Roberts v. Cameron-Brown Co.

• Decision Date: 04 February 1975
• Docket Number: Civ. A. No. 174-62.
• Parties: Eva Mae ROBERTS, on behalf of herself and all others similarly situated, Plaintiff, v. CAMERON-BROWN COMPANY, and Federal National Mortgage Association, Defendants.
• Court: U.S. District Court — Southern District of Georgia

410 F. Supp. 988

Eva Mae ROBERTS, on behalf of herself and all others similarly situated, Plaintiff, v. CAMERON-BROWN COMPANY, and Federal National Mortgage Association, Defendants.

Civ. A. No. 174-62.

United States District Court, S. D. Georgia, Augusta Division.

February 4, 1975.

William J. Cobb, Georgia Indigents Legal Services, Augusta, Ga., David F. Walbert, John L. Cromartie, Jr., Georgia Indigents Legal Services, Atlanta, Ga., for plaintiff.

Keith W. Benning, Augusta, Ga., for Cameron-Brown Co.

Regnald Maxwell, Jr., Augusta, Ga., Charles E. Watkins, Jr., G. Lee Garrett, Jr., Atlanta, Ga., for Federal Nat. Mortgage Assn.

ORDER

ALAIMO, District Judge.

This case arises as a result of an alleged violation of the provisions of the due process clauses of the Fifth and Fourteenth Amendments to the Constitution of the United States and of the Department of Housing and Urban Development (HUD) Handbook 4191.1, Administration of Insured Home Mortgages, promulgated pursuant to the National Housing Act, 12 U.S.C. § 1715z, et seq. Plaintiff alleges, first, that the HUD Handbook imposes mandatory requirements on servicers of mortgages subsidized under the National Housing Act which can be enforced by individual mortgagors; and second, that even assuming plaintiff and other members of her class cannot enforce the provisions of the HUD Handbook, the foreclosure methods used by the defendants violate the due process clauses of the Fifth and Fourteenth Amendments. Defendants, on the other hand, contend that the HUD Handbook in question is not legally enforceable by mortgagors under section 235 and that the due process clauses are not applicable in this case.¹ Jurisdiction is invoked pursuant to 28 U.S.C. §§ 1331, 1332, 1337, and 1343.

Now before the Court for decision is defendant Cameron-Brown's motion to dismiss.

In October, 1972, plaintiff Eva Mae Roberts bought a home in Richmond County, Georgia, financed under a mortgage held by defendant, Federal National Mortgage Association (FNMA), which is a federal corporation organized pursuant to 12 U.S.C. § 1716, et seq., and serviced by defendant Cameron-Brown, a North Carolina corporation doing business in Georgia. The mortgage in question was financed in large part through the subsidy program of section 235 of the National Housing Act, 12 U.S.C. § 1715z. Briefly, the purpose of the section 235 subsidy program is to bring home ownership to low income groups by providing mortgage insurance and by making mortgage assistance payments to the mortgagee on behalf of the mortgagor. The assistance payments are designed to reduce the cost of the mortgage to the equivalent costs of a mortgage bearing interest at an annual rate of one per cent, 12 U.S.C. §§ 1715z(c)(2) and 1715z(i). In order to qualify, both the mortgagee and mortgagor must comply with all the applicable rules and regulations of the Department of Housing and Urban Development, and submit to that agency's supervision. The operations of FNMA and Cameron-Brown, insofar as they affect section 235 homeowners like plaintiff, are extensively controlled by federal statute and regulation. See e. g., 24 C.F.R. §§ 235.1 to 235.499.

In May, 1974, Cameron-Brown attempted to foreclose on plaintiff Eva Roberts' property using Ga.Code Ann. §§ 67-1506, 39-1101, 39-1102, and 39-1201, which allow a nonjudicial foreclosure without personal notice or an opportunity to present defenses. Plaintiff claims that in so doing Cameron-Brown violated both the requirements imposed on servicers of section 235 mortgages under HUD Handbook 4191.1 and the due process clauses of the Fifth and Fourteenth Amendments. Consequently, plaintiff asks this Court, on behalf of herself and all others similarly situated, to enjoin the defendants from further violating the regulations in question and to hold that any nonjudicial foreclosure of mortgages financed and regulated under the section 235 program is unconstitutional.

Crucial to the success of the plaintiff's first contention is a determination by this Court that section 235 of the National Housing Act, which the Handbook interprets, provides individual mortgagors a private civil remedy.² However, such a right is not expressly conferred by the Act itself. Thus, plaintiff's federal claims depend upon the propriety of implying a private cause of action from section 235.

