606 F.2d 160 (6th Cir. 1979), 77-1594, United States v. Scholnick

Docket Nº:77-1594.
Citation:606 F.2d 160
Party Name:UNITED STATES of America, Plaintiff-Appellee, Huron Towers, Inc., Defendant-Appellee, v. Morton L. SCHOLNICK and Seymour Dunitz, Third Party Defendants-Appellants.
Case Date:October 02, 1979
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 160

606 F.2d 160 (6th Cir. 1979)

UNITED STATES of America, Plaintiff-Appellee,

Huron Towers, Inc., Defendant-Appellee,

v.

Morton L. SCHOLNICK and Seymour Dunitz, Third Party

Defendants-Appellants.

No. 77-1594.

United States Court of Appeals, Sixth Circuit

October 2, 1979

Argued June 11, 1978.

Page 161

[Copyrighted Material Omitted]

Page 162

Robert V. Seymour, Southfield, Mich., for Scholnick.

James K. Robinson, U. S. Atty., Samuel J. Behringer, Jr., Asst. U. S. Atty., Detroit, Mich., Richard M. Selik, Levin, Levin, Garvett & Dill, Southfield, Mich., for the U. S.

Before WEICK and MERRITT, Circuit Judges, and PHILLIPS, Senior Circuit Judge.

HARRY PHILLIPS, Senior Circuit Judge.

Appellants Morton L. Scholnick and Seymour Dunitz appeal from the judgment of the district court ordering foreclosure on mortgages held by the Department of Housing and Urban Development (HUD) on certain property located in Ann Arbor, Michigan, known as Huron Towers. The district court ordered foreclosure by judicial sale. It was further ordered that all other claims are deemed foreclosed and subordinate and "that no party . . . (shall enjoy) any right . . . of redemption. . . . " The effect of the court's judgment was to extinguish a mortgage that appellants held on the property.

We affirm.

I

The history of this protracted litigation spans many years and, as the Government has characterized, "although at first blush . . . (it involves) nothing more than a simple judicial foreclosure, this lawsuit developed into a bitter contest on the issue and fostered many side issues."

In 1959, appellants and a third party, James E. Brophy, formed a corporation called Huron Towers, Inc. (Huron Towers) for the purpose of constructing a thirteen story, twin tower, 360 unit apartment complex to be known as Huron Towers (the property). Huron Towers negotiated loans from Manufacturers National Bank of Detroit to finance the construction of the apartment complex.

Pursuant to § 207 of the National Housing Act, as amended, 12 U.S.C. § 1713, and the applicable regulations promulgated thereunder, 24 C.F.R. §§ 207 Et seq., HUD agreed to insure the loans from Manufacturers National to Huron Towers. Accordingly, mortgage documents were prepared (on HUD forms) in favor of the bank. The mortgages were recorded in Michigan on May 1, 1959.

Manufacturers National subsequently assigned its entire interest in the property to the Michigan State Administration Board, trustee of the Michigan State Employees' Retirement Fund, which, in turn, loaned additional funds to Huron Towers. In 1966, the State Board assigned its interest in the property to HUD. It became apparent by 1966 that Huron Towers was unable to operate the property at a profit, in spite of the fact that efforts had been made by the lenders to relieve Huron Towers from some of the burden of the debt service by modification and adjustment of the terms of the mortgages.

In September 1967, Huron Towers acknowledged that it was in arrears on the mortgages. In an effort to put the property

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on a sound financial footing, HUD and Huron Towers entered into a Forebearance Agreement, in which HUD agreed not to pursue its legal remedies and Huron Towers agreed to a modified mortgage payment schedule. By the terms of the agreement, appellant Scholnick was prohibited from selling his controlling interest in the common stock of Huron Towers without approval from HUD.

In 1968, after obtaining HUD's approval, appellants agreed to sell the common stock they held in Huron Towers to the Michigan Education Home Association (MEHA). The purchase agreement provided, Inter alia, that MEHA and Huron Towers, under the ownership of MEHA, would execute joint promissory notes in favor of appellants to be secured by a mortgage on the property. Appellants also were to be paid a portion of the purchase price in cash. The purchase agreement was consummated and, on January 30, 1969, Huron Towers executed the mortgage, which was recorded in Michigan on February 4, 1969.

HUD commenced the present action on December 6, 1973, averring that the mortgages it held on the property had been in default since 1971, and seeking judgment against Huron Towers together with an order foreclosing the mortgages. Huron Towers and appellants were named as defendants in the action.

All parties appeared and answered the complaint. A number of defenses, cross-claims and counterclaims were asserted. Thereafter, the district court granted HUD's request for appointment of a receiver to manage and preserve the property pending outcome of the proceeding. 1 With the consent of the parties, the district court also established a discovery cutoff date of December 30, 1974.

In 1976 HUD and Huron Towers agreed to settle their dispute over the property. Accordingly, they filed a joint motion for entry of a consent decree of foreclosure. Accompanying this motion was a document entitled Consent Decree of Foreclosure and Sale signed by counsel for both the Government and Huron Towers. The decree provided, Inter alia, that the property should be sold at public auction, that the United States would relinquish any claims it may have had against MEHA, its officers, and agents of Huron Towers, including the right to sue for a deficiency judgment after sale of the property, and that Huron Towers also would relinquish any claims it may have had against HUD.

Appellants filed a brief in opposition to the consent decree...

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