1

PRESENT: All the Justices

RICHARD MATHEWS, ET AL.

OPINION BY

v. Record No. 110967 JUSTICE WILLIAM C. MIMS

 April 20, 2012

PHH MORTGAGE CORPORATION

FROM THE CIRCUIT COURT OF NELSON COUNTY

J. Michael Gamble, Judge

In this appeal, we consider whether a landowner who has 

breached a deed of trust by failing to make payments as 

required under the associated note may nevertheless enforce its

conditions precedent. We also consider the prerequisites to 

foreclosure set forth in 24 C.F.R. § 203.604 and whether they

are incorporated as conditions precedent in a deed of trust.

I. BACKGROUND AND MATERIAL PROCEEDINGS BELOW

Richard M. and Karin L. Mathews owned a parcel of land in 

Nelson County (“the Parcel”), which they conveyed by deed of 

trust (“the Deed of Trust”) on June 28, 2002, to Wendall L. 

Winn, Jr., trustee, for the benefit of University of Virginia 

Community Credit Union to secure a note in the principal amount 

of $118,505.00, plus interest (“the Note”). The indebtedness 

secured by the Deed of Trust was insured by the Federal Housing 

Authority under regulations promulgated by the Secretary of 

Housing and Urban Development (“HUD”) under the National 

Housing Act, 12 U.S.C. §§ 1701-1750jj, and codified in Part 203 

of Title 24 of the Code of Federal Regulations. PHH Mortgage 
2

Corporation (“PHH”) subsequently became the holder of the Note 

and the beneficiary of the Deed of Trust.

The Mathewses fell into arrears on the payments due under 

the Note. Consequently, PHH appointed Professional Foreclosure 

Corporation of Virginia (“PFC”) as substitute trustee under the 

Deed of Trust to commence foreclosure proceedings on the 

Parcel. PFC scheduled a foreclosure sale for November 11, 

2009.

On November 10, 2009, the Mathewses filed a complaint in 

the circuit court seeking a declaratory judgment that the 

foreclosure sale would be void because PHH had not satisfied 

conditions precedent to foreclosure set forth in the Deed of 

Trust. Specifically, they alleged that 24 C.F.R. § 203.604 

(“the Regulation”) required PHH to have a face-to-face meeting 

with them at least 30 days before the commencement of 

foreclosure proceedings. They asserted that the Regulation was 

incorporated into the Deed of Trust as a condition precedent to 

foreclosure. No such meeting had occurred before PFC commenced

foreclosure proceedings.

PHH removed the action to the United States District Court 

for the Western District of Virginia, which remanded it to the 

circuit court for lack of subject-matter jurisdiction. PHH 

then filed a demurrer in which it argued that the Mathewses 

could not sue to enforce the Regulation because (a) it 
3

conferred no private right of action and (b) they had committed 

the first breach of the Deed of Trust by failing to pay as 

required under the Note. PHH also argued that, even if the 

Mathewses could sue to enforce the Regulation, it did not apply 

to them because, under HUD’s interpretation, a face-to-face 

meeting is only required if the mortgagee has a “servicing 

office” within 200 miles of the mortgaged property. PHH did 

not have such an office within that distance from the Parcel.

The circuit court ruled that the Regulation was 

incorporated into the Deed of Trust as a condition precedent to 

foreclosure. However, the court also determined that under 

Virginia common law, the party who breaches a contract first 

cannot sue to enforce it. The court therefore ruled that the 

Mathewses could not sue to enforce the conditions precedent in 

the Deed of Trust because they had breached it first through 

non-payment. The court also ruled that the Regulation did not 

apply to them because PHH did not have a “servicing office” 

within 200 miles of the Parcel. Accordingly, the court 

sustained PHH’s demurrer and dismissed the complaint. We 

awarded the Mathewses this appeal.

II. ANALYSIS

A. ENFORCEMENT OF CONDITIONS PRECEDENT TO FORECLOSURE

IN A DEED OF TRUST BY A BORROWER IN DEFAULT

The threshold question is whether the Mathewses’ failure 

to pay under the Note precludes them from enforcing the 
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conditions precedent to foreclosure in the Deed of Trust. If 

so, the questions of whether the Regulation applies and whether 

it is incorporated into the Deed of Trust are moot.

In Horton v. Horton, 254 Va. 111, 115-16, 487 S.E.2d 200,

203-04 (1997), we acknowledged that as a matter of Virginia 

common law,

a party who commits the first breach of a 

contract is not entitled to enforce the 

contract. An exception to this rule arises when 

the breach did not go to the “root of the 

contract” but only to a minor part of the 

consideration. 

If the first breaching party committed a 

material breach, however, that party cannot 

enforce the contract. A material breach is a 

failure to do something that is so fundamental 

to the contract that the failure to perform that 

obligation defeats an essential purpose of the 

contract. If the initial breach is material, 

the other party to the contract is excused from 

performing his contractual obligations.

(Internal citations omitted.) We echoed this statement in 

Countryside Orthopaedics, P.C. v. Peyton, 261 Va. 142, 154, 541 

S.E.2d 279, 285 (2001), and reiterated that “the first party to 

commit a material breach [of a contract cannot] maintain an 

action on it.” Id. at 156, 541 S.E.2d at 287 (citing Hurley v. 

Bennett, 163 Va. 241, 253, 176 S.E. 171, 175 (1934)).

