In Montaquila v. Flagstar Bank, the Rhode Island Supreme Court rejected a borrower's attempt to expand the plain language of the U.S. Department of Housing and Urban Development's (HUD) federal regulation requiring loan servicers of FHA-backed mortgages to conduct a face-to-face meeting or make a "reasonable effort" to arrange a face-to-face meeting with the borrower prior to foreclosing. In reaching this conclusion, the court noted that the regulation only requires a trip to the property to arrange a face-to-face meeting; the actual face-to-face meeting is not required at this visit.

Montaquila claimed that the loan servicer violated the face-to-face meeting regulation by sending a third-party vendor to the property to deliver a door hanger rather than sending a representative to arrange the meeting. In support of this claim, the borrower argued that the vendor did not have the authority to conduct a face-to-face meeting with the borrower and that the door hanger left by the vendor did not include information related to the purpose of the visit. The Rhode Island Supreme Court rejected this argument, concluding that a door hanger left by the vendor satisfied the modest property visit requirements of the regulation.

HUD's face-to-face regulation provides that a reasonable effort to arrange a face-to-face meeting must include "at least one trip to see the mortgagor at the mortgaged property …." While the Rhode Island Supreme Court in Montaquila did not rely on federal case law for support, their holding is consistent with the position taken by federal courts in the First Circuit. For example, in Donahue v. Fannie Mae, a borrower challenged the mortgage lender's face-to-face compliance on the grounds that the individual who left the door hanger lacked the qualifications or authority to conduct a face-to-face meeting that could potentially resolve mortgage delinquencies. The First Circuit rejected this argument, concluding that the regulation did not impose a requirement for the individual delivering the door hanger to have the authority to conduct a face-to-face meeting on the spot. Likewise, in Dan-Harry v. PNC Bank, N.A., the Rhode Island federal court dismissed a borrower's face-to-face dispute concluding that the statute's clear language provides that the purpose of the face-to-face trip is 'to arrange' the meeting, not to conduct it at that moment.

Hinshaw continues to monitor developing case law on compliance with face-to-face regulations and other pre-foreclosure challenges posed by borrowers.