The Trusted Adviser
July 2011 | Volume 4 • Number 5



Mortgage Foreclosure

Lacy-McKinney v Taylor, Bean, & Whitaker Mortgage Corp, 937 NE2d 853 (Ind Ct App, 2010).

Facts:On September 19, 2007, Lacy-McKinney entered into a note with Taylor, Bean, & Whitaker Mortgage Corp. (TBW) which was secured by the FHA-insured mortgage on Lacy-McKinney&€™s home in South Bend, Indiana. The loan with TBW was also an FHA-insured loan. The note and mortgage both placed limitations on TBW's ability to require immediate payment of the note in full in the event of Lacy-McKinney's default. Lacy-McKinney gradually fell behind on her payments and, as of August 1, 2008, Lacy-McKinney was three months behind on her mortgage. During Lacy-McKinney's months of delinquency, TBW never held a face to face meeting with her and did not accept partial payments from her.

Eventually, TBW filed for foreclosure of the mortgage. On November 13, 2008, Lacy-McKinney filed an answer, asserting the following affirmative defenses: TBW failed to state a cause of action upon which relief can be granted because it did not have a security interest in Property; (2) foreclosure was an equitable proceeding that is not available to TBW who had unclean hands because it violated the Truth in Lending Act (TILA) and failed to mitigate its damages; (3) TBW had refused partial payment in violation of HUD regulation 24 C.F.R. &§ 203.556; (4) TBW did not satisfy HUD regulation 24 C.F.R. &§ 203.604(b), which requires a face-to-face meeting with the mortgagor prior to filing a complaint for foreclosure; and (5) Lacy-McKinney had a right under TILA to rescind the mortgage loan because TBW failed to provide her with two copies of the Notice of Right to Cancel. On December 11, 2008, TBW filed its motion for summary judgment and on October 15, 2009, the trial court adopted TBW's proposed settlement and entered a judgment for $94,036.91 plus costs of the action against Lacy-McKinney. Lacy-McKinney appealed.

Holding:Reversed and remanded. The first issue on appeal was whether a mortgagee's compliance with federal mortgage servicing responsibilities is a condition precedent that may be raised as an affirmative defense to the foreclosure of an FHA-insured mortgage. As a matter of first impression in Indiana, the court looked to the Illinois case,Bankers Life Co. v Denton, 120 Ill App 3d 576, 458 NE2d 203, 76 Ill Dec 64 (1983), where the court found that to effectively ensure that the interests of the primary beneficiaries of the mortgage servicing requirements are being protected, mortgagors must be allowed to raise noncompliance with the servicing requirements as a defense to a foreclosure action. The court also cited to a New Jersey court's description of public policy and found the primary objective to be the prevention of foreclosures wherever possible. The precedents of other states, the public policy concerns, and the language of the HUD regulations all led the court of appeals to find that Lacy-McKinney can properly raise the desired affirmative defenses.

The second issue on appeal was whether the trial court erred when it entered summary judgment in favor of TBW on its mortgage foreclosure action against Lacy-McKinney. The court held that the trial court did err in granting summary judgment and remanded for further proceedings. The court found that there existed genuine issues of material fact regarding whether TBW complied with the requirement for making a reasonable effort to arrange a face to face meeting and whether TBW was in compliance with 24 C.F.R. &§ 203.556 regarding the acceptance of partial payments.










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[Last update: 6-29-11]