Mathews v. PHH Mortg. Corp.
283 Va. 723
| Va. | 2012Background
- Mathewses owned property in Nelson County secured by a 2002 deed of trust to secure a $118,505 note; PHH Mortgage later held the note and beneficiary rights under HUD insurer; Mathewses fell behind on payments and PHH substituted a trustee to foreclose; foreclosure set for November 11, 2009; Mathewses sued Nov. 10, 2009 seeking declaratory judgment that foreclosure would be void for failure to satisfy conditions precedent under the Deed of Trust and HUD regulations; Mathewses argued 24 C.F.R. § 203.604 requires a face-to-face meeting before foreclosure; circuit court held the Regulation incorporated as a condition precedent and that nonpayment precluded enforcement under common-law first-breach rule; court remanded after ruling the Regulation applied.
- Circuit court found Regulation incorporated as a condition precedent; held nonpayment precludes enforcement under Horton, Countryside, Bayview context, but Mathewses argued otherwise.
- Major issue on appeal: whether a borrower in default may enforce conditions precedent to foreclosure and whether HUD Regulation 24 C.F.R. § 203.604 is incorporated as a condition precedent in the Deed of Trust.
- Court analyzed whether nonpayment is a material breach and thus whether the first-breach doctrine bars enforcement, and whether HUD Regulation is incorporated and applicable.
- Court ultimately affirmed in part, reversed in part, and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a defaulting borrower can enforce deed-of-trust conditions precedent | Mathewses can enforce; first breach does not bar enforcement | PHH: first material breach bars enforcement; Bayview requires compliance | Borrowers may enforce conditions precedents despite first breach |
| Whether 24 C.F.R. § 203.604 is incorporated as a condition precedent | Regulation incorporated through Deed of Trust language | HUD controls; regulation not incorporated | Regulation incorporated as a condition precedent to acceleration/foreclosure |
| Whether 24 C.F.R. § 203.604 applies given distance to branch/servicing offices | Branch-office scope includes origination offices; FAQ not controlling | Regulation limited to servicing office within 200 miles | Regulation applies; branch-office interpretation includes origination offices; Mathewses pled sufficient facts to apply |
| What is the controlling interpretation of branch-office term for § 203.604(c)(2) | Plain meaning includes branch offices broadly | HUD FAQ restricts to servicing offices | HUD FAQ not controlling; regulation unambiguous and broad; branch office includes origination offices |
Key Cases Cited
- Horton v. Horton, 254 Va. 111, 487 S.E.2d 200 (1997) (first material breach doctrine; material breach defeats contract)
- Countryside Orthopaedics, P.C. v. Peyton, 261 Va. 142, 541 S.E.2d 279 (2001) (material breach doctrine applied to contract damages)
- Bayview Loan Servicing, LLC v. Simmons, 275 Va. 114, 654 S.E.2d 898 (2008) (failure to provide pre-acceleration notice breached deed; foreclosure improper)
- Fairfax County Redevelopment & Hous. Auth. v. Riekse, 281 Va. 441, 707 S.E.2d 826 (2011) (trustee power to foreclose conferred by deed; conditions precedent)
- Uniwest Constr., Inc. v. Amtech Elevator Servs., 280 Va. 428, 699 S.E.2d 223 (2010) (contract interpretation; deeds of trust construed as written)