In Covarrubias v. CitiMortgage, Inc ., the plaintiff brought a lawsuit against CitiMortgage, claiming it improperly foreclosed on her home by failing to comply with U.S. Department of Housing and Urban Development regulations incorporated into her deed of trust.  Specifically, she claimed CitiMortgage failed to conduct, or make a reasonable effort to conduct, a face-to-face meeting with her prior to foreclosure.

At the district court level, the trial court dismissed the plaintiff’s claim on the ground that she could not show the breach of HUD regulations caused the damages she alleged.  The trial court’s decision was a victory for defendants, who have faced numerous lawsuits in recent years brought by borrowers in default.  In these lawsuits, plaintiffs typically allege a face-to-face meeting is a condition precedent to foreclosure under deeds of trust that incorporate these HUD regulations.  Although defendants frequently argue a plaintiff cannot prove the causation necessary to prevail on a breach of contract claim, not all courts have adopted this line of reasoning.

In its decision, the Fourth Circuit reversed the district court.  According to the Fourth Circuit, to prove the causation element of a breach of contract, the plaintiff must prove she suffered injury or damage as a result of the defendant’s breach.  The Fourth Circuit held the plaintiff satisfied this standard by “demonstrating a willingness and ability to bring the mortgage current” had a face-to-face meeting occurred and a “loss of equity as a direct result of foreclosure.”  As a result, the Fourth Circuit concluded that a “rational jury could reasonably conclude that a face-to-face meeting … may have resulted in an outcome other than foreclosure … .”

Although the Fourth Circuit’s decision leaves open the factual question of whether the plaintiff can prevail on her breach of contract claim, it should serve as a reminder to mortgage servicers to ensure their foreclosure practices comply with HUD regulations when necessary.