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WELLS FARGO HOME MORTGAGE, INC.

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In the Court of Appeals of Maryland No. 58 September Term, 2006

ALAN NEAL

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O R D E R
The Court having considered the motion for reconsideration and the answer filed thereto in the above-captioned case, it is this 7th day of May, 2007, ORDERED, by the Court of Appeals of Maryland, that the motion be, and it is hereby, granted, and it is further ORDERED that the reported opinion filed on March 13, 2007, be, and it is hereby, withdrawn, and the revised opinion attached hereto is filed today in place of the previously filed opinion.

/s/ Robert M. Bell Chief Judge

Wells Fargo Home Mortgage, Inc. v. Alan Neal, No. 58, Sept. Term 2006. REAL PROPERTY - FORECLOSURE - DEFENSE - DEFAULTING MORTGAGOR MAY PURSUE INJUNCTION OF FORECLOSURE OF FHA-INSURED MORTGAGE ON THE GROUND THAT NO DEFAULT EXISTS WHEN MORTGAG EE FAILS TO COMPLY WITH HUD LOSS MITIGATION REGULATIONS Alan Neal and his now-estranged wife executed a "Maryland FHA Deed of Trust" with Margaretten & Company, Inc., to secure the purchase money loan for a residential dwelling located in Frederick County, Maryland. The mortgage was insured by the Federal Housing Administration (FHA) pursuant to the National Housing Act (NHA). The deed of trust was assigned for servicing to Wells Fargo Home Mortgage, Inc. (Wells Fargo). Neal fell behind in making the monthly mortgage payments when due. Wells Fargo initiated foreclosure proceedings in the Circuit Court for Frederick County, which proceedings were stayed when Neal filed a separate complaint alleging that th e loan servic er was liable to him in contract for breach of a term o f the deed that generically alluded to ce rtain U.S . Department of Hou sing and Urban Development (HUD) regulations limiting the circumstances in w hich mortgag ees m ay accelerate and foreclose on an FHA-insured mortgage. Specifically, Neal alleged that Wells Fargo had not pursued satisfactorily the processes mandated in the regulations and designed to pre vent forec losure and mitigate losses. Neal so ught da mages and, in effect, injunctive relie f. Wells Fa rgo respon ded to Neal's Complaint with a motion for summary judgment. Neal opposed Wells Fargo's motion and filed his own motion for summary judgment advancing the same contention s asserted in his Complaint. After a motions hearing, the Circu it Court ente red summ ary judgmen t in favor of Wells Fargo based on the premise that the HUD regulations were intended for the benefit of HUD enforcement of the FHA mortgage insurance prog ram and d id not grant a private cau se of action for borrow ers such as N eal. Neal appealed to the Court of Special Appeals, which vacated the summary judgment granted by the Circuit Court and remanded the matter for further proceedings on the contract claim asserted by Neal. Neal v. Wells Fargo Home Mortgage, Inc., 168 Md. App. 747, 75051, 899 A .2d 208 , 210 (2 006). Althoug h the interm ediate appe llate court acq uiesced in the notion that the HUD regulations did not afford a p rivate right of action, it opine d that private parties are bound by and may be liable, each to the other, under state and federal laws specifically incorporated into contracts executed between them. Therefore, the Court of Special Appeals remanded the case to the C ircuit Court to determine whether Neal and Wells Fargo bargained for the provision alluding to the HUD loss mitigation regulations. The Court of Appeals reversed the intermediate appellate court, con cluding tha t Wells Fargo and Neal cou ld not have bargained for the term in the FH A form deed gen erically alluding to the HUD loss mitigation regulations. The substantive provisions of the form deed were not negotiated by either party. Authority presented by Neal even suggested that HUD

did not contemplate its regulations to support affirmative state law claims by aggrieved mortgagors. On the other hand, ample authority suggests that alleged violations of the regulations may be asserted defensively to halt a foreclosure action. The Court held that because foreclo sure is an equitab le reme dy, a mortgage e seeking f oreclosure coming to the court with "unclean hands" is subject to being enjoined from foreclosing by a mortgagor alleging violations of the HUD regulations govern ing for eclosu re. Thu s, a mortgagor bears the burden of proving that a mortgagee failed to comply with applicable HUD regulations such that he or she is entitled to an injunction.

Circuit Co urt for Frede rick Coun ty Case # 10-C-03-002061

IN THE COURT OF APPEALS OF MARYLAND No. 58 September Term, 2006

WELLS FARGO HOME MORTGAGE, INC. v. ALAN NEAL

Bell, C.J. Raker *Wilner Cathell Harrell Battaglia Greene, JJ.

Opinion by Harrell, J.

Filed:

May 7, 2007

* Wilner, J., no w retired, pa rticipated in the hearing and conf erence of this case w hile an active member of this Court; after being recalled pursuant to the Constitution, Article IV, Section 3A, he also participated in the decision an d adoption of this opinion.

We issued a writ of certiorari in this matter, 394 Md. 479, 906 A.2 d 942 (20 06), to review a judgme nt of the C ourt of Sp ecial App eals that wa s grounde d on a ho lding that a mortgagor under a F air Housin g Adm inistration (FH A) insured loan may be able to ma intain a breach of contract claim under State law against a mortgagee for an alleged breach of certain federal regulations alluded to in the parties' FH A-prescrib ed form d eed of trus t. Wells Fargo Home Mortgage, Inc. (W ells Fargo), the mortgagee by assignm ent, argues here that the Court of Special Appea ls erred in vacating the sum mary judgment granted it by the Circuit Court for Frederick County. The Circuit Court concluded that no private cause of action may be asserted by a mortgagor under the mortgage servicing regulations promulgated by the U.S. Department of Housing and Urban Development (HUD) pursuant to the National Housing Act of 1934 (N HA). 1 We hold that Alan Neal, the mortgagor and plaintiff in the Circuit Court, may not advance, as an affirmative cause of action, a State law contract claim based on an asserted breach of the HUD regulations alluded to in his FH A form deed of tru st, but may raise a violation of the regulations in pursuit of an injunction blocking foreclosure. Accordingly, we shall reverse the judgment of the Court of Special Appeals. I. FACTS AND PROCEDURAL HISTORY On 20 June 1991, Alan and Sheri Neal2 executed a "Maryland FHA Deed o f Trust" with Margaretten & Company, Inc., to secure the purchase mo ney loan for a dwelling located in Walkersville, Maryland. The mo rtgage w as insured b y the FHA pursuant to the provisions
1

12 U.S.C.

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