A recent Ohio Court of Appeals case provides caution to mortgage lenders who begin the foreclosure process without closely reading the terms of the loan documents. In Wells Fargo v. Phillabaum, the court found that Wells Fargo failed to comply with a federal Department of Housing and Urban Development (HUD) regulation, and therefore, improperly began the foreclosure process.

This case involved a portion of the acceleration clause of the Note, which stated that the lender may accelerate payments if the borrower defaults, except as limited by regulations of the Secretary. HUD has a regulation that requires lenders, as a prerequisite to foreclosure, to conduct a face-to-face interview with the borrowers after they fail to make three monthly payments. In this case, Wells Fargo failed to comply with that regulation and began the foreclosure process without conducting a face-to-face interview with the borrower. As a result, the court found that Wells Fargo had improperly proceeded with the foreclosure, and must comply with the regulations before again seeking foreclosure.

This case provides a cautionary tale to all mortgage lenders. When dealing with a borrower in default, it is very important to carefully review the documents to ensure you are in compliance with both state and federal regulations.