The Foreclosure Defense of Violations of HUD Regulations

In Hayes v. M & T Mortgage Corporation, a recent Illinois case, the foreclosure defense of HUD regulation violations was discussed. The court held that although the violation of HUD regulations can be a defense to foreclosure it was not grounds for dismissing the foreclosure. In Hayes, the mortgagor filed suit alleging that the lender violated HUD regulations when handling her FHA loan. The lender counterclaimed for foreclosure and the mortgagor moved to dismiss on the grounds of the HUD violations. The court held that compliance is not a condition precedent, or necessary requirement, to a foreclosure because the Illinois Mortgage Foreclosure Law does not require a lender to state in a foreclosure complaint that it has complied with HUD regulations. Further, the court held that HUD regulations “do not control directly the relationship between the mortgagor and mortgagee and may not be invoked by the mortgagor as a sword in an offensive cause of action against the mortgagee.” 906 N.E.2d at 642, quoting Wells Fargo Home Mortgage, Inc. v. Neal, 398 Md. 705, 922 A.2d 538, 546 (2007). The court noted that violations of applicable HUD regulations is a valid defense to a foreclosure of a federally insured mortgage. In Ms. Hayes’ case, the court held that the loan documents did not intend to incorporate the HUD regulations in their entirety into the mortgage terms. Hayes v. M & T Mortgage Corporation, 389 Ill.App.3d 388, 906 N.E.2d 638, 329 Ill. Dec. 440 (1st Dist.), appeal denied, 233 Ill.2d 556 (2009).