Nevertheless, the Mathewses argue that under Bayview Loan 

Servicing, LLC v. Simmons, 275 Va. 114, 654 S.E.2d 898 (2008), 

a lender must comply with all conditions precedent to 
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foreclosure in a deed of trust even if the borrowers are in 

arrears. We agree.

In Bayview, the borrower was in arrears. Consequently, 

the lender accelerated repayment under the note and directed 

the trustee under the deed of trust to begin foreclosure 

proceedings. Thereafter, the parcel was sold at a foreclosure 

auction and the borrower filed a suit for damages alleging 

breach of the deed of trust. Id. at 117-18, 654 S.E.2d at 899. 

We determined that the sale was improper because Bayview had 

failed to provide a pre-acceleration notice, which was a 

condition precedent to acceleration under the deed of trust. 

By failing to provide the notice, Bayview breached the deed of 

trust by accelerating repayment and foreclosing:

Because Bayview did not comply with the specific 

condition precedent under the Deed of Trust, 

prior to the notice of foreclosure sale by [the 

trustee], Bayview had not acquired the right to 

accelerate payment under the terms of the Deed 

of Trust. Thus, [the trustee] could exercise no 

right of acceleration because no such right had 

then accrued to Bayview. . . .

While Code § 55-59.1(A) does allow a proper 

notice of foreclosure sale to exercise an 

accrued right of acceleration, Bayview failed to 

fulfill the contractual condition precedent that 

would have given it such a right.

Id. at 121-22, 654 S.E.2d at 901 (emphasis added). 

Accordingly, we affirmed the circuit court’s judgment in favor 

of the borrower. Id. at 122, 654 S.E.2d at 902.
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A trustee’s power to foreclose is conferred by the deed of 

trust. Fairfax County Redevelopment & Hous. Auth. v. Riekse, 

281 Va. 441, 445-46, 707 S.E.2d 826, 829 (2011). That power 

does not accrue until its conditions precedent have been 

fulfilled. See Bayview, 275 Va. at 121, 654 S.E.2d at 901. The 

fact that a borrower is in arrears does not allow the trustee 

to circumvent the conditions precedent. However, if the 

general rule of contract enforcement enunciated in Horton and 

Countryside Orthopaedics applied to deeds of trust, a trustee 

could not be held accountable for exercising his latent power 

to foreclose before it actually had accrued, for two reasons. 

First, the borrower is the only party with standing to bring an 

action, whether for damages after the fact of the improper sale 

or to bar the improper sale in equity before it occurs.1 

Second, the paramount prerequisite to foreclosure is some 

breach of the deed of trust by the borrower – a trustee under a 

deed of trust cannot commence foreclosure proceedings on the 

parcel of a borrower who has not first breached the deed of 

 1 Bayview illustrates the principle that damages may be 

awarded at law after a foreclosure sale has been conducted 

improperly because the power of foreclosure has not accrued. 

Equitable relief is available to enjoin the improper sale 

before it occurs as well. See Rossett v. Fisher, 52 Va. (11 

Gratt.) 492, 499 (1854) (stating that a debtor may resort to 

equity to ensure that a trustee under a deed of trust fulfills 

his duties under the deed of trust); see also 19 Michie’s 

Jurisprudence, Trusts and Trustees § 120 (“Equity . . . could 

interfere by injunction to restrain [a trustee] from improperly 

exercising his powers.”). 
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trust in some way. The conditions precedent in the deed of

trust which govern the accrual of his latent power to foreclose 

are irrelevant before such a breach.

Therefore, prohibiting the borrower who has breached from 

bringing an action to enforce the conditions precedent in a 

deed of trust would nullify such conditions. The mere fact of 

the borrower’s breach alone would become, de facto, the only 

condition precedent to foreclosure.

Addressing this concern at oral argument, PHH contended 

that failure to pay under the note was only one of several 

possible breaches of a deed of trust. Because other breaches

might “not go to the ‘root of the contract’ but only to a minor 

part of the consideration,” PHH continued, they would fall into 

the exception recognized in Horton. 254 Va. at 115, 487 S.E.2d 

at 203. Therefore, according to PHH, such a borrower could 

still sue to enforce the deed of trust and its conditions 

precedent to foreclosure would not be nullified.

We accept the validity of PHH’s premise and recognize that 

a deed of trust may anticipate breaches other than by nonpayment that could enable the trustee to commence foreclosure 

proceedings. Yet non-payment under the note is the principal 

reason for foreclosure. Regardless of whether a deed of trust 

may permit foreclosure when the borrower breaches other than by 

non-payment, and acknowledging that such breaches may not be 
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material and therefore may not bar the borrower’s suit to 

enforce the deed of trust under Horton, we observe that deeds 

of trust universally anticipate breach by non-payment. Thus, 

to accept PHH’s argument, we would have to rule that conditions 

precedent to foreclosure in deeds of trusts are nullities when

the breach is by non-payment – the vast majority of cases – but 

that such conditions are fully enforceable in the rare cases 

when the breach is not by non-payment. Such a ruling would 

defy common sense.

The solution lies in the definition of material breach. 

