WELLS FARGO BANK, N.A. v. SAMIRA T. AWADALLAH, et al.
C.A. No. 27413
IN THE COURT OF APPEALS NINTH JUDICIAL DISTRICT
September 16, 2015
2015-Ohio-3753
APPEAL FROM JUDGMENT ENTERED IN
DECISION AND JOURNAL ENTRY
Dated: September 16, 2015
WHITMORE, Judge.
{1} Appellant, Samira T. Awadallah, appeals from a foreclosure decree in the Summit County Court of Common Pleas. This Court reverses.
{2} In 2002, Ms. Awadallah and her husband, Nazal M. Awadallah, signed a promissory note and mortgage in favor of First Merit Mortgage Corporation. The note and the mortgage were prepared on Federal Housing Administration forms and state that acceleration and foreclosure are not authorized unless permitted by Housing and Urban Development regulations. Following a series of assignments, Wells Fargo Bank, N.A. (“Wells Fargo“) became the holder of the note and the mortgage.
{3} Mr. Awadallah died in 2008, and Ms. Awadallah defaulted on the loan payments. In 2009, Ms. Awadallah and Wells Fargo executed a loan modification agreement. In 2011, Ms. Awadallah and Wells Fargo executed a second loan modification agreement. Ms. Awadallah again defaulted on her payment obligations.
{4} After this default, Wells Fargo sent Ms. Awadallah a letter detailing the delinquency and providing a date by which she could bring the account current to avoid acceleration of the note. In addition, Wells Fargo sent Ms. Awadallah a certified letter requesting that she contact them “to meet * * * to review [her] financial situation and determine possible options to assist [her] in bringing [her] loan current.”
{5} Thereafter, Wells Fargo filed the instant foreclosure action. In paragraph 5 of its complaint, Wells Fargo alleged that it had “satisfied all conditions prior to filing this complaint.” Ms. Awadallah filed an answer and counterclaim. In her answer, she “denie[d] the allegations contained in ¶ 5” of the complaint. Under the heading defenses and affirmative defenses, she included that Wells Fargo “failed to give the proper and requisite notices to [her] pursuant to the terms of the Note and Mortgage.” Among her counterclaims, she alleged that Wells Fargo had breached its contract because it failed to conduct a face-to-face interview with her or to make reasonable efforts to arrange such a meeting pursuant to
{6} After mediation proved unsuccessful, Wells Fargo moved for summary judgment on its complaint and the counterclaim. Ms. Awadallah failed to file a timely response to the motion. The court granted the summary judgment motion and directed Wells Fargo to “prepare and submit to the [c]ourt a proposed [j]udgment [e]ntry and [d]ecree in [f]oreclosure * * * recogniz[ing] any and all liens that are on the [p]roperty.”
{7} Before the foreclosure decree was entered, Ms. Awadallah moved the court to vacate its judgment pursuant to
{8} Ms. Awadallah now appeals raising one assignment of error for our review.
II
Assignment of Error
THE TRIAL COURT ERRED WHEN IT GRANTED SUMMARY JUDGMENT IN FAVOR OF WELLS
{9} Under her sole assignment of error, Ms. Awadallah challenges the grant of summary judgment because, she argues, Wells Fargo failed to demonstrate compliance with two federal regulations, namely
{10} As an initial matter, we address Wells Fargo‘s contention that Ms. Awadallah failed to preserve any error concerning
altogether. Ms. Awadallah raised the issue of compliance with
{11}
(b) The mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid. If default occurs in a repayment plan arranged other than during a personal interview, the mortgagee must have a face-to-face meeting with the mortgagor, or make a reasonable attempt to arrange such a meeting within 30 days after such default and at least 30 days before foreclosure is commenced * * * .
(d) A reasonable effort to arrange a face-to-face meeting with the mortgagor shall consist at a minimum of one letter sent to the mortgagor certified by the Postal Service as having been dispatched. Such a reasonable effort to arrange a face-to-face meeting shall also include at least one trip to see the mortgagor at the mortgaged property * * *.
{12} We review a trial court‘s award of summary judgment de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105 (1996). Pursuant to
(1) No genuine issue as to any material fact remains to be litigated; (2) the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing such evidence most strongly in favor of the party against whom the motion for summary judgment is made, that conclusion is adverse to that party.
Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327 (1977).
