Pfeifer vs. Countrywide Home Loans, 2012 Westlaw 6216039 (Cal.App.)
A California appellate court has held that a nonjudicial foreclosure could be enjoined due to the lender’s failure to conduct a face-to-face interview with the borrower prior to the sale, pursuant to HUD regulations. [Pfeifer vs. Countrywide Home Loans, 2012 Westlaw 6216039 (Cal.App.).] Summary of facts, and Court’s reasoning:
Facts: After two homeowners defaulted on their mortgage, the lender commenced a nonjudicial foreclosure. Prior to the sale, the borrowers sought injunctive relief on the ground that the lender had failed to conduct a face-to-face interview prior to foreclosure, as required by HUD regulations. The trial court sustained the lender’s demurrer, but the appellate court reversed.
Reasoning: The court held that the HUD servicing regulations were incorporated by reference into the deed of trust. The lender argued that requiring a face-to-face interview would defeat the California policy favoring quick and inexpensive nonjudicial foreclosures, but the court disagreed:
Requiring compliance with the HUD face-to-face interview would not deprive the lenders of a quick and inexpensive remedy; it merely would ensure that the lenders comply with the express terms set forth in the HUD regulations and incorporated into the FHA deeds of trust prior to seeking this quick and inexpensive remedy. Furthermore, the goal of protecting the borrower from a wrongful loss of property is enhanced as the interview may prevent the need for foreclosure. The lenders voluntarily agreed to purchase these FHA loans in exchange for the government’s backing against default. Thus, … , they voluntarily subjected themselves to the additional requirements designed to avoid the necessity for foreclosure.
The court additionally held that the trustee conducting the foreclosure sale could not be held liable under the Fair Debt Collection Practices Act as a “debt collector.” Also, the court held that the borrowers could not assert a claim for damages based on the lender’s noncompliance with the HUD regulations.
Author’s Comment: This decision provides borrowers with another delaying tactic, but it is no panacea. Just like leading the proverbial horse to water, you can lead a lender to an interview, but you can’t make him listen. Although the court did not address the issue of the borrower’s remedy following a completed sale, my guess is that if the foreclosure had already taken place, the borrower could not assert the absence of a face-to-face interview in order to nullify the sale.
This analysis is from the California state bar insolvency committee.