In Horton and Countryside Orthopaedics, we defined material 

breach as “a failure to do something that is so fundamental to 

the contract that the failure to perform that obligation 

defeats an essential purpose of the contract.” Countryside 

Orthopaedics, 261 Va. at 154, 541 S.E.2d at 285 (quoting 

Horton, 254 Va. at 115, 487 S.E.2d at 204). The essential 

purposes of a deed of trust are two-fold: to secure the 

lender-beneficiary’s interest in the parcel it conveys and to 

protect the borrower from acceleration of the debt and 

foreclosure on the securing property prior to the fulfillment 

of the conditions precedent it imposes. Because a deed of 

trust permits the trustee to sell the parcel to protect the 

interest of the lender-beneficiary upon the borrower’s breach 

by non-payment, the fact of non-payment of the note does not 
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“defeat[] an essential purpose of the contract.” Id. To the 

contrary, lenders require deeds of trust precisely because they 

contemplate the possibility of non-payment. In other words, by 

its nature, the deed of trust is a contract in which the 

parties have agreed that material breach of the note by nonpayment will not deprive borrowers of their rights to enforce 

the conditions precedent. Accordingly, non-payment of a note 

is not a material breach of a deed of trust within the meaning 

of Horton and Countryside Orthopaedics.2

We therefore reject PHH’s argument. Borrowers may sue to 

enforce conditions precedent to foreclosure even if they were 

the first party to breach the note secured by a deed of trust

through non-payment.

B. INCORPORATION OF THE REGULATION AS A CONDITION 

PRECEDENT TO FORECLOSURE UNDER THE DEED OF TRUST

We now turn to the question of whether the Regulation is 

incorporated into the Deed of Trust as a condition precedent to 

foreclosure. The circuit court determined that the Regulation 

was incorporated and PHH has assigned cross-error to this

ruling. PHH first argues that terms may be incorporated into a 

contract by reference only if the intent to incorporate is

clear. PHH asserts that the language of the Deed of Trust does 

 2 While the Note is not in the record of this case and this 

precise issue is not presently before us, we observe that nonpayment may be a material breach of a note, which may enable a 

lender to bring an action on it independent of the deed of 

trust.
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not clearly express intent to incorporate HUD’s regulations. 

We disagree.

A deed of trust is construed as a contract under Virginia 

law, see, e.g., Virginia Hous. Dev. Auth. v. Fox Run Ltd. 

P’shp., 255 Va. 356, 365, 497 S.E.2d 747, 753 (1998), and we 

“consider the words of [a] contract within the four corners of 

the instrument itself.” Uniwest Constr., Inc. v. Amtech 

Elevator Servs., 280 Va. 428, 440, 699 S.E.2d 223, 229 (2010) 

(quoting Eure v. Norfolk Shipbuilding & Drydock Corp., 263 Va. 

624, 631, 561 S.E.2d 663, 667 (2002)). It

is construed as written, without adding terms 

that were not included by the parties. When the 

terms in a contract are clear and unambiguous, 

the contract is construed according to its plain 

meaning. Words that the parties used are 

normally given their usual, ordinary, and 

popular meaning. No word or clause in the 

contract will be treated as meaningless if a 

reasonable meaning can be given to it, and there 

is a presumption that the parties have not used 

words needlessly.

Id. (quoting PMA Capital Ins. Co. v. US Airways, Inc., 271 Va. 

352, 358, 626 S.E.2d 369, 372-73 (2006)).

Paragraph 18 of the Deed of Trust sets forth the procedure

for foreclosure. It states in relevant part that the power of 

sale may be invoked only after the lender “requires immediate 

payment in full under paragraph 9.” In other words,

acceleration of repayment is a condition precedent to 
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foreclosure. Paragraph 9 sets forth the “Grounds for 

Acceleration of Debt,” which includes payment default:

(a) Default. Lender may, except as limited by 

regulations issued by the Secretary, in the case 

of payment defaults, require immediate payment 

in full of all sums secured by this Security 

Instrument if:

(i) Borrower defaults by failing to pay in 

full any monthly payment required by this

Security Instrument prior to or on the due 

date of the next monthly payment . . . .

(Emphasis added.) Paragraph 9 also includes the following 

subparagraph:

(d) Regulations of HUD Secretary. In many 

circumstances regulations issued by the 

Secretary will limit [the l]ender’s rights, in 

the case of payment defaults, to require 

immediate payment in full and foreclose if not 

paid. This Security Instrument does not 

authorize acceleration or foreclosure if not 

permitted by the regulations of the Secretary.

(Emphasis added.)

These words “are clear and unambiguous” and we will 

construe them according to their plain meaning. Uniwest 

Constr., 280 Va. at 440, 699 S.E.2d at 229. They express the 

intent of the parties that the rights of acceleration and 

foreclosure do not accrue under the Deed of Trust unless 

permitted by HUD’s regulations. We cannot conceive of any 

other purpose for which they would have been included. 

Therefore, the Deed of Trust expressly withholds authorization 

to accelerate or foreclose if the Regulation does not permit 

PHH to do so. Any other interpretation would render these 
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provisions meaningless. We will not adopt such an

interpretation. Id.

Accordingly, the references to HUD’s regulations in the 

Deed of Trust are sufficient to incorporate them insofar as 

they prevent the borrower from accelerating or foreclosing. 

Cf. High Knob Assocs. v. Douglas, 249 Va. 478, 488, 457 S.E.2d 

349, 354-55 (1995) (ruling that language by which a party 

merely acknowledges that he has received, read, and understands 

an otherwise extrinsic document prior to executing a contract 

is sufficient to incorporate the document into the contract); 

Marriott v. Harris, 235 Va. 199, 214, 368 S.E.2d 225, 232 

(1988) (same).

PHH next argues that terms may be incorporated into a 

contract by reference only if it is clear which terms are to be 

incorporated. PHH asserts that any language in the Deed of 

Trust appearing to incorporate HUD’s regulations fails to state 

explicitly which regulations are intended to be incorporated. 