{13} The moving
{14} In its motion for summary judgment, Wells Fargo argued it did “not bear the initial burden of negating an opposing party‘s affirmative defenses.” This is a correct statement of the law. See Todd Dev. Co., Inc. v. Morgan, 116 Ohio St.3d 461, 2008-Ohio-87, syllabus. Ms. Awadallah, however, argues that compliance with HUD regulations is not an affirmative defense but a condition precedent. The parties do not dispute that the note and mortgage are subject to HUD regulations by virtue of the language contained in paragraph 6(B) of the note and paragraphs 9(a) and (d) of the mortgage.
{15} “This Court has previously held that the failure of the mortgagee to submit evidentiary materials in support of its motion for summary judgment that demonstrates it satisfied the HUD requirement to either have a face-to-face meeting or make ‘reasonable efforts’ to arrange such a meeting raises a genuine issue of material fact that precludes summary judgment.” Bowie, at ¶ 8, citing BAC Home Loans Servicing, LP v. Taylor, 9th Dist. Summit No. 26423, 2013-Ohio-355, ¶ 22. But, we have not yet determined whether compliance with HUD regulations is a condition precedent or an affirmative defense. “Whereas an affirmative defense is separate from the merits of the plaintiff‘s cause of action and bars recovery even when the plaintiff has established a prima facie case, a condition precedent is directly tied to the merits of the plaintiff‘s cause of action, which is itself contingent upon satisfaction of the condition.” Natl. City Mtge. Co. v. Richards, 182 Ohio App.3d 534, 2009-Ohio-2556, ¶ 20 (10th Dist.).
{16} The distinction between a condition precedent and an affirmative defense is important because each places different burdens on the parties at the pleading and summary judgment stages. PNC Mtge. v. Garland, 7th Dist. Mahoning No. 12 MA 222, 2014-Ohio-1173, ¶ 23. As explained by the Seventh District:
[I]f compliance with the above HUD regulations is a condition precedent, the bank must generally aver in its complaint that it has complied with all conditions precedent, the borrower then has a reciprocal burden to allege with specificity and particularity how the bank failed to comply. In a motion for summary judgment, the bank would then bear the burden of establishing the absence of any issue of material fact on the issue of whether it complied with the specific HUD regulation.
Alternatively, if compliance is deemed an affirmative defense, the bank has no pleading burden in its complaint; the borrower must generally allege non-compliance
as an affirmative defense in its answer. And on summary judgment, the bank has no burden to discuss compliance with HUD regulations in its motion, whereas the borrower bears the burden of proving its affirmative defense via the brief in opposition to summary judgment.
(Emphasis sic.) (Internal citations omitted.) Id. at ¶¶ 23-24.
{17} If, as Wells Fargo argues, compliance with HUD regulations is an affirmative defense, it had no burden to discuss compliance in its motion for summary judgment. See id. at ¶ 24. Rather, Ms. Awadallah bore the burden to address her affirmative defenses in a brief in opposition to the motion for summary judgment. See id. Ms. Awadallah did not file a timely brief in opposition to summary judgment, and she has not challenged the trial court‘s denial of her motion to file her brief later. Therefore, if compliance with HUD regulations is an affirmative defense, summary judgment was properly granted to Wells Fargo.
{18} On the other hand, if compliance is a condition precedent, Wells Fargo had the burden to establish the absence of a genuine issue of material fact with respect to those regulations that Ms. Awadallah had specifically and with particularity alleged its non-compliance. See id. at ¶ 23; see also
{19} The appellate districts are divided on the issue of whether compliance with HUD regulations is a condition precedent or an affirmative defense. The Third, Fifth, Seventh, and Eighth Districts have held that it is a condition precedent. Huntington Natl. Bank v. Filippi, 3d Dist. Union No. 14-15-03, 2015-Ohio-3096, ¶ 16; U.S. Bank, N.A. v. Detweiler, 191 Ohio App.3d 464, 2010-Ohio-6408, ¶ 53 (5th Dist.); Garland, 2014-Ohio-1173, ¶ 31; Bank of Am., N.A. v. Michko, 8th Dist. Cuyahoga No. 101513, 2015-Ohio-3137, ¶ 18. The Second District, on the other hand, has held that it is an affirmative defense.2 Wells Fargo Bank, N.A. v. Goebel, 2d Dist. Montgomery No. 25745, 2014-Ohio-472, ¶ 20.
{20} The Second District reasoned, in part, that “the law disfavors conditions precedent” and an intent to create such a condition must be obvious. Goebel at ¶ 24, quoting Evans, Mechwart, Hambleton & Tilton, Inc. v. Triad Architects, Ltd., 196 Ohio App.3d 784, 2011-Ohio-4979, ¶ 15 (10th Dist.). HUD regulations specify, “Before initiating foreclosure, the
mortgagee must ensure that all servicing requirements of this subpart have been met.”
