Banks Must Follow Foreclosure Requirements in FHA Loans
In many contracts there are what are known as conditions precedent to fulfilling obligations under the contract. These requirements must be fulfilled before a lawsuit for breach of the contract can be brought. A case that went under the radar a few months back is worth examining, as it shows another defense that homeowners have against banks seeking to foreclose on them.
What are Conditions Precedent?
Conditions precedent can be thought of as prerequisites. They are required steps that must be completed before a contract can be enforced. Mortgages and home loans (promissory notes) are contracts, and have prerequisites. One common prerequisite is the obligation by the lender to send the borrower notice of default.
The loan contract says that the notice of default must be sent before a bank can foreclose. This is why homeowners get these letters, listing everything they would need to pay to bring the loan current. Without the letter, the condition precedent is not satisfied and there is no legal ability to foreclose.
Requirements in FHA Loans
In Federal Housing Administration (FHA) loans, there are many conditions precedent that must be satisfied before a bank can foreclose—more so than in a standard traditional mortgage. This is because the government acts as an insurer for banks in FHA loans, and wants to make sure the bank does everything that it can to avoid foreclosure, and thus, to avoid the government from having to pay the lender.
One such condition precedent is the requirement that before the loan goes more than three months in default, a representative from the lender must meet in person face to face with the borrower to discuss available modification or work out options. If a meeting does not happen, the lender must show it made a good faith effort to arrange one.
Face to Face Meetings
In reality, very few lenders actually comply with this requirement. However, a recent Florida case is a reminder of how important the requirement is. In the case, the homeowner said that she did not recall any effort by the bank to meet with her before she was three months in default.
The bank’s witness said that he had no knowledge of whether there was a meeting, but that it was the bank’s general practice to do so with FHA loans.
The homeowner argued that there was no evidence that the condition precedent of the meeting ever happened, and thus, no foreclosure could be entered. Foreclosure was granted anyway, and the homeowner appealed.
On appeal, the Court said that just like a bank must send notice of default as a prerequisite to foreclosing, the bank must also provide evidence of a face to face meeting when foreclosing on an FHA loan. As the bank presented no evidence of the meeting at trial, it was not permitted to foreclose. The appellate court ordered that the foreclosure against the homeowner be dismissed.
Make sure that you have all possible defenses available to you if you need to fight against a foreclosure. Contact Jacobs Legal to speak with one of our Miami consumer rights attorneys today.