Part 203 of Title 24 of the Code of Federal Regulations 

contains 681 regulations, PHH observes, and the Deed of Trust 

fails to identify which of them are incorporated. We again 

disagree.

Only those regulations that prevent a lender from 

accelerating or foreclosing are incorporated by the cited 

language in the Deed of Trust. Whether every regulation 
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included in Part 203 of Title 24 does so is not before us. We 

must determine only whether the Regulation invoked in this case 

prevents a lender from accelerating or foreclosing. For two 

reasons, we conclude that it does, and therefore that it is 

incorporated into the Deed of Trust as a condition precedent.

First, 24 C.F.R. § 203.606(a) requires that “[b]efore 

initiating foreclosure, the mortgagee must ensure that all 

servicing requirements of this subpart have been met.” 

(Emphasis added.) 24 C.F.R. § 203.606(a) is codified in 

Subpart C of Part 203, which is captioned “Servicing 

Responsibilities.” The first section in Subpart C is 24 C.F.R.

§ 203.500, which further states that “[i]t is the intent of the 

Department that no mortgagee shall commence foreclosure or 

acquire title to a property until the requirements of this 

subpart have been followed.” (Emphasis added.)

Second, 24 C.F.R. § 203.606(a) directs that “[t]he 

mortgagee may not commence foreclosure for a monetary default 

unless at least three full monthly installments due under the 

mortgage are unpaid after application of any partial payments 

that may have been accepted but not yet applied to the mortgage 

account.” Id.3 Therefore, while none of the pleadings set

forth the amount or duration of the Mathewses’ arrearage at the 

 3 24 C.F.R. § 203.606(b) provides exceptions to the delay 

in commencing foreclosure imposed by subsection (a) but PHH 

does not assert that any of them apply.
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time PHH instructed PFC to commence foreclosure proceedings on 

the Parcel, PHH could not have instructed PFC to do so unless 

they were in arrears for at least three full monthly 

installments.

In addition, the Regulation itself provides that “[t]he 

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.” 24 C.F.R. § 203.604(b) (emphasis added).4 

The Regulation is codified in Subpart C and therefore is a 

servicing requirement that PHH must meet “[b]efore initiating 

foreclosure.” 24 C.F.R. § 203.606(a) (emphasis added).

Accordingly, the face-to-face meeting requirement is a 

condition precedent to the accrual of the rights of 

acceleration and foreclosure incorporated into the Deed of 

Trust. Cf. Manufacturers Hanover Mortgage Corp. v. Snell, 370 

N.W.2d 401, 404 (Mich. Ct. App. 1985) (suggesting that HUD’s 

servicing requirement regulations may be a defense to 

foreclosure if they are made terms of a mortgage contract).

PHH also argues that the language in the Deed of Trust 

should not be construed to incorporate the Regulation because 

the language was not bargained for by the parties; rather, it 

 4 Certain exceptions set forth in 24 C.F.R. § 203.604(c) 

apply to this requirement and we will consider them below.
15

is language imposed by HUD, which requires the use of a 

standardized form deed of trust. We again disagree.

As noted above, the lender-beneficiary and trustee under a 

deed of trust have only those powers that it confers upon them. 

Riekse, 281 Va. at 445-46, 707 S.E.2d at 829 (2011). As a 

matter of Virginia law, when a deed of trust expressly states 

on its face that it “does not authorize acceleration or 

foreclosure if not permitted by” some external set of 

conditions identified within the deed of trust, those 

conditions are fully incorporated as conditions precedent to 

acceleration and foreclosure. HUD requires this language to be 

incorporated into deeds of trust which secure its federally 

insured loans. 24 C.F.R. § 203.17(a). Doing so makes its 

regulations enforceable by borrowers as conditions precedent to 

acceleration and foreclosure as through a state-law action for 

breach of contract. This is entirely consistent with the 

intention expressed in 24 C.F.R. §§ 203.500 and 203.606(a).

Conversely, PHH offers no explanation for HUD’s decision 

to require this language in deeds of trust which secure its 

insured loans if, as PHH contends, the regulations govern only 

the relationship between the lender and the government, rather 

than the lender and the borrower. The regulations themselves 

govern the relationship between the lender and the government; 

there is no reason to refer to them in the deed of trust other 
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than to affect the duties of the parties to it. If, as PHH 

asserts, HUD has a contrary intention, it may either (a) cease 

to require or allow language that incorporates its regulations 

as conditions precedent to acceleration or foreclosure in the 

deeds of trust or (b) require or allow language that expressly 

states its intent that its regulations are not conditions 

precedent. It has done neither.

In conclusion, the terms used in Paragraphs 9 and 18 of 

the Deed of Trust clearly state that the rights of acceleration 

and foreclosure accrue only if permitted by HUD’s regulations. 

24 C.F.R. §§ 203.500 and 203.606(a) clearly express HUD’s 

intent that foreclosure proceedings are not permitted unless 

the lender has complied with the Regulation. The Regulation 

therefore is incorporated as a condition precedent in the Deed 

of Trust.

C. APPLICABILITY OF 24 C.F.R. § 203.604

The final issue is whether the Regulation applies in this 

case. As noted above, the Regulation requires the lender to 

“have a face-to-face interview” with the borrower, “or make a 

reasonable effort to arrange such a meeting.” 24 C.F.R.