{21} By contrast, the Third and Seventh Districts have found the regulations “evince HUD‘s clear intent that banks must comply with the face-to-face interview * * * before commencing foreclosure actions. In other words, a bank‘s foreclosure action is contingent upon satisfaction of these regulations and is therefore a condition precedent.” Filippi at ¶ 14, quoting Garland at ¶ 27. The Third, Fifth, and Seventh Districts have further reasoned that, where a note and mortgage are subject to HUD regulations, it is analogous to the situation where the note and mortgage require notice of a default prior to acceleration. Filippi at ¶ 11, 15; Detweiler at ¶ 52-53, Garland at ¶ 5-6, 28. This Court has previously held that, where prior notice of default and acceleration is required by a provision in the note or mortgage, the provision of notice is a condition precedent. LaSalle Bank, N.A. v. Kelly, 9th Dist. Medina No. 09CA0067-M, 2010-Ohio-2668, ¶ 13. We agree with the majority of the districts finding no reason to treat these contractual provisions differently. We, therefore, hold that, where compliance with HUD regulations is required by a note and mortgage, such compliance is a condition precedent to bringing a foreclosure action.
{22} In the present case, paragraph 6(B) of the note and paragraphs 9(a) and (d) of the mortgage require compliance with HUD regulations for acceleration and foreclosure. Therefore, compliance with those regulations is a condition precedent and [the] bank must generally plead in its complaint that it has complied with the HUD regulations, which shifts the burden to the borrower to plead with particularity in the answer, pursuant to
{23} In paragraph 5 of its complaint, Wells Fargo alleged that it had “satisfied all conditions prior to filing this complaint.” In her brief to this Court, Ms. Awadallah acknowledges that Wells Fargo adequately pled compliance with all conditions precedent to acceleration and foreclosure. Therefore, the burden shifted to Ms. Awadallah to plead with particularity which specific regulations were not complied with.
{24} In her answer, Ms. Awadallah “denie[d] the allegations contained in ¶ 5” of the complaint. In addition, she asserted that Wells Fargo “failed to give the proper and requisite notices to [her] pursuant to the terms of the Note and Mortgage.” Finally, she listed a number of counterclaims, including breach of contract for failing to have or to make reasonable efforts for a face-to-face meeting pursuant to
{25} Wells Fargo argues that the general denial of paragraph 5 was insufficient to meet the particularity requirement of
{26}
{27} In the present case, Ms. Awadallah raised compliance with
{28} In support of its motion for summary judgment, Wells Fargo‘s affiant averred that (1) it notified Ms. Awadallah through certified mail that her loan was in default and it would like to meet to discuss options to bring the account current and (2) it attended a mediation conference scheduled by the trial court. Ms. Awadallah concedes that Wells Fargo sent her a certified letter meeting that portion of the reasonable efforts requirement.
{29} She contends that Wells Fargo presented no evidence that its reasonable efforts included a visit to her home. Wells Fargo argues that the purpose of the face-to-face meeting is “to ensure that the parties consider loss mitigation” and, therefore, court-sponsored mediation fulfills this purpose. But “[e]vidence that a post-filing mediation failed is not evidence tending to show compliance with the federal regulation.” Taylor, 2013-Ohio-355 at ¶ 21. Thus, Wells Fargo only demonstrated partial compliance with
{30} Wells Fargo‘s argument that foreclosure is not complete until the filing of the confirmation of sale is also unpersuasive. The regulations specify that HUD servicing requirements are to be met “[b]efore initiating foreclosure.”
{32} Ms. Awadallah‘s assignment of error is sustained.
III
{33} Ms. Awadallah‘s assignment of error is sustained. The judgment of the Summit County Court of Common Pleas is reversed and this matter is remanded for further proceedings consistent with this decision.
Judgment reversed and cause remanded.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Court of Common Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy of this journal entry shall constitute the mandate, pursuant to
Immediately upon the filing hereof, this document shall constitute the journal entry of judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period for review shall begin to run.
Costs taxed to Appellee.
BETH WHITMORE
FOR THE COURT
HENSAL, P. J.
SCHAFER, J.
CONCUR.
APPEARANCES:
MICHAEL J. LUBES, Attorney at Law, for Appellant.
SCOTT A. KING and JEREMY D. SMITH, Attorneys at Law, for Appellee.