safeguard Properties LLC from RenPSG Inc. which is a nationally leading Philintropic Software Platform in the Fintech space. He oversaw the organization’s technological direction including planning, implementing and maintaining the best practices that align with all corporate functions. He also provided day-to-day technology operations, enterprise security, information risk and vulnerability management, audit and compliance, security awareness and training.

Prior to RenPSG, Sean worked for DMI Consulting as a Client Success Director where he guided the delivery in a multibillion-dollar Fortune 500 enterprise client account. He was responsible for all project deliveries in terms of quality, budget and timeliness and led the team to coordinate development and definition of project scope and limitations. Sean also worked for KPMG Consulting in their Microsoft Practice and Technicolor’s Ebusiness Division where he had responsibility for application development, maintenance, and support.

Sean is a graduate of Rutgers University with a Bachelor of Arts and received his Masters in International Business from Central Michigan University. He was also a commissioned officer in the United States Air Force prior to his career in the business world.


General Counsel and Executive Vice President

Linda Erkkila, Esq.

Linda Erkkila is the general counsel and executive vice president for Safeguard and oversees the legal, human resources, training, and compliance departments. Linda’s responsibilities cover regulatory issues that impact Safeguard’s operations, risk mitigation, enterprise strategic planning, human resources and training initiatives, compliance, litigation and claims management, and mergers, acquisition and joint ventures.

Linda assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. Her practice spans over 20 years, and Linda’s experience covers regulatory disclosure, corporate governance compliance, risk assessment, executive compensation, litigation management, and merger and acquisition activity. Her experience at a former Fortune 500 financial institution during the subprime crisis helped develop Linda’s pro-active approach to change management during periods of heightened regulatory scrutiny.

Linda previously served as vice president and attorney for National City Corporation, as securities and corporate governance counsel for Agilysys Inc., and as an associate at Thompson Hine LLP. She earned her JD at Cleveland-Marshall College of Law. Linda holds a degree in economics from Miami University and an MBA. In 2017, Linda was named as both a “Woman of Influence” by HousingWire and as a “Leading Lady” by MReport.


Chief Financial Officer

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard. Joe is responsible for the Control, Quality Assurance, Business Development, Accounting & Information Security departments, and is a Managing Director of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Joe has been in a wide variety of roles in finance, supply chain management, information systems development, and sales and marketing. His career includes senior positions with McMaster-Carr Supply Company, Newell/Rubbermaid, and Procter and Gamble.

Joe has an MBA from The Weatherhead School of Management at Case Western Reserve University, is a Certified Management Accountant (CMA), and holds a bachelor’s degree from The Ohio State University’s Honors Accounting program.


AVP, High Risk and Investor Compliance

Steve Meyer

Steve Meyer is the assistant vice president of high risk and investor compliance for Safeguard. In this role, Steve is responsible for managing our clients’ conveyance processes, Safeguard’s investor compliance team and developing our working relationships with cities and municipalities around the country. He also works directly with our clients in our many outreach efforts and he represents Safeguard at a number of industry conferences each year.

Steve joined Safeguard in 1998 as manager over the hazard claims team. He was instrumental in the development and creation of policies, procedures and operating protocol. Under Steve’s leadership, the department became one of the largest within Safeguard. In 2002, he assumed responsibility for the newly-formed high risk department, once again building its success. Steve was promoted to director over these two areas in 2007, and he was promoted to assistant vice president in 2012.

Prior to joining Safeguard, Steve spent 10 years within the insurance industry, holding a number of positions including multi-line property adjuster, branch claims supervisor, and multi-line and subrogation/litigation supervisor. Steve is a graduate of Grove City College.


AVP, Operations

Jennifer Jozity

Jennifer Jozity is the assistant vice president of operations, overseeing inspections, REO and property preservation for Safeguard. Jen ensures quality work is performed in the field and internally, to meet and exceed our clients’ expectations. Jen has demonstrated the ability to deliver consistent results in order audit and order management.  She will build upon these strengths in order to deliver this level of excellence in both REO and property preservation operations.

Jen joined Safeguard in 1997 and was promoted to director of inspections operations in 2009 and assistant vice president of inspections operations in 2012.

She graduated from Cleveland State University with a degree in business.


AVP, Finance

Jennifer Anspach

Jennifer Anspach is the assistant vice president of finance for Safeguard. She is responsible for the company’s national workforce of approximately 1,000 employees. She manages recruitment strategies, employee relations, training, personnel policies, retention, payroll and benefits programs. Additionally, Jennifer has oversight of the accounts receivable and loss functions formerly within the accounting department.

Jennifer joined the company in April 2009 as a manager of accounting and finance and a year later was promoted to director. She was named AVP of human capital in 2014. Prior to joining Safeguard, she held several management positions at OfficeMax and InkStop in both operations and finance.

Jennifer is a graduate of Youngstown State University. She was named a Crain’s Cleveland Business Archer Award finalist for HR Executive of the Year in 2017.


AVP, Application Architecture

Rick Moran

Rick Moran is the assistant vice president of application architecture for Safeguard. Rick is responsible for evolving the Safeguard IT systems. He leads the design of Safeguard’s enterprise application architecture. This includes Safeguard’s real-time integration with other systems, vendors and clients; the future upgrade roadmap for systems; and standards designed to meet availability, security, performance and goals.

Rick has been with Safeguard since 2011. During that time, he has led the system upgrades necessary to support Safeguard’s growth. In addition, Rick’s team has designed and implemented several innovative systems.

Prior to joining Safeguard, Rick was director of enterprise architecture at Revol Wireless, a privately held CDMA Wireless provider in Ohio and Indiana, and operated his own consulting firm providing services to the manufacturing, telecommunications, and energy sectors.


AVP, Technology Infrastructure and Cloud Services

Steve Machovina

Steve Machovina is the assistant vice president of technology infrastructure and cloud services for Safeguard. He is responsible for the overall management and design of Safeguard’s hybrid cloud infrastructure. He manages all technology engineering staff who support data centers, telecommunications, network, servers, storage, service monitoring, and disaster recovery.

Steve joined Safeguard in November 2013 as director of information technology operations.

Prior to joining Safeguard, Steve was vice president of information technology at Revol Wireless, a privately held wireless provider in Ohio and Indiana. He also held management positions with Northcoast PCS and Corecomm Communications, and spent nine years as a Coast Guard officer and pilot.

Steve holds a BBA in management information systems from Kent State University in Ohio and an MBA from Wayne State University in Michigan.


Assistant Vice president of Application Development

Steve Goberish

Steve Goberish, is the assistant vice president of application development for Safeguard. He is responsible for the maintenance and evolution of Safeguard’s vendor systems ensuring high-availability, security and scalability while advancing the vendor products’ capabilities and enhancing the vendor experience.

Prior to joining Safeguard, Steve was a senior technical architect and development manager at First American Title Insurance, a publicly held title insurance provider based in southern California, in addition to managing and developing applications in multiple sectors from insurance to VOIP.

Steve has a bachelor’s degree from Kent State University in Ohio.