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Washington Mutual Bank, F.A. v. Teodorescu

2005 WL 3108231 (N.J. Super. App. Div. 2005) (Unpublished)

FORECLOSURE; HUD GUIDELINES — HUD foreclosure guidelines are discretionary, not mandatory; thus, unless a lender’s failure to comply with those regulations and procedures is unconscionable or inequitable, the failure is not a defense to a foreclosure complaint.

In a foreclosure action, the borrower waited seventeen months to file a motion in the Superior Court to treat the foreclosure as contested and to ask that the matter be moved to federal court. The borrower’s basic objection was that the lender had failed to comply with certain regulations in connection with the foreclosure. On appeal, the borrower also argued that, at the time of the loan closing, there was an oral agreement by the lender to execute a written modification to lower the loan’s interest rate. The lower court denied relief, holding that the lender had “established prima facie case for foreclosure, i.e. execution and timely recording of the mortgage, failure to pay according to its terms, acceleration of amount due, and notice of intention.” It further found “[t]he Answer, Defenses and Counterclaim all rest in HUD loss mitigation allegations which are not cognizable in this foreclosure action.” Essentially, the lower court concluded that the borrower “did not have ‘private cause of action [against the lender] under loss mitigation guidelines, and no remedy or duty from the bank to the borrower created by the HUD regulations.’” It also found that the argument was raised too late and even if it had been timely, it would have failed as a matter of law, “as extrinsic and parole evidence would not be admissible to alter the terms of the complete and unambiguous loan documents.”

The borrower appealed, but the Appellate Division agreed with the lower court. In doing so, it rejected the borrower’s argument that the mortgagee’s conduct was so unconscionable and inequitable as to preclude it from obtaining the equitable relief of foreclosure. The Court “analyzed the lost mitigation and servicing regulations pertaining to FHA mortgages,” and accepted the lower court’s conclusion that “the HUD Regulations and procedures in the HUD Handbook are discretionary, not mandatory, and are not a legal prerequisite to foreclosure which is determined by state law. Further, a private cause of action may not be implied against a mortgagee for violation of the HUD regulations and the procedures outlined in the HUD Handbook.” Although a borrower may assert its “lender’s failure to satisfy the HUD regulations as an equitable defense,” neither the lower court nor the Appellate Division found, under the facts of the case, that the lender had failed “to comply with the regulations and procedures [in a manner that was] so unconscionable and inequitable as to preclude [the borrower] from relief and bar its right to foreclosure.”

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