Abrego v. United Peoples Federal Sav. and Loan Ass'n

• Decision Date: 06 February 1984
• Docket Number: No. 83-251,83-251
• Citation: 281 Ark. 308,664 S.W.2d 858
• Parties: Mary Ann ABREGO, Appellant, v. UNITED PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Appellees.
• Court: Arkansas Supreme Court

Page 858

664 S.W.2d 858

281 Ark. 308

Mary Ann ABREGO, Appellant, v. UNITED PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Appellees.

No. 83-251.

Supreme Court of Arkansas.

February 6, 1984.

Rehearing Denied March 12, 1984.

Harper, Young, Smith & Maurras by Robert Y. Cohen, II, Fort Smith, for appellant.

Gregory T. Karber, Fort Smith, for Warner Holdings, Ltd. and Ruth Singer and Hymie Singer.

Phillip Jack Taylor, Fort Smith, for Larry A. Cotten and Brenda S. Cotten.

Warner & Smith by Joel D. Johnson and G. Alan Wooten, Fort Smith, for United Peoples Federal Sav. and Loan Ass'n.

DUDLEY, Justice.

In 1976 the Federal Home Loan Bank Board adopted a regulation which preempted state law governing due-on-sale clauses in mortgages. The primary issue before us is whether the doctrine of preemption is applicable to a mortgage executed prior to the 1976 regulation. We hold that the doctrine is not applicable and reverse the trial court. Collateral issues affecting property rights are raised and, for clarity, the opinion is developed by numbered segments. The Court of Appeals certified the case to this Court since it involves significant legal principles of major importance. Rule 29(4)(b).

I

On April 28, 1974, Gilbert and Mary Ann Abrego purchased two four-plex apartment buildings in Fort Smith for $162,000. The next day, April 29, 1974, in order to pay for their purchase, they borrowed $148,000 from the corporate predecessor of appellee, United Peoples Federal Savings and Loan Association, a federally chartered association. They executed an installment note bearing interest at the rate of 9% per annum and being payable in monthly installments of $1,242.10 for a period of 25 years. To secure the debt they executed a mortgage providing for acceleration of the maturity of the debt if "... the mortgagor or assignee sells or conveys (or contracts to sell or convey) all or any part of the mortgaged property without the written consent of the holder of said note."

On May 3, 1979, Gilbert Abrego died and his estate is not a party to this appeal.

On January 23, 1981, Mary Ann Abrego violated the due-on-sale clause by contracting to sell the apartment building to Larry and Brenda Cotten. The consideration from the Cottens was $155,000 with $26,000 being paid on the day of sale and the remainder to be paid on monthly installments equal to the installment payments due United Peoples. Mary Ann Abrego executed a warranty deed conveying title to the Cottens and placed it in escrow with instructions that it was to be delivered to the Cottens upon payment in full. The sales contract contained a clause by which the Cottens agreed to hold Mary Ann Abrego "harmless from any liability or loss occasioned by the demand of United Peoples." United Peoples was not notified of the sale and the Cottens took possession of the buildings.

Larry Cotten, a building contractor, spent $10,000 repairing the heating and air conditioning systems, fixing electrical problems, performing landscaping work, painting the exterior of both buildings and the interior of seven of the eight apartments. On March 17, 1981, United Peoples learned of the sales contract and subsequently requested that the Cottens either renegotiate the rate of interest to a higher rate or else immediately pay the full amount of debt.

On October 16, 1981, the Cottens sold all of their equity and interest in the property to Warner Holdings, Ltd., and Ruth Singer. The consideration was $20,000 in cash, a $22,000 promissory note and the assumption of all indebtedness owed by the Cottens to Mary Ann Abrego. Hymie Singer, the husband of Ruth Singer, endorsed the note. The contract provides that Warner and Ruth Singer agree to pay "all costs incurred by the Vendors [Cottens] in protecting their interest herein, including a reasonable attorneys fee and other costs."

Notice of acceleration and demand for immediate payment were subsequently given by United Peoples. Fourteen months after the sale to the Cottens, and with none of the installment payments being in default United Peoples filed this suit asking for acceleration of the date of maturity of the debt evidenced by the note, for judgment on that note, and for foreclosure of the mortgage securing the debt. The original complaint averred that the ground for acceleration was violation of the due-on-sale clause. An amended complaint additionally alleged jeopardy of the security. The chancellor ordered acceleration of the date of maturity as a result of violating the due-on-sale clause and also because the security was in jeopardy. In addition, the indemnity clauses were held to indemnify Mary Ann Abrego and the Cottens for 80% of their expenses.