§ 203.604(b). However, it also states that “[a] face-to-face 

meeting is not required if . . . [t]he mortgaged property is 

not within 200 miles of the mortgagee, its servicer, or a 

branch office of either.” 24 C.F.R. § 203.604(c).
17

In its demurrer, PHH cited a frequently-asked-questions 

webpage (“the FAQ”) on the HUD website in which HUD purportedly 

interpreted the term “branch office” as used in 24 C.F.R.

§ 203.604(c) to mean only a “servicing office.” The relevant 

portion of the webpage responds to the question, “Please clarify 

HUD’s requirement to conduct a face-to-face meeting with a 

delinquent mortgagor. This is often impossible as many 

mortgagees maintain only one centralized servicing office.” 

U.S. Department of Housing and Urban Development, General 

Servicing Frequently Asked Questions, 

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing

/sfh/nsc/faqgnsrv (last visited Mar. 12, 2012). HUD replied,

The Department is aware that many Mortgagees 

maintain “branch offices” that deal only with 

loan origination and some of these offices may 

only be staffed part-time. For the most part, 

individuals that staff an origination office are 

not familiar with servicing issues and are not 

trained in debt collection or HUD’s Loss 

Mitigation Program.

The Department has always considered that 

the face-to-face meeting must be conducted by 

staff that is adequately trained to discuss the 

delinquency and the appropriate loss mitigation 

options with the mortgagor. Therefore, for the 

purpose of this discussion, the face-to-face 

meeting requirement referenced in [the 

Regulation] relates only to those mortgagors 

living within a 200-mile radius of a servicing 

office.

Id.

PHH asserted that it did not have a “servicing office” 

within 200 miles of the Parcel and that the face-to-face 
18

meeting requirement therefore did not apply. The circuit court 

accepted this argument and the Mathewses assign error to its 

ruling.

The Mathewses argue the term “branch office” is 

unambiguous and that the plain language of the Regulation 

supersedes HUD’s response in the FAQ. They assert that the

common and popular meaning of a “branch office” is “a place for 

the regular transaction of business or performance of a 

particular service located at a different location from the 

business’s main office or headquarters.” Moreover, HUD 

expressly acknowledged in the FAQ that the term “branch office” 

encompasses not only a “servicing office” but a loan 

origination office as well. We agree.

When interpreting a federal administrative regulation, “a 

court must necessarily look to the administrative construction 

of the regulation if the meaning of the words used is in 

doubt.” Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 

(1945). While the Constitution and federal statutes also must 

be considered, “the ultimate criterion is the administrative 

interpretation, which becomes of controlling weight unless it 

is plainly erroneous or inconsistent with the regulation.” 

Id.; accord Long Island Care at Home, Ltd. v. Coke, 551 U.S. 

158, 171 (2007) (“[A]n agency's interpretation of its own 

regulations is controlling unless plainly erroneous or 
19

inconsistent with the regulations being interpreted.” (internal 

quotation marks omitted)); Auer v. Robbins, 519 U.S. 452, 461 

(1997) (The Secretary’s interpretation of his own regulation is 

“controlling unless plainly erroneous or inconsistent with the 

regulation.” (internal quotation marks omitted)).

However, “[i]f the regulation is unambiguous, then what is 

known as Seminole Rock deference does not apply, and the 

regulation's plain language, not the agency's interpretation, 

controls.” United States v. Deaton, 332 F.3d 698, 709 (4th 

Cir. 2003); accord Christensen v. Harris County, 529 U.S. 576, 

588 (2000) (“Auer deference is warranted only when the language 

of the regulation is ambiguous.”). To defer to an agency’s 

interpretation when the regulation itself is unambiguous “would 

be to permit the agency, under the guise of interpreting a 

regulation, to create de facto a new regulation.” Christensen, 

529 U.S. at 588.

The term “branch office” in the Regulation is unambiguous. 

“Branch” is defined as, among other things, “a part of a 

complex body: as . . . a section, department, or division of an 

organization,” or “a subordinate or dependent part of a central 

system or organization,” e.g., “a neighborhood branch of a city 

library” or “a branch bank in a suburb.” Webster’s Third New 

International Dictionary 267 (1993) (emphasis added). “Office” 

is defined as, among other things, “a place where a particular 
20

kind of business is transacted or a service is supplied.” Id.

at 1567. Because the Regulation applies if the mortgaged 

property is within 200 miles “of the mortgagee, its servicer, 

or a branch office of either,” the particular type of business 

or service supplied by an office within the contemplation of 

the Regulation is not limited to servicing. Rather, every type 

of business and service supplied by the mortgagee, including 

loan origination, is within its scope.5

This conclusion is underscored by the language of the FAQ 

itself, which states that “[t]he Department is aware that many 

Mortgagees maintain ‘branch offices’ that deal only with loan 

origination.” HUD therefore acknowledges that offices that 

deal only with loan origination are “branch offices” within the 

meaning of the Regulation but purports to limit the unambiguous 

regulatory term to include only “servicing offices.” The 

Regulation itself does not support this limitation. To accept 

HUD’s interpretation would amount to allowing it to create a 

 5 HUD considered limiting the scope of “branch office” only 

to “servicing offices” in the course of substantive rulemaking 

by amending 24 C.F.R. § 203.604(c)(2) to remove references to 

mortgagees. Revisions to the Single Family Mortgage Insurance 

Program; Proposed Rule, 69 Fed. Reg. 65,325 (Nov. 10, 2004) (to 

be codified at 24 C.F.R. pt. 203). Under the proposed 

amendment, the face-to-face meeting would not apply if “[t]he 

mortgaged property is not within 200 miles of the servicer, or 

a branch office of the servicer.” Id. at 65,327. However, the 

amendment was not included in the final rule. Revisions to the 

Single Family Mortgage Insurance Program; Final Rule, 72 Fed. 

