Florida’s Second DCA recently affirmed a foreclosure judgment entered in favor of Wells Fargo Bank, N.A. (“Wells Fargo” or “the Bank”) despite allegations that the Bank failed to comply with conditions precedent by failing to conduct a face-to-face meeting prior to initiating foreclosure. Kuhnsman v. Wells Fargo Bank, N.A., 45 Fla. L. Weekly D2449 (Fla. 2d DCA Oct. 30, 2020). The face-to-face meeting requirement is mandated by HUD for FHA-backed loans if the HUD provisions are specifically incorporated into the mortgage, as they were in the Kuhnsman’s mortgage.
In Kuhnsman, the Borrowers took out a loan in 2007 and stopped making mortgage payments in 2010.i The Bank tried unsuccessfully to foreclose, but the lower court dismissed the Bank’s case finding the Bank’s efforts to comply with FHA/HUD guidelines were insincere. After dismissal the parties engaged in loss mitigation discussions which came to an unsuccessful end in August 2014. In September 2014 the Bank sent a certified letter requesting a face-to-face meeting with the Kuhnsmans. The letter was returned to the Bank bearing a “Refused” stamp on the envelope. That refusal was followed by a cease and desist letter authored by the Kuhnsmans’ attorney requiring all communications to go through counsel.
Thereafter the Bank reached out to Kuhnmans’ counsel and requested updated financials for the Kuhnsmans. Counsel responded that the Kuhnsmans’ financials had not changed since the failed settlement attempts in August 2014. Having substantially complied with the HUD requirements, Wells Fargo filed its second foreclosure action against the Kuhnsmans in February 2017. The Bank alleged compliance with all conditions precedent. The Kuhnsmans denied satisfaction of conditions precedent and specifically asserted the Bank failed to “make a reasonable effort to arrange a face-to-face meeting…pursuant to section 203.604.”
The matter proceeded to a non-jury trial where Wells Fargo argued the “refused” certified letter and the Bank’s communications with the Kuhnsmans’ counsel amounted to substantial compliance with § 203.6o4. Subsection (c) of § 203.604 provides that the HUD face-to-face meeting requirement is met if the bank makes a “reasonable effort to arrange a meeting” even if that attempt is unsuccessful. HUD defines a “reasonable effort” as sending at least one certified letter and making “at least one trip to the see the mortgagor at the mortgaged property.” The Kuhnsmans countered that they never intended to forego the face-to-face meeting and their cease and desist letter was intended to communicate only that they wanted the meeting conducted through their counsel. The lower court concluded the Bank complied with the requirements of §203.604 and entered judgment for Wells Fargo. The Kuhnsmans appealed the judgment to Florida’s Second DCA.
The Second DCA agreed with the lower court and affirmed Wells Fargo’s foreclosure judgment finding “substantial compliance or substantial performance” to be the appropriate measure when evaluating whether a party satisfied conditions precedent. The Court reasoned the face-to-face meeting was not required since the Kuhnsmans refused the Bank’s certified letter wherein the Bank attempted to schedule the face-to-face meeting and the Kuhnsmans instructed the Bank to speak only with counsel. The Court explained: “Following these instructions the bank never visited the property or met with the Kuhnsmans… [instead] pursu[ing] loss mitigation efforts, albeit unsuccessfully, with their counsel.” The Court elaborated that requiring a face-to-face meeting under these circumstances “would elevate form over substance.” Lastly, the Court concluded even if Wells Fargo’s efforts at substantial compliance fell short, [it] would still affirm” because the Kuhnsmans could not prove they were prejudiced by any breach of the pre-suit face-to-face meeting requirement given the failed settlement negotiations with counsel.
This opinion provides a very helpful and commonsensical approach to evaluating compliance with conditions precedent as it pertains to the face-to-face meeting requirement of HUD. The Court’s application of the substantial rather than strict compliance standard will prove helpful in overcoming defenses based on non-compliance with conditions precedent as long as the lender puts forth a good faith effort to comply with the relevant statutory and contractual provisions required by the mortgage.
i Kuhnsman, at *2. Quotes and references to the Kuhnsman case that follow are to this same cite, until indicated otherwise.