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Mathews v. PHH Mortgage Corporation (Virginia Supreme Court April 20, 2012)

Mathews v. PHH Mortgage Corporation (Virginia Supreme Court April 20, 2012)

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Published by bryllaw
Virginia Supreme Court rules in favor of homeowners
Virginia Supreme Court rules in favor of homeowners

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Published by: bryllaw on Apr 27, 2012
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12/28/2012

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PRESENT: All the JusticesRICHARD MATHEWS, ET AL.OPINION BYv. Record No. 110967 JUSTICE WILLIAM C. MIMSApril 20, 2012PHH MORTGAGE CORPORATIONFROM THE CIRCUIT COURT OF NELSON COUNTYJ. Michael Gamble, JudgeIn this appeal, we consider whether a landowner who hasbreached a deed of trust by failing to make payments asrequired under the associated note may nevertheless enforce itsconditions precedent. We also consider the prerequisites toforeclosure set forth in 24 C.F.R. § 203.604 and whether theyare incorporated as conditions precedent in a deed of trust.I.
 
BACKGROUND AND MATERIAL PROCEEDINGS BELOWRichard M. and Karin L. Mathews owned a parcel of land inNelson County (“the Parcel”), which they conveyed by deed oftrust (“the Deed of Trust”) on June 28, 2002, to Wendall L.Winn, Jr., trustee, for the benefit of University of VirginiaCommunity Credit Union to secure a note in the principal amountof $118,505.00, plus interest (“the Note”). The indebtednesssecured by the Deed of Trust was insured by the Federal HousingAuthority under regulations promulgated by the Secretary ofHousing and Urban Development (“HUD”) under the NationalHousing Act, 12 U.S.C. §§ 1701-1750jj, and codified in Part 203of Title 24 of the Code of Federal Regulations. PHH Mortgage
 
Corporation (“PHH”) subsequently became the holder of the Noteand the beneficiary of the Deed of Trust.The Mathewses fell into arrears on the payments due underthe Note. Consequently, PHH appointed Professional ForeclosureCorporation of Virginia (“PFC”) as substitute trustee under theDeed of Trust to commence foreclosure proceedings on theParcel. PFC scheduled a foreclosure sale for November 11,2009.On November 10, 2009, the Mathewses filed a complaint inthe circuit court seeking a declaratory judgment that theforeclosure sale would be void because PHH had not satisfiedconditions precedent to foreclosure set forth in the Deed ofTrust. Specifically, they alleged that 24 C.F.R. § 203.604(“the Regulation”) required PHH to have a face-to-face meetingwith them at least 30 days before the commencement offoreclosure proceedings. They asserted that the Regulation wasincorporated into the Deed of Trust as a condition precedent toforeclosure. No such meeting had occurred before PFC commencedforeclosure proceedings.PHH removed the action to the United States District Courtfor the Western District of Virginia, which remanded it to thecircuit court for lack of subject-matter jurisdiction. PHHthen filed a demurrer in which it argued that the Mathewsescould not sue to enforce the Regulation because (a) it
 
conferred no private right of action and (b) they had committedthe first breach of the Deed of Trust by failing to pay asrequired under the Note. PHH also argued that, even if theMathewses could sue to enforce the Regulation, it did not applyto them because, under HUD’s interpretation, a face-to-facemeeting is only required if the mortgagee has a “servicingoffice” within 200 miles of the mortgaged property. PHH didnot have such an office within that distance from the Parcel.The circuit court ruled that the Regulation wasincorporated into the Deed of Trust as a condition precedent toforeclosure. However, the court also determined that underVirginia common law, the party who breaches a contract firstcannot sue to enforce it. The court therefore ruled that theMathewses could not sue to enforce the conditions precedent inthe Deed of Trust because they had breached it first throughnon-payment. The court also ruled that the Regulation did notapply to them because PHH did not have a “servicing office”within 200 miles of the Parcel. Accordingly, the courtsustained PHH’s demurrer and dismissed the complaint. Weawarded the Mathewses this appeal.II. ANALYSISA. ENFORCEMENT OF CONDITIONS PRECEDENT TO FORECLOSUREIN A DEED OF TRUST BY A BORROWER IN DEFAULTThe threshold question is whether the Mathewses’ failureto pay under the Note precludes them from enforcing the

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