Reg. 56,156, 56,157 (Oct. 2, 2007) (to be codified at 24 C.F.R. 

pt. 203) (“[T]his final rule does not effectuate the revisions 

to § 203.604(c)(2) that were contained in the proposed rule.”).
21

new regulation or tacitly amend 24 C.F.R. § 203.604(c)(2) 

without following the proper statutory procedure. We are not 

permitted to do so. Christensen, 529 U.S. at 588.

Alternatively, even if we were to conclude that “branch 

office” is ambiguous, HUD’s interpretation as supplied in the 

FAQ would not control because it was not promulgated under the 

procedures for substantive rulemaking required by the 

Administrative Procedure Act, 5 U.S.C. §§ 551-559. It 

therefore does not have the force of law. Shalala v. Guernsey 

Mem’l Hosp., 514 U.S. 87, 99 (1995); Chrysler Corp. v. Brown, 

441 U.S. 281, 301-02 & 302 n.31 (1979). Rather, it is at most 

“an interpretive rule issued by an agency to advise the public 

of the agency's construction of the statutes and rules which it 

administers.” Shalala, 514 U.S. at 99 (internal quotation 

marks omitted); Chrysler Corp., 441 U.S. at 302 n.31 (internal 

quotation marks omitted); see also Reno v. Koray, 515 U.S. 50, 

61 (1995) (distinguishing between the deference accorded 

substantive rules adopted pursuant to the Administrative 

Procedure Act and that accorded mere interpretive rules).

We acknowledge that mere interpretive rules are entitled 

to some measure of judicial deference. Reno, 515 U.S. at 61;

Martin v. Occupational Health and Safety Review Commission, 499 

U.S. 144, 157 (1991); see also United States v. Mead Corp., 533 

U.S. 218, 234 (2001) (“[A]n agency's interpretation may merit 
22

some deference whatever its form, given the specialized 

experience and broader investigations and information available 

to the agency, and given the value of uniformity in its 

administrative and judicial understandings of what a national 

law requires.” (internal citations and quotation marks 

omitted)). However, “[s]ome indicia of reliability and 

reasonableness must exist in order for us to defer to the 

agency's interpretation.” Shipbuilders Council of Am., Inc. v. 

United States Coast Guard, 578 F.3d 234, 245 (4th Cir. 2009).

According to the FAQ, the purpose of interpreting “branch 

office” to mean only “servicing office” is to ensure that the 

face-to-face meeting takes place between the borrower and 

“staff that is adequately trained to discuss the delinquency 

and the appropriate loss mitigation options.” Because 

“individuals that staff an origination office are not familiar 

with servicing issues and are not trained in debt collection or 

HUD’s Loss Mitigation Program,” the FAQ’s interpretation 

excludes such offices from the term “branch office.” But we do 

not consider this exclusion to be reasonable. If an 

originating office within the 200-mile radius lacks staff with 

the appropriate training, appropriately-trained staff could 

participate in a face-to-face meeting between the borrower and 

the staff of the originating office by tele- or videoconference, for example, thereby imposing a minimal burden on 
23

the lender while furthering the loss mitigation purpose of the 

Regulation and its underlying statutory authority.6

 Because the 

stated rationale for the interpretation is not reasonable, we

would not defer to it even if the term “branch office” were 

ambiguous.

Accordingly, we reject PHH’s argument that the Regulation 

does not apply because it does not have a “servicing office” 

within the 200-mile radius set forth in 24 C.F.R.

§ 203.604(c)(2). Because the Mathewses alleged in their 

complaint that PHH has branch offices within the 200-mile 

radius, they have pled sufficient facts for the Regulation to 

apply.

III. CONCLUSION

For the foregoing reasons, we will affirm the judgment in 

part, reverse it in part, and remand for further proceedings 

consistent with this opinion.

Affirmed in part,

reversed in part,

and remanded.

CHIEF JUSTICE KINSER, concurring.

 6 The Regulation is authorized by 12 U.S.C § 1715b, which 

enables HUD to promulgate regulations necessary to carry out 

the insured loan program, and 12 U.S.C. § 1715u(a), which 

requires lenders to “engage in loss mitigation actions.” In 

May 2009, Congress amended 12 U.S.C. § 1715u(a) to expressly 

include “support for borrower housing counseling” within such 

actions. The Helping Families Save Their Homes Act of 2009, 

Pub. L. No. 111-22, § 203(d)(1)(C), 123 Stat. 1631, 1645.
24

I agree with the majority's conclusion that 24 C.F.R.

§§ 203.500 and 203.606(a) express the intent of the Secretary 

of Housing and Urban Development ("HUD") that a mortgagee 

cannot commence foreclosure proceedings until it has complied 

with the requirements of certain regulations and that 24 C.F.R.

§ 203.604 is incorporated as a condition precedent in the deed 

of trust executed by Richard M. Mathews and Karin L. Mathews 

("the Mathewses"). I write separately, however, to clarify the 

actual requirements set forth in 24 C.F.R. § 203.604 because 

the Mathewses distort the 30-day face-to-face meeting

requirement at issue in this appeal.

