Opinion ID: 1057892
Heading Depth: 2
Heading Rank: 2

Heading: incorporation of the regulation as a condition precedent to foreclosure under the deed of trust

Text: 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 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. U.S. 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 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 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 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 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, 142 Mich.App. 548, 370 N.W.2d 401, 404 (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 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 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.