556 F.2d 356 (5th Cir. 1977), 75-3896, Roberts v. Cameron-Brown Co.

Docket Nº:75-3896.
Citation:556 F.2d 356
Party Name:Eva Mae ROBERTS, on behalf of herself and all others similarly situated, Plaintiffs-Appellees, v. CAMERON-BROWN COMPANY and Federal National Mortgage Association, Defendants-Appellants.
Case Date:July 25, 1977
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 356

556 F.2d 356 (5th Cir. 1977)

Eva Mae ROBERTS, on behalf of herself and all others

similarly situated, Plaintiffs-Appellees,

v.

CAMERON-BROWN COMPANY and Federal National Mortgage

Association, Defendants-Appellants.

No. 75-3896.

United States Court of Appeals, Fifth Circuit

July 25, 1977

Rehearing and Rehearing En Banc Denied Sept. 12, 1977.

Page 357

Chas. E. Watkins, Jr., G. Lee Garrett, Jr., Atlanta, Ga., Regnald Maxwell, Jr., Augusta, Ga., for Federal, Etc.

Keith W. Benning, Augusta, Ga., for Cameron, Etc.

William J. Cobb, Ga. Legal Services Programs, Douglasville, Ga., David F. Walbert, Atlanta, Ga., for plaintiffs-appellees.

Appeals from the United States District Court for the Southern District of Georgia.

Before THORNBERRY and GEE, Circuit Judges, and MARKEY [*], Chief Judge.

THORNBERRY, Circuit Judge:

Plaintiff, Eva Mae Roberts, brought this class action alleging that a mortgagee's exercise of the private power of sale violated the due process clause. Plaintiff also insists that Cameron-Brown Company and the Federal National Mortgage Association ( FNMA ) failed in their duties to inquire into the circumstances leading to her defaults. Thus, they have allegedly violated HUD Handbook 4191.1. The district court, in response to a number of separate motions, upheld plaintiff's contentions in all respects, holding that the exercise of the private contractual power of sale provision in plaintiff's Deed to Secure Debt violated the due process clause of the fifth amendment. Roberts v. Cameron-Brown Co., 72 F.R.D. 483 (S.D.Ga.1975). The court also stated that although the HUD Handbook itself does not have the force and effect of law, it controls the servicing practice of private mortgagees because it is a valid administrative interpretation of a HUD regulation (24 C.F.R. § 203.9). Id. at 496-97. Thus, mortgagors with FNMA may raise the issue of noncompliance with the Handbook in foreclosure actions instituted by all Section 235 mortgagees and servicers. Defendants appeal from an order of September 9, 1975 preliminarily enjoining them from any nonjudicial foreclosure, as well as from a declaratory judgment order entered that same date regarding the issue of noncompliance with the HUD Handbook. We reverse.

The fact situation confronting this court is routine, and probably all too common. In October, 1972, Eva Mae Roberts bought a home in Augusta, Georgia, with the mortgage financed under Section 235 of the National Housing Act, 12 U.S.C. § 1715z. This program encourages private mortgagees to invest in low income housing, and provides for HUD-financed mortgage assistance payments. Cameron-Brown Co., the private mortgagee, assigned the mortgage to FNMA, and continued to service the mortgage under contract with FNMA.

Beginning in January, 1974, Mrs. Roberts failed to make her monthly payments on the mortgage. The failure continued for several months, until on May 6, 1974, FNMA's attorney notified Mrs. Roberts that FNMA would exercise its option to accelerate the debt. A month later, Mrs. Roberts filed this class action. As noted, the district court has upheld plaintiff's contentions, though in response to one of the earlier motions, he held there was no private cause of action under the HUD Handbook. Roberts v. Cameron-Brown Co., 410 F.Supp. 988 (S.D.Ga.1975). He essentially reversed that holding in a later order, concluding that mortgagors may raise the issue of noncompliance with the Handbook in foreclosure actions instituted by Section 235 mortgagees. Roberts v. Cameron-Brown Co., 72 F.R.D. 483 (S.D.Ga.1975).

The joint appellants, FNMA and Cameron-Brown Co., present two issues to the court. First, whether the exercise of a private power of sale by FNMA is governmental action and subject to the due process clause of the fifth amendment. Second, whether a private cause of action under the HUD Handbook should be implied to allow a mortgagor, as a defense to foreclosure, to assert that the mortgagee has failed to

Page 358

comply with the guidelines of HUD Handbook 4191.1.

I.

Appellants contend first of all, and we agree, that there is no sufficient nexus to transform the private mortgagee's act into that of the federal government. The government must be involved with the activity that causes the actual injury, Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972), and it is not enough to show that the government heavily regulates the private company whose activities are challenged. Jackson v. Metropolitan Edison Co., 419 U.S. 345, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974). In Jackson, the Supreme Court held that a public utility's termination of electric service to petitioner's home without notice and hearing did not deprive her of her due process rights. The Court admitted that electric service is certainly a crucial matter, and that the Pennsylvania Public Utilities Commission closely regulated the electric company. Nevertheless, a "public function" is one that is usually reserved for the state eminent domain, elections, parks, and the like. It is related to sovereignty, and does not depend entirely on public importance, nor amount of government regulation. Likewise, this Circuit in Barrera v. Security Bldg. and Investment Corp., 519 F.2d 1166 (5 Cir. 1975) specifically held that nonjudicial foreclosure (private power of sale) is not state action.

Appellee insists that the electric service in Jackson and the mortgage in Barrera were created by the private parties, and that the government, not the mortgagee, creates the FNMA mortgage. The distinction is not apt. Cameron-Brown created the mortgage, not HUD, though HUD certainly exercises some control. HUD provides a convenient mechanism, regulations, and some payments. 1 Northrip v. FNMA, 527 F.2d 23 (6 Cir. 1975), confronts appellee as perhaps the closest case to ours on this point. There, the Sixth Circuit held that mortgage foreclosures through power of sale agreements are not powers of a governmental nature. Indeed, the court noted that Congress transferred FNMA to private control in 1968 specifically because its acts were thought to be non-governmental in nature. The court acknowledged the fact that FNMA was acting under the authority of a Michigan statute, yet even this was not a sufficient nexus to make FNMA's actions those of Michigan.

Appellee's response is two-fold. First, she mentions that, as in Barrera, the mortgage in Northrip was wholly the creation of the mortgagor and the investor. That attempted...

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