Subpart C ("Servicing Responsibilities"), of Part 203 

("Single Family Mortgage Insurance"), in Title 24 ("Housing and 

Urban Development"), of the Code of Federal Regulations 

provides, in relevant part:

This subpart identifies servicing practices 

of lending institutions that HUD considers 

acceptable for mortgages insured by HUD. . . . 

It is the intent of [HUD] that no mortgagee 

shall commence foreclosure or acquire title to a 

property until the requirements of this subpart 

have been followed. 

24 C.F.R. § 203.500. Continuing, 24 C.F.R. § 203.606(a) 

states:

Before initiating foreclosure, the 

mortgagee must ensure that all servicing 

requirements of this subpart have been met. The 
25

mortgagee may not commence foreclosure for a 

monetary default unless at least three full 

monthly installments due under the mortgage are 

unpaid after application of any partial payments 

that may have been accepted but not yet applied 

to the mortgage account. In addition, prior to 

initiating any action required by law to 

foreclose the mortgage, the mortgagee shall 

notify the mortgagor in a format prescribed by 

the Secretary that the mortgagor is in default 

and the mortgagee intends to foreclose unless 

the mortgagor cures the default. 

The 30-day face-to-face meeting requirement at issue in 

this appeal is found in 24 C.F.R. § 203.604(b). In relevant 

part, the subsection requires that

[t]he 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 . . . .

Pursuant to this subsection, the mortgagee is required to 

conduct a face-to-face interview with the mortgagor before 

three full monthly installments are unpaid. A face-to-face 

meeting at least 30 days before commencement of foreclosure 

proceedings is required "[i]f default occurs in a repayment 

plan arranged other than during a personal interview." Id.

(emphasis added). Thus, the face-to-face interview 

requirements are triggered by two separate events. The one at 
26

issue in this appeal, a face-to-face meeting at least 30 days 

before foreclosure is commenced, as I have already pointed out, 

becomes necessary "[i]f default occurs in a repayment plan 

arranged other than during a personal interview." Id.

However, in their complaint, the Mathewses quoted only 

part of the language in 24 C.F.R. § 203.604(b) and thereby 

distorted what is actually required. In one paragraph, the 

Mathewses alleged that

the holder of the note can foreclose on the home 

in the event of arrearage on payment of the 

note, but only if the holder of the note has 

complied with . . . regulations, including inter 

alia, 24 C.F.R. § 203.604, whereby 'The 

mortgagee must have a face-to-face interview 

with the mortgagor . . . or make a reasonable 

attempt to arrange such a meeting within 30 days 

after such default or at least 30 days before 

foreclosure is commenced . . . .'∗

24 C.F.R. § 203.604(b). The Mathewses then alleged that "no 

creditor entity ever had a face[-]to[-]face meeting with [them] 

or made any attempt to arrange for any such face-to-face 

meeting." Later in the complaint, the Mathewses asserted that 

"[a]t no time has [the mortgagee] complied with 24 C.F.R.

[§] 203.604, a federal regulation whereby 'The mortgagee must 

have a fac[e]-to-face interview with the mortgagor [ ] or make 

 ∗ The majority also states that 24 C.F.R. § 203.604 

"requires the lender to 'have a face-to-face interview' with 

the borrower, 'or make a reasonable effort to arrange such a 

meeting' " without reciting the events that trigger such 

requirements.
27

a reasonable attempt to arrange such a meeting within 30 days 

after such default or at least 30 days before foreclosure is 

commenced . . . .' "

Notably, the Mathewses did not allege that the mortgagee 

failed to have a face-to-face interview with them before three 

full monthly installments were unpaid. Likewise, the Mathewses 

did not allege that the mortgagee failed to have a face-to-face 

meeting with them within 30 days after default and at least 30 

days before foreclosure was commenced upon their default on "a 

repayment plan arranged other than during a personal 

interview." 24 C.F.R. § 203.604(b). Although the Mathewses 

admitted in their complaint that they "fell into arrears on the 

note," they did not allege that they ever defaulted on "a 

repayment plan arranged other than during a personal 

interview." 24 C.F.R. § 203.604(b). Instead, by omitting 

relevant portions of 24 C.F.R. § 203.604(b), the Mathewses were 

able to allege that the mortgagee failed to conduct a face-toface meeting with them 30 days before commencing foreclosure, a 

requirement not set forth in the plain terms of that 

subsection. Thus, in my view, the Mathewses failed to state a 

cause of action upon which relief could be granted. See

Kaltman v. All American Pest Control, 281 Va. 483, 489, 706 

S.E.2d 864, 867 (2011) (demurrer tests the legal sufficiency of 

facts alleged in a pleading); Glazebrook v. Board of 
28

Supervisors, 266 Va. 550, 554, 587 S.E.2d 589, 591 (2003) 

(same).

In this case, however, when PHH Mortgage Corporation filed 

its demurrer to the Mathewses' complaint seeking declaratory 

judgment, it did not assert as a basis for its demurrer the 

issue I have identified. In ruling on a demurrer, a trial 

court cannot consider any "grounds other than those stated 

specifically in the demurrer." Code § 8.01-273(A); see also TC 

MidAtlantic Dev., Inc. v. Commonwealth, 280 Va. 204, 214, 695 

S.E.2d 543, 549 (2010); Chippenham Manor, Inc. v. Dervishian, 

214 Va. 448, 451, 201 S.E.2d 794, 796 (1974). Nor can this 

Court on appeal.

