Carter v. Derwinski, Civ. No. 88-1426.
| Decision Date | 28 February 1991 |
| Docket Number | Civ. No. 88-1426. |
| Citation | 758 F. Supp. 603 |
| Parties | Dale L. CARTER, David A. Johnson, Fred Emery, and James R. Straw on behalf of all in the State of Idaho similarly situated, Plaintiffs, v. Edward DERWINSKI, or his successor, Secretary of the Department of Veterans Affairs, Defendant. |
| Court | U.S. District Court — District of Idaho |
M. Michael Sasser, Hamlin & Sasser, P.A., Boise, Idaho, Margaretta Eakin, Margaretta Eakin, P.C., Portland, Or., David A. Leen, Leen & Moore, Seattle, Wash., for plaintiffs.
Maurice O. Ellsworth, U.S. Atty., D. Marc Haws, Asst. U.S. Atty., Boise, Idaho, Stuart M. Gerson, Asst. Atty. Gen., J. Christopher Kohn, Robert M. Hollis, Ruth A. Harvey, Dept. of Justice, Washington, D.C., for defendant.
Plaintiffs Dale Carter, David Johnson, Fred Emery, and James Straw1 (hereinafter collectively referred to as "veterans") bought homes in Idaho through the Veterans Administration (VA) loan guaranty program. The veterans defaulted on their VA guaranteed loans which were secured by trust deeds. Upon default, the private lenders foreclosed. Apparently, the mortgaged properties were sold for less than the outstanding balances on the loans and deficiencies were left. Pursuant to its guarantee with the mortgagees, the VA reimbursed the lenders for such deficiencies and then turned to the defaulting veterans to recover the amounts paid on the deficiencies.
On December 30, 1988, plaintiffs filed their original complaint herein pursuant to Idaho Code § 45-15122, requesting this court to enjoin the VA from collecting deficiencies and to compel the VA to return funds previously collected or withheld from themselves and/or other veterans. In simple terms, the veterans maintain that the VA should be precluded from collecting deficiencies wherever it failed to reduce its claim to a judgment within three months of a foreclosure sale as required under the Idaho Code.
The veterans originally named the Administrator of the VA, the United States of America, and the Veterans Administration as defendants. However, at a hearing on all pending motions conducted by this court on February 5, 1991, plaintiffs' counsel conceded that only Edward J. Derwinski, or his successor, as Secretary of the Department of Veterans Affairs should be named as a defendant in this action. Accordingly, finding that the "United States of America" and "the Veterans Administration" should be dismissed as parties to this action, this court granted defendants' motion to dismiss.3
The VA's Answer asserts, inter alia, the following affirmative defenses: (1) that the federal statute of limitations, 28 U.S.C. § 2415(a), applies to this action; (2) that Idaho Code § 45-1512 does not apply to an action based on the VA's right to indemnity; (3) even if Section 45-1512 did apply, plaintiffs' use of that statute in this action is improper because the statute should only be used as an affirmative defense and should not be used to preclude the VA from collecting the deficiencies through administrative channels; and (4) some of the debts of veterans may already have been reduced to final judgment in the United States District Court, and relief on those claims is barred by the doctrine of res judicata.
Following the hearing held on February 5, 1991, this court took the parties' cross-motions for summary judgment under advisement. Now, having fully considered the memoranda, affidavits and exhibits in the record, along with the oral arguments of counsel, those motions shall be ruled upon.
A. Cross-Motions for Summary Judgment
The government filed a motion for summary judgment which requests this court to find that Idaho Code § 45-1512 does not bar the VA from collecting deficiencies because the six-year federal statute of limitations, 28 U.S.C. § 2415(a), applies; moreover, the VA has an independent right to indemnity which should not be affected by the Idaho statute. The VA also argues that Idaho Code § 45-1512 cannot serve as a basis for plaintiffs' claims in this action, because that section can only serve as an affirmative defense if the government were to bring actions against the plaintiffs and does not prohibit the government from collecting debts administratively.
Plaintiffs seek a declaration that federal law incorporates Idaho Code § 45-1512, which governs the assertion of deficiency judgments, and that, whether as subrogee to the rights of the guaranteed note holders or pursuant to an "indemnity" claim, the VA's collection activities are illegal. Plaintiffs seek, inter alia, to enjoin the VA from all collection activities related to the collection of such deficiencies and to require the VA to return all funds collected in violation of Section 45-1512.
The Department of Veteran Affairs provides housing assistance to veterans by guaranteeing home loans made to veterans by private lenders. See generally 38 U.S. C.A. §§ 1801-33 (West 1979 & Supp.1989); 38 C.F.R. Part 36 (1989). A brief summary of the procedures is helpful in considering the issues before the court.