II

In 1972 we held that the violation of a due-on-sale clause was not sufficient, by itself, to accelerate the maturity date of the entire debt. The additional requirement of proving a legitimate security ground for refusal to accept the transfer of title was placed upon the creditor. Tucker v. Pulaski Federal Savings & Loan Assn., 252 Ark. 849, 481 S.W.2d 725 (1972). As a result of Tucker, the property owner held an assumable loan. It constituted a valuable right. As interest rates rose on new mortgages after 1972 a property seller could increase the selling price of his property to reflect the value of his low rate assumable loan. The Tucker decision became a settled legal principle governing the ownership and devolution of property; it became a rule of property. See Gibson v. Talley, 206 Ark. 1, 174 S.W.2d 551 (1943). The note and mortgage executed by Mary Ann Abrego on April 28, 1974 was subject to the Tucker rule of property and, as a matter of law, gave her a vested right in a loan which could be assumed by a third person so long as there was no legitimate jeopardy of security ground for the creditor to refuse to accept the title.

On July 31, 1976, after Mary Ann Abrego had already acquired her assumable loan, the Federal Home Loan Bank Board issued a regulation which required that due-on-sale clauses in mortgages to federally chartered savings and loan associations be governed exclusively by federal law. 12 C.F.R. § 545.8-3(f). The Supreme Court of the United States held that the regulation was a valid preemption of state law. Fidelity Federal Savings & Loan Association v. de la Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982). In 1983 we acknowledged the federal preemption and reversed part of Tucker, stating: "[I]t is clear that our rule in Tucker can no longer apply to federal savings and loan associations in Arkansas." Independence Federal Savings & Loan Assn. v. Davis, 278 Ark. 387, 646 S.W.2d 336 (1983); see also case note Fidelity Federal Savings & Loan Assn. v. de la Cuesta: A Federal Regulation's Preemptive Effect on State Due On Sale Law, 36 Ark.L.Rev. 705 (1983).

United Peoples tacitly acknowledges that the 1974 mortgage is subject to our Tucker property rules unless the preemption doctrine is applied as of the date of the mortgage. United Peoples' first argument is that the Federal Home Loan Bank Board first preempted the field in 1948. See 12 C.F.R. § 545.8-3(a) and Schott v. Mission Federal Savings & Loan Assn., No. CIV-75-366 at 13-15 (CD Cal. July 30, 1975). The argument is without merit. The 1948 regulation does not expressly preempt the application of state laws governing due-on-sale clauses. It provides that due-on-sale clauses must be contained in the loan instrument along with provisions for failure to pay taxes, make assessments and repairs. The requirement that each association use a particular form of mortgage constitutes an internal operating directive to the individual federally insured associations. It is not a clear and manifest requirement for the application of the preemption doctrine. See Ray v. Atlantic Richfield Co., 435 U.S. 151, 98 S.Ct. 988, 55 L.Ed.2d 179 (1978). Likewise, the Tucker decision did not create such a conflict with the 1948 regulation that compliance with both was impossible. See Florida Lime and Avocado Growers, Inc. v. Paul, 373 U.S. 132, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963).

We find no express or implied preemption in the 1948 regulation. Similar cases finding no preemption as a result of the 1948 regulation are: Holiday Acres No. 3 v. Midwest Federal, Etc., 308 N.W.2d 471 (Minn.1981); Scappaticci v. Southwest Savings & Loan Assn., 135 Ariz. 456, 662 P.2d 131 (1983); and Orange Federal Savings & Loan Assn. v. Dykes, 433 So.2d 642 (Fla.App. 5 Dist.1983).

United Peoples alternatively argues that the board's regulation effective July 31, 1976 should be given retroactive application. Preliminary to examining the language of the regulation, we note that the Supreme Court of the United States in de la Cuesta, supra, manifested concern for property rights vested under state law and expressly did not decide the issue of retroactive application of the preemption doctrine as a result of the 1976 regulation. See Footnote 24. An examination of the regulation reveals that it contains no specific language making it retroactive and it contains no language expressing an intent to impair previously vested rights. As a general principle regulations and statutes operate prospectively only. The United States Supreme Court recently opined:

The principle that statutes operate only prospectively, while judicial decisions operate retrospectively, is familiar to every law student. Compare Sands, Sutherland's Statutory Construction § 106 with Linkletter v. Walker, 381 U.S. 618, 622-625 [85 S.Ct. 1731, 1733-1735, 14 L.Ed.2d 601] (1965). This Court has often pointed out that

the first rule of construction is that legislation must be considered as addressed to the future, not to the past.... The rule has been expressed in varying degrees of strength but always of one import, that a retrospective operation will not be given to a statute which interferes with antecedent rights ... unless such be "the unequivocal and inflexible...