For these reasons, I respectfully concur and, like the 

majority, would affirm in part and reverse in part the circuit 

court's judgment and remand for further proceedings.

JUSTICE McCLANAHAN, concurring.

I agree with the majority's holdings in this case. 

However, in my opinion, the first material breach doctrine, as 

applied in Horton v. Horton, 254 Va. 111, 115-16, 487 S.E.2d 

200, 203-04 (1997), and Countryside Orthopaedics, P.C. v. 

Peyton, 261 Va. 142, 154, 541 S.E.2d 279, 285 (2001), is 
29

inapplicable here for reasons not specifically addressed by 

the majority.

The Mathewses' failure to pay under the terms of the note 

and deed of trust at issue – of which defendant PHH became the 

holder and beneficiary, respectively, as the successor in 

interest – was clearly a material breach of both the note and

the deed of trust.1 Following this default, PHH sought to 

foreclose on the Mathewses' residence pursuant to PHH's 

remedies set forth in paragraph eighteen of the non-uniform 

covenants of the deed of trust.2

The Mathewses, in turn, sought by the instant declaratory 

judgment action to stop PHH from going forward with its remedy 

of foreclosure based on their claim that PHH failed to first 

comply with a condition precedent to its right to enforce this 

 1 As stated in paragraph one of the uniform covenants of 

the deed of trust: "Borrower shall pay when due the principal 

of, and interest on, the debt evidenced by the Note and late 

charges due under the Note." Then in paragraph nine of these 

covenants, the deed of trust states, in relevant part: "Lender 

may, except as limited by regulations issued by the Secretary 

[of Housing and Urban Development], in the case of payment 

defaults, require immediate payment in full of all sums 

secured by this Security Instrument if . . . Borrower defaults 

by failing to pay in full any monthly payment required by this 

Security Instrument prior to or on the due date of the next 

monthly payment . . . ."

2 The deed of trust there provides in relevant part, under 

the heading "Foreclosure Procedure": "If Lender requires 

immediate payment in full under paragraph 9, Lender may invoke 

the power of sale and any other remedies permitted by 

applicable law. Lender shall be entitled to collect all 

expenses incurred in pursuing the remedies provided in this 

paragraph 18 . . . ." (Emphasis added.)
30

remedy – i.e., the "face-to-face interview" requirement under 

24 C.F.R. § 203.604 as incorporated into the deed of trust. 

Citing Horton and Countryside, PHH asserted below in support 

of its demurrer to this action, as it does on appeal, that the 

Mathewses were precluded from making this claim by virtue of 

the first material breach doctrine. That is, under this 

doctrine, because the Mathewses first materially breached the 

deed of trust by their payment defaults, they could not 

require PHH to comply with the terms of the deed of trust. As 

the doctrine has been applied under Virginia law, however, it 

is inapplicable here. The doctrine has functioned as an 

affirmative defense to the first breaching party's action 

against a defendant who purportedly failed to perform a 

contractual obligation unrelated to the defendant's own 

remedies against the plaintiff for the plaintiff's breach of 

the parties' contract. See SunTrust Mortg., Inc. v. United 

Guar. Residential Ins. Co., 806 F.Supp.2d 872, 887 (E.D. Va. 

2011) ("[T]he first material breach doctrine operates not as 

remedy requested by a party in its capacity as a plaintiff, 

but as an affirmative defense pled by a party in its capacity 

as a defendant."); cf. Bayview Loan Servicing, LLC v. Simmons, 

275 Va. 114, 121-22, 654 S.E.2d 898, 901 (2008) (holding that 

borrower was entitled to damages based on lender's violation 

of the terms of its remedies under its deed of trust).
31

In this case, the original lender, PHH's predecessor in 

interest, performed its primary obligation at the inception of 

the subject transaction between it and the Mathewses when it 

made the loan to them under the terms of the note and deed of 

trust. And the Mathewses' instant action, of course, has 

nothing to do with them seeking damages or specific 

performance in regard to any non-performance of that 

contractual obligation. Rather, this action was instituted in 

the context of their defense to PHH's enforcement of its 

remedy of foreclosure against them.

Unlike the Mathewses, the breaching party in both Horton

and Countryside sought damages based on the defendant's 

failure to perform one of the defendant's contractual 

obligations that was unrelated to any remedy of the defendant 

for the plaintiff's breach of the parties' contract.3

 3 In Horton, a former wife sought damages from her former 

husband due to his failure to make supplemental payments to an 

escrow account established for her benefit pursuant to the 

terms of a joint venture dissolution agreement entered into by 

the parties. 254 Va. at 112-14, 487 S.E.2d at 202-03. We 

held that because the former wife first committed a material 

breach of the agreement, which "defeated an essential purpose 

of the contract," the former husband's nonperformance was 

excused. Id. at 116, 487 S.E. 2d at 204. Similarly, in 

Countryside, we held that, based on the first material breach 

doctrine, the plaintiff employee/stockholder was not entitled 

to contract damages in the form of severance pay, as provided 

for in his employment agreement with the defendant 

professional corporation. 261 Va. at 154-56, 541 S.E.2d at 

285-87. We reached that conclusion because the plaintiff, 

before resigning from the corporation, first materially 
32

For these reasons, I agree with the majority that the 

circuit court erred in holding that, because the Mathewses 

first materially breached the deed of trust, they were not 

entitled to enforce the terms of the deed of trust against PHH 

in regard to its remedy of foreclosure.

 

breached his related stock purchase agreement in which he 

acquired an ownership interest in the corporation. Id.