Avoid Foreclosure in Maryland

Alan Neal v. Wells Fargo Home Mortgage, Inc.

Case Law
Case No. 1751
May 6, 2006

Neal obtained a mortgage loan secured by his residential home from Well Fargo Home Mortgage, Inc. The loan is secured by a deed of trust and is insured by the Federal Housing Authority. Neal defaulted in payments and Wells Fargo commenced foreclosure proceedings.

Neal claimed that Wells Fargo breached the contract and filed a case before the Circuit Court for Frederick County. According to Neal, Well Fargo violated specifically provision in paragraph 9 of the Deed, which provides,

"9(d) provides: Regulations of HUD Secretary. In many circumstances regulations issued by the Secretary will limit Lender's rights in the case of payment defaults to require immediate payment in full and foreclose if not paid. This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary."

As defense, Wells Fargo claimed that the National Housing Act and the mortgage servicing requirements do not constitute a basis for a private cause of action. These requirements are regulatory in nature and thus, should not be used for the benefit of an individual borrower. On the other hand, Neal sought to bar Wells Fargo from collecting fees related to foreclosure until Wells Fargo has complied with the requirements stated in provision 9 of the Deed.

The trial court ruled in favor of Wells Fargo on the ground that Neal did not have private cause of action to compel compliance by Wells Fargo of the Housing and Urban Development (HUD) mortgage servicing requirements as stated under provision 9 of the Deed.

On appeal before the Court of Special Appeals of Maryland, Neal raised the issue of whether or not the circuit court was correct in granting a favorable judgment for Wells Fargo on the ground that he did not have a private cause of action and therefore cannot compel compliance of the mortgage servicing requirements.

The appellate court vacated the judgment and remanded the case for further hearing to the circuit court. It explained that although Neal did not have a private cause of action to enforce and compel compliance of the HUD regulations, it will allow him to pursue his cause of action for his claim of violation of the provisions of the contract (Deed). The Court was more inclined to give due course to Neal's contract argument to the effect that the HUD requirements were incorporated in their Deed of Trust which is considered a contract. Thus, what is necessary under the circumstances would be contract interpretation if indeed the parties agreed to compliance with the HUD mortgage servicing requirements before an action of foreclosure can be brought.

Lesson Learned:The case was brought before the Circuit Court for Frederick County and was appealed before the Court of Special appeals of Maryland.

The foreclosure proceeding filed by Wells Fargo was successfully forestalled by the borrower's complaint invoking breach of contract of one of the provisions of the Deed of Trust. The Court was more inclined to favor the contract argument of the borrower than the doctrine of preemption invoked by the lender. The stipulations in a contract are deemed to be the law between the contracting parties. The court was correct in remanding the case for further hearing for a determination of the issue of whether the parties truly agreed to the stipulation that compliance with the HUD requirements was a condition precedent to bringing the foreclosure proceedings.

Written by Kevin Levonas and Giselle G.