Plaintiff cites as dispositive of this issue Gomez v. Florida State Employment Service et al., 417 F.2d 569 (5th Cir. 1969), in which the Court of Appeals for the Fifth Circuit implied a civil remedy under the provisions of the Wagner-Peyser Act of 1933, 29 U.S.C. § 49 et seq., establishing a cooperative State-Federal referral system for the interstate recruiting and transfer of migratory farm workers. In Gomez, the Court appeared to focus on three factors which it felt to be significant in determining whether to imply a civil remedy under an Act where none is expressly provided: (1) who the intended beneficiaries of the Act are, (2) what the purpose of the regulatory scheme is, and (3) whether other remedies for violations are available. Since the plaintiffs, who were migratory farm laborers, were the only beneficiaries of the Act (which imposes certain minimum living standards on employers taking advantage of the interstate referral system), and since private lawsuits under the Act afforded both the only means of protection against substandard living conditions and the best method of enforcing the regulations concerning living standards for workers, the Court was willing to permit farm workers to act as private attorneys general in enforcing the Act against their employers.

Applying this analysis to the present case, it appears that although implying a private remedy might be appropriate here, the need for such a remedy is far less compelling than in Gomez. First, unlike migratory farm workers under the Wagner-Peyser Act, mortgagors are not the sole intended beneficiaries of the regulations in question. As stated in Chapter 1 of the HUD Handbook, HUD servicing policies are directed toward "protect(ing) HUD's interest in the insured mortgage," and "encourag(ing) private investment in insured home mortgages at the lowest effective cost to mortgagors," as well as "assur(ing) an adequate standard of fair dealing among all participants in an insured mortgage transaction . . .." HUD Handbook Chapter 1, § 2, p. 1. Furthermore, under the Wagner-Peyser Act involved in Gomez, the only remedy contemplated for noncompliance with regulations related to living standards for farm workers is the withdrawal of federal funds from the state agencies charged with processing applications for workers and sending the requests through the interstate facilities of the United States Employment Service. In the present case, on the other hand, mortgagees who do not comply with HUD regulations and guidelines are threatened with the suspension or termination of their acceptability as HUD-approved mortgagees — a sanction which unlike cutting off federal funds for state agencies is directed against the violator himself. Finally, the Court in Gomez emphasized that absent an implied remedy under the Wagner-Peyser Act, farm workers, who often were lured "hundreds of miles across the country to accept work and the advantage of the benefits promised by the laws of the United States only to find that the promise . . . (was) a fraud," would have no effective protection against violations. Id. at 576. However, with regard to the management of section 235 mortgages, the HUD Handbook makes it clear that the Central and Field Offices of HUD will monitor servicing operations for the purpose of ensuring that any servicing deficiencies in HUD-insured mortgages will be corrected. Moreover, unlike migratory farm workers, who as the court noted would be unable to correct the conditions by "civil suits under local concepts," mortgagors can resort to private lawsuits if actions by mortgagees violate local or state law, or if violations reach the level of a deprivation of the mortgagor's constitutional rights.

In addition to there being fewer reasons to imply a civil remedy in this case than in Gomez, there are also reasons not to do so under section 235 that were not present in Gomez. In promulgating the National Housing Act, Congress expressly conferred on the Department of Housing and Urban Development the responsibility of regulating activities of participants in programs set up by the Act. Plaintiff's complaint raises issues relating to matters within the sphere of this regulatory power. Consequently, judicial interference may not only be unnecessary in this case but also disruptive to HUD's administration of the Act. Thus, whether the defendant has violated the regulations with regard to servicing mortgages is best left to the determination of the Department itself.

Furthermore, there are some indications in the regulations under section 235 of the National Housing Act that HUD did not intend to provide mortgagors with a private cause of action under the Act. For example, 24 C.F.R. § 10.4 states that "there shall be published in the FEDERAL REGISTER all rules and regulations of the Department hereafter issued except those which it determines to be concerned solely with matters internal to the Department or to be of limited interest to the public." (Emphasis supplied). Thus, while the Handbook need not have been promulgated in compliance with the Administrative Procedure Act, 5 U.S.C. § 553, because it falls within one of the exceptions to the publication requirement,³ it is clear that the Secretary contemplated that rules and regulations under the National Housing Act would be published in the FEDERAL REGISTER if they involve matters outside the sphere of HUD's internal administrative concerns. In fact, Section 10.5 of 25 C.F.R. states that the Department ". . . will . . . voluntarily publish in the FEDERAL REGISTER its rules and regulations except those excepted in...