If a veteran defaults on a loan, the lender must give the VA 30 days' notice before foreclosing. 38 C.F.R. § 36.4317. The VA then has 15 days in which to give the lender instructions related to such proceedings. 38 C.F.R. § 36.4324(f). Apparently, however, the VA does not participate in the actual foreclosure proceeding, unless the lender is not reasonably diligent. 38 C.F.R. § 36.4319(f).
Once a foreclosure sale has taken place, the VA must reimburse the lender for certain remaining losses. 38 C.F.R. § 36.4321. According to federal regulations, the VA may then recover from the veteran the amount the VA paid to the lender. 38 C.F.R. § 36.4323(a), (e) (); VA Form 26-1820; VA Form 26-1802a. Significantly, however, rather than establishing a federal foreclosure proceeding, the relevant federal statutes and regulations contemplate foreclosure under state or local law. See e.g., Whitehead v. Derwinski, 904 F.2d 1362, 1364 (9th Cir.1990) (citing 38 U.S. C.A. §§ 1820(a)(6), 1832; 38 C.F.R. §§ 36.4319, 36.4320).
In a recent decision, the Ninth Circuit Court of Appeals acknowledged that "federal law governs the guaranty agreement between the veteran and the VA." Id. at 1364 (citing VA Form 26-1820, VA Form 26-1802a). However, in affirming the district court, the Ninth Circuit went on to explain the following:
The remedy provided by the federal statute is subrogation, which allows the VA to pursue whatever rights a lender has, including proceeding personally against debtors to collect deficiencies remaining after foreclosure. 38 U.S.C.A. § 1832. To protect the VA's right to proceed personally against the debtor when state antideficiency laws bar collection through subrogation, the federal regulations provide for an additional right of indemnity. 38 C.F.R. § 4323(e). When the VA is unable to exercise its primary right to subrogation, the right to indemnity granted by the regulations comes into play.
Whitehead v. Derwinski, 904 F.2d at 1371.
The VA would certainly like this court to conclude that since it's too late for the VA to proceed under Section 45-1512 via its right to subrogation, its right to indemnity should come into play. However, in Idaho, as in the State of Washington, had the VA proceeded in accordance with Idaho Code § 45-1512, or had the VA instructed the lenders involved how to proceed under Section 45-1512, the VA could have fully protected itself from this situation.
The VA argues that the VA loan guaranty program is national in scope and provides uniform procedures, including uniform guaranty agreements. However, as discussed in Whitehead, the VA regulations themselves contemplate application of state law to foreclosure procedures. Whitehead v. Derwinski, 904 F.2d at 1371 (citing 38 C.F.R. §§ 36.4315(b)(2), 36.4319, 36.4320, 36.4323(c); United States v. MacKenzie, 510 F.2d 39, 43 (9th Cir.1975); Cf. United States v. Kimbell Foods, Inc., 440 U.S. 715, 730-31, 99 S.Ct. 1448, 1459-60, 59 L.Ed.2d 711 (1979)). Indeed, as the Ninth Circuit affirmed the finding that the VA's rights against veterans could not exceed the lender's rights under the Washington foreclosure statutes, the Court of Appeals expressly concluded that: "Because federal law does not provide a federal foreclosure procedure, but rather relies upon foreclosure procedures under various state statutes, it appears that Congress saw no need for `a nationally uniform body of law.'" Whitehead v. Derwinski, 904 F.2d at 1371 (citing United States v. Kimbell Foods, Inc., 440 U.S. at 728, 99 S.Ct. at 1458). As in Whitehead, adopting Idaho statute § 45-1512 as the federal rule of decision in this district would not frustrate specific objectives of the VA loan guaranty program.
"Non-judicial foreclosure obviously provides significant advantages to a creditor seeking to liquidate security for a defaulted loan; these advantages have been conferred by the legislature in return for the creditors' relinquishment of the right to obtain a deficiency judgment." Whitehead v. Derwinski, 904 F.2d at 1372, (quoting United States v. Vallejo, 660 F.Supp. 535, 538 (W.D.Wash.1987). Maintaining that Section 45-1512 was enacted to protect debtors like themselves, the veterans contend that to allow the VA to permit lenders to foreclose nonjudicially under Idaho law, and then use the federal right to indemnity to collect the deficiencies anyway, would go against the holding in Whitehead.4
Moreover, the Whitehead opinion is entirely consistent with recent Congressional...
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Carter v. Derwinski
...for summary judgment, the district court held that the VA had forfeited its right to recover from the veterans. See Carter v. Derwinski, 758 F.Supp. 603 (D.Idaho 1991). Relying on our decision in Whitehead v. Derwinski, 904 F.2d 1362 (9th Cir.1990), the court held that the VA's primary righ......