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55 » VISIT US ONLINE @ DSNEWS.COM OHIO Foreclosing Ohio FHA Loans Gets More Complicated By Rick DeBlasis, Lerner, Sampson & Rothfuss e FHA promissory note and mortgage widely in use today limit a lender's right to ac- celerate by first requiring compliance with HUD regulations. e FHA Note states, "In many circumstances regulations issued by the Secretary will limit Lender's rights to require immediate payment in full in the case of payment defaults. is note does not authorize acceleration when not permitted by HUD regulations." FHA Mul- tistate Fixed Rate Note, Paragraph 6(B). Correspondingly, the FHA Mortgage states, "Lender may, except as limited by regulations issued by the Secretary, in the case of payment defaults, require immediate payment in full of all sums secured by this Security Instrument[.]" FHA Open-End Mortgage with MERS-OH, Paragraph 9(A). Courts routinely find that where a note and mortgage mandate compliance with HUD regulations, such compliance is a condi- tion precedent to bringing a foreclosure action. See, e.g., Bank of Am., N.A. v. Wiggins, 9th Dist. Wayne No. 14AP0033, 2015-Ohio-4012, Paragraph 12. THE PROBLEM Over the last several years, lenders have become familiar with the HUD "Face-to-Face" regulations set forth in 24 CFR 203.604. ose provisions require a lender, with certain excep- tions, to invite the borrower to a face-to-face interview to discuss default resolution options before three full monthly payments are due and unpaid and at least 30 days before foreclosure commences. e lender's requirements under this regulation are exacting and often the source of contested foreclosure litigation, as well as a significant evidentiary burden. Recently, an Ohio court of appeals provided borrowers with another avenue for contesting foreclosures and added a whole new layer of proof for lenders. In Lakeview Loan Servicing, LLC v. Dancy, 9th Dt. Summit No. 27889, 2016-Ohio- 7106, the lender alleged in its 2014 foreclosure complaint that the borrower's loan was in default, that the lender had fulfilled all conditions prec- edent to foreclosure, and that it now was entitled to a judgment and decree in foreclosure. e borrower, among other allegations, de- nied the lender had fulfilled all conditions prec- edent, alleging that the lender "failed to give the proper and requisite notice prior to acceleration" as required by HUD regulation 24 CFR 203.602. e lender filed a motion for summary judgment supported by an affidavit, which attested that a proper notice of the borrower's default was sent to the borrower in accordance with the terms of the note and mortgage. A copy of the lender's notice of default was attached to the affidavit. Over the borrower's objection, the trial court granted the lender's motion and issued a judgment and decree in foreclosure. e borrower appealed. e court of appeals, apparently without prompting by the borrower—at least in the briefs— focused on the first sentence of 24 CFR 203.602, which states, "e mortgagee shall give notice to each mortgagor in default on a form supplied by the Secretary or, if the mortgagee wishes to use its own form, on a form approved by the Secretary, no later than the end of the second month of any delin- quency in payments under the mortgage." e court found that the lender's affidavit did not attest that its form was either "supplied by the Secretary" or "approved by the Secretary." e court thus found that the borrower's vague challenge to the propriety of the lender's notice was sufficient to establish that a genuine issue of material fact existed. e court remanded the case to the trial court to determine whether the lender's form complied with the regulation. WHAT IT MEANS FHA loans are in wide use in the residential- lending industry today. e ever-increasing court scrutiny of the lender's compliance with every aspect of the HUD regulatory scheme as a condition precedent to foreclosure, notwithstand- ing the lender's good faith attempt to comply, continually raises the bar for lenders and their counsel. is author has seen the lender's affidavit requirements grow, even where the borrower has not come forward to contest the foreclosure, from a one-page attestation of the borrower's loan, its default, and the amount due, to an inch- thick tome of technical legal jargon, regulatory compliance warranties, and voluminous exhibits. Even then, a court of appeals may send a 2014 foreclosure back to the trial court for a 2017 trial upon a technicality that neither the lender nor the borrower could have foreseen. In any event, lenders seeking to accelerate FHA loans are now on notice that their form af- fidavits should provide, among other things, that the Notice of Default mailed to the borrowers was "on a form supplied by the Secretary" or, if the lender uses its own form, "on a form approved by the Secretary."

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