[Cite as Wells Fargo Bank, N.A. v. Awadallah, 2015-Ohio-3753.]
STATE OF OHIO ) IN THE COURT OF APPEALS )ss: NINTH JUDICIAL DISTRICT COUNTY OF SUMMIT )
WELLS FARGO BANK, N.A. C.A. No. 27413
Appellee
v. APPEAL FROM JUDGMENT ENTERED IN THE SAMIRA T. AWADALLAH, et al. COURT OF COMMON PLEAS COUNTY OF SUMMIT, OHIO Appellant CASE No. CV 2012 09 5442
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.
I
{¶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. 2
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 24 C.F.R. 203.604.
{¶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.” 3
{¶7} Before the foreclosure decree was entered, Ms. Awadallah moved the court to
vacate its judgment pursuant to Civ.R. 60(B)1 and for leave to file her brief in opposition to
summary judgment instanter. The trial court denied both motions. That same day, the trial court
entered a decree of foreclosure in Wells Fargo’s favor.
{¶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 FARGO BANK, N.A., ON ITS COMPLAINT AS THERE WAS A GENUINE ISSUE OF MATERIAL FACT REGARDING WHETHER WELLS FARGO BANK, N.A., COMPLIED WITH THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (“HUD”) REGULATIONS REGARDING FEDERAL HOUSING ADMINISTRATION (“FHA”) INSURED HOME LOANS AS CODIFIED UNDER 24 C.F.R. §§ 203.602 AND 203.604 AS REQUIRED PURSUANT TO PARAGRAPH 6.(B) OF THE NOTE AS WELL AS PARAGRAPH 9.(a),(d) OF THE MORTGAGE.
{¶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 24 C.F.R. 203.602 (delinquency notice to mortgagor) and 24 C.F.R.
203.604 (contact with the mortgagor). We agree in part.
{¶10} As an initial matter, we address Wells Fargo’s contention that Ms. Awadallah
failed to preserve any error concerning 24 C.F.R. 203.602 or 24 C.F.R. 203.604. Wells Fargo
argues that (1) Ms. Awadallah did not raise these arguments to the trial court prior to the entry of
summary judgment and (2) her post-judgment motions addressed a different federal regulation
1 Civ.R. 60(B) provides that “[o]n motion and upon such terms as are just, the court may relieve a party or h[er] legal representative from a final judgment, order or proceeding * * *.” (Emphasis added.) The trial court’s initial entry granting summary judgment was not final as it indicated that a judgment entry and foreclosure decree would be subsequently entered. We do not address this procedural irregularity because Ms. Awadallah has not assigned any error to the denial of her motions. 4
altogether. Ms. Awadallah raised the issue of compliance with 24 C.F.R. 203.604 in her
counterclaims and Wells Fargo addressed that regulation in its motion for summary judgment.
She did not, however, raise any issue regarding compliance with 24 C.F.R. 203.602 below. We
agree with Wells Fargo that any issues regarding compliance with 24 C.F.R. 203.602 have not
been preserved for our review. But, the issues concerning 24 C.F.R. 203.604 have been
preserved and will be addressed.
{¶11} 24 C.F.R. 203.604 provides, in pertinent part:
(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 Civ.R. 56(C), summary judgment is
proper if:
(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 party bears the initial burden of informing the trial court of the basis
for the motion and pointing to the parts of the record that show the absence of a genuine issue of 5
material fact. Dresher v. Burt, 75 Ohio St.3d 280, 292-293 (1996). “To accomplish this, the
movant must be able to point to evidentiary materials of the type listed in Civ.R. 56(C).” Id. at
292. If the moving party meets this burden, then the non-moving party bears the burden to offer
specific facts demonstrating a genuine issue for trial. Id. at 292-293. “However, even if the non-
moving party does not respond, summary judgment may be granted only if the movant has
satisfied the prerequisites to summary judgment.” Liberty Savs. Bank, F.S.B. v. Bowie, 9th Dist.
Summit No. 27126, 2014-Ohio-1208, ¶ 5, quoting CitiMortgage, Inc. v. Firestone, 9th Dist.
Summit No. 25959, 2012-Ohio-2044, ¶ 10.
{¶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 6
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. 7
{¶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 Civ.R. 9(C). Only if Wells Fargo met its initial evidentiary
burden would Ms. Awadallah’s reciprocal burden arise. See Dresher, 75 Ohio St.3d at 292-293.
Thus, the issue of whether compliance with HUD regulations is an affirmative defense or a
condition precedent is before us in the present appeal.
