Under HUD regulations, some servicers are required to attempt to arrange face-to-face interviews with borrowers who are less than three months behind on their mortgage loan payments before proceeding to foreclosure. Until very recently, no Illinois Appellate Court had opined on the issue of whether servicers must strictly or substantially comply with these requirements, given that many servicers have not attempted to comply until after borrowers had missed three monthly payments.
In the Olivera case, the Second District of Illinois Court of Appeals changed that by requiring servicers to strictly comply with the requirements. While courts in some other states, and in some trial courts in Illinois, have allowed substantial compliance, the appellate court held that a servicer’s late compliance with the face-to-face regulation is insufficient and strict compliance with the regulations is necessary before the court may grant foreclosure relief in these cases. In this respect, the court held that a servicer’s failure to comply with the requirements strictly acted as a complete defense to the foreclosure action. Under this strict standard, the problem for servicers who complied after the borrowers had missed three monthly payments was that the courts would not grant foreclosure relief once a borrower appeared in the action and raised the HUD defense.
However, the progeny of cases that followed, ending with the Dubrovay case, gave servicers new hope and created a “new-default rule.” Under the new-default rule, servicers are permitted to comply with the HUD face-to-face interview requirements after the borrower has missed three monthly payments, specifically by forgiving payments and waiting to see if a borrower re-defaults before complying with these requirements.
In this respect, the Dubrovay court held that the servicer’s voluntary dismissals of prior foreclosure actions constituted de-accelerations of the loan, which returned the parties to their pre-acceleration rights and obligations, and that the borrowers’ new payment default gave rise to a separate foreclosure claim. These cases not only serve to clarify a servicer’s responsibility regarding the HUD face-to-face requirements, but also as to what options a servicer has if, for some reason, the servicer has not strictly complied with them.
Despite the positive outcome for the bank in Dubrovay, lenders and servicers must be aware of the jurisdiction of their case regarding multiple filings of foreclosure cases as the Sigler case, which has very similar facts, is completely inapposite to Dubrovay. Trial courts in Cook County must follow the Sigler decision since it is a decision by the Appellate Court of Illinois, First District.
If timely compliance is not possible, it should be determined whether an exception applies or if the borrower obtained a bankruptcy discharge to excuse this obligation. If no exception applies, then the lender and servicer may have to forgive missed payments to bring the loan less than three months past due.