GrayRobinson Appellate E-lert: Florida Second District Holds that Loss Mitigation Efforts is Evidence of Substantial Compliance with HUD Regulations

By: Jonathan L. Blackmore, Of Counsel

Florida’s Second District Court of Appeal recently issued a first of its kind ruling in Florida, applying the concepts of substantial compliance and lack of prejudice to compliance with the HUD “face-to-face” interview requirement. In Kuhnsman v. Wells Fargo Bank, N.A., the borrowers stopped making their payments in 2010. After an initial foreclosure was dismissed, Wells Fargo and the borrowers attempted to resolve the borrowers’ payment default through loss mitigation. After loss mitigation efforts failed, Wells Fargo sent a “face-to-face meeting letter” to the borrowers by certified mail.  The letter was returned to Wells Fargo “refused” by the borrowers. The borrowers then retained counsel who sent Wells Fargo a “cease-and-desist” letter. However, Wells Fargo and the borrowers continued to pursue loss mitigation efforts after receipt of the cease-and-desist letter.

In 2017, Wells Fargo filed a second foreclosure action. During a non-jury trial, the borrowers moved for involuntary dismissal, contending that although Wells Fargo mailed a certified letter requesting a face-to-face interview, Wells Fargo did not make at least one trip to the property, and therefore failed to satisfy the “reasonable effort” requirement under Sec. 203.604(c)(5). The borrowers further contended their cease-and-desist letter was intended to communicate that a face-to-face meeting was to be conducted through their counsel. Wells Fargo countered that it substantially complied with Sec. 203.604, because after its receipt of the cease-and-desist letter, loss mitigation communications and negotiations continued through the borrowers’ counsel. Final Judgment was entered in favor of Wells Fargo.

On Appeal, the Second District began its analysis by rejecting the borrowers’ argument that Sec. 203.604(c)(5) requires strict, rather than substantial compliance. It then explained that Wells Fargo substantially complied with the face-to-face meeting requirement by demonstrating its “reasonable efforts” at arranging a meeting by sending a certified letter requesting a meeting and receiving a cease-and-desist letter from the borrowers in return. And importantly, Wells Fargo continued to work with the borrowers after receiving the cease and desist letter in attempting to resolve the default through loss mitigation. The Court stated: “In our view, the [borrowers] received the “equivalent to what was bargained for” under the HUD regulations: the opportunity to avoid foreclosure through loss mitigation alternatives.”

The Court explained that because the borrowers received every opportunity to resolve the default through loss mitigation, they could not demonstrate prejudice even had Wells Fargo failed to demonstrate substantial compliance with Sec. 203.604. “Even if Wells Fargo’s efforts at substantial compliance fell short, we would still affirm…[a]fter all, as Wells Fargo argued in its avoidance of the [borrowers’] denial of the performance of conditions precedent, the parties’ failed loss mitigation efforts subsequent to the [borrowers’] default preclude them from proving they were prejudiced by Wells Fargo’s failure to strictly comply with the face-to-face interview requirement.”

For questions on HUD compliance issues, please feel free to reach out to me directly at (786) 491-1108 or