{¶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
2 In its brief, Wells Fargo indicates that the Fourth and Tenth District have also characterized this as an affirmative defense in Wells Fargo v. Phillabaum, 192 Ohio App.3d 712, 2011-Ohio-1311 (4th Dist.) and GMAC Mtge. of Pennsylvania v. Gray, 10th Dist. Franklin No. 91AP-650, 1991 WL 268742 (Dec. 10, 1991). A review of those cases, however, reveals that the issue of whether the regulations presented a condition precedent or affirmative defense was not directly before the courts. More recently, the Fourth District, has stated that it “need not weigh into this conflict” among the districts. Wells Fargo Bank, N.A. v. Dumm, 4th Dist. Athens No. 13CA5, 2014-Ohio- 3124, ¶ 32. 8
mortgagee must ensure that all servicing requirements of this subpart have been met.” 24 C.F.R.
203.606(a). The Second District acknowledged that this and other HUD regulations “evidence a
clear intent for banks to comply with the face-to-face interview requirement before commencing
foreclosure actions,” but found no obvious intent to create a condition precedent because the
regulations do not explicitly address “whether compliance is a condition precedent to foreclosure
or whether non-compliance is an affirmative defense.” Goebel at ¶ 25.
{¶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 9
[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 Civ.R. 9(C), which specific regulations were not complied with, in order to preserve the issue. Then upon summary judgment, the burden shifts back again to the bank, which must provide evidence sufficient to dispel a genuine issue of material fact, that it complied with the specific HUD regulation raised by the borrower in its answer.
Garland at ¶ 51.
{¶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 24 C.F.R. 203.604.
{¶25} Wells Fargo argues that the general denial of paragraph 5 was insufficient to meet
the particularity requirement of Civ.R. 9(C). In addition, it argues that the defense regarding the
failure “to give the proper and requisite notices * * * pursuant to the terms of the Note and
Mortgage” was also insufficient. But, it fails to address the allegations in the counterclaim.
{¶26} Civ.R. 8(C) provides, “When a party has mistakenly designated a defense as a
counterclaim or a counterclaim as a defense, the court, if justice so requires, shall treat the
pleading as if there had been a proper designation.” “All pleadings shall be so construed as to do
substantial justice.” Civ.R. 8(F). Foreclosure actions arise in equity and “equity regards 10
substance rather than form.” Huntington Natl. Bank v. Payson, 2d Dist. Montgomery No. 26396,
2015-Ohio-1976, ¶ 19. Thus, “[r]egardless whether the conditions precedent issue was properly
designated in the answer and counterclaim * * * the plaintiff in a foreclosure action must prove
that all conditions precedent have been met in order to meet its burden of proof for summary
judgment.” Id. at ¶ 18.
{¶27} In the present case, Ms. Awadallah raised compliance with 24 C.F.R. 203.604
putting Wells Fargo on notice of her contention that it had not satisfied that specific condition
precedent. See id. at ¶ 20. Under 24 C.F.R. 203.604, a mortgagee must have a face-to-face
interview with the mortgagor, or make a reasonable effort to arrange such a meeting, unless an
exception applies. “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 * * *.” (Emphasis
added.) 24 C.F.R. 203.604(d).
{¶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 11
to show compliance with the federal regulation.” Taylor, 2013-Ohio-355 at ¶ 21. Thus, Wells
Fargo only demonstrated partial compliance with 24 C.F.R. 203.604(d), which requires both a
certified letter and at least one trip to the mortgaged property, unless an exception applies.
{¶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.” 24 C.F.R. 203.606(a). In addition,
“[i]f 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 * * *.” (Emphasis added.) 24 C.F.R. 203.604(b). Wells Fargo did not present any
evidence that the two loan modifications with Ms. Awadallah were arranged during a personal
interview or that any other exception applied.
{¶31} Wells Fargo failed to meet its burden to “provide evidence sufficient to dispel a
genuine issue of material fact, that it complied with the specific HUD regulation [, namely 24
C.F.R. 203.604,] raised by [Ms. Awadallah] in [her] answer.” See Garland, 2014-Ohio-1173 at
¶ 51. Consequently, Wells Fargo was not entitled to summary judgment.
{¶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. 12
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 App.R. 27.
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. App.R. 22(C). The Clerk of the Court of Appeals is
instructed to mail a notice of entry of this judgment to the parties and to make a notation of the
mailing in the docket, pursuant to App.R. 30.
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.