Ferrell v. Pierce

• Citation: 743 F.2d 454
• Decision Date: 14 September 1984
• Docket Number: Nos. 83-2038,83-2677,s. 83-2038
• Parties: James and Joyce FERRELL, et al., Plaintiffs-Appellees, v. Samuel R. PIERCE, Secretary of Department of Housing and Urban Development, et al., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 454

743 F.2d 454

James and Joyce FERRELL, et al., Plaintiffs-Appellees, v. Samuel R. PIERCE, Secretary of Department of Housing and Urban Development, et al., Defendants-Appellants.

Nos. 83-2038, 83-2677.

United States Court of Appeals, Seventh Circuit.

Argued April 2, 1984.

Decided July 31, 1984.

As Amended Sept. 14, 1984.

Nicholas S. Zeppos, Dept. of Justice Appellate Staff, Dept. of Justice, Civil Div., Washington, D.C., for defendants-appellants.

William P. Wilen, Legal Asst. Foundation of Chicago, Chicago, Ill., for plaintiffs-appellees.

Before CUDAHY and COFFEY, Circuit Judges, and GIBSON, Senior Circuit Judge. ^*

CUDAHY, Circuit Judge.

In 1973, the plaintiffs filed a nationwide class action against the Secretary of Housing and Urban Development (the "Secretary"), alleging that the Department of Housing and Urban Development ("HUD") was required by the National Housing Act (the "Act") and other federal housing legislation to provide mortgage foreclosure relief to homeowners who had received HUD insured mortgages. In August, 1976, the class action was settled and a consent decree was entered by the district court. In 1979, in response to allegations that HUD was violating the 1976 settlement agreement, the parties entered into a new settlement agreement, the "Amended Stipulation." The Amended Stipulation was also entered as a consent decree. In 1980, Congress passed legislation which amended the Act and HUD made a motion to modify the 1979 Amended Stipulation to permit HUD, without restriction, to implement the 1980 legislation. The district court denied modification and assessed attorneys fees against HUD under the Equal Access to Justice Act. The Secretary appeals from both of these rulings. We affirm.

I. BACKGROUND

Congress has declared as a policy "the realization as soon as feasible of the goal of a decent home and a suitable living environment for every American family." 42 U.S.C. Sec. 1441. ¹ Under various provisions of the National Housing Act, HUD has the authority to offer mortgage insurance to individuals purchasing homes. The plaintiff class, made up of individuals who had purchased, or who would purchase, homes with HUD insurance, claimed that HUD was statutorily obligated to adopt a high-quality mortgage foreclosure relief program. See 12 U.S.C. Sec. 1715u (1976). ²

HUD operates several insurance programs in which it insures mortgages on property owned by low and moderate income individuals, elderly persons, handicapped persons and persons displaced by government action. 12 U.S.C. Secs. 1709, 1715z. This insurance makes it possible for people who might not otherwise be able to obtain financing to purchase housing. Apparently, in addition to mortgage insurance, the HUD programs provide various other incentives and benefits to participating mortgagees and mortgagors. Participating mortgagees must be approved by the Secretary "as responsible and able to service the mortgage properly." 12 U.S.C. Sec. 1709(b)(1). See also, 12 U.S.C. Secs. 1715l(d)(1), 1715z(i)(2).

Congress anticipated that persons requiring government assistance to acquire housing might also have difficulty keeping current in mortgage payments. These individuals are unlikely to have substantial liquid assets or large amounts of savings, and therefore even relatively minor and temporary economic problems may cause these people to default. Thus, Congress authorized HUD, in 12 U.S.C. Sec. 1715u (1976), to operate a mortgage foreclosure relief program. In essence, Sec. 1715u authorized HUD, after receiving notice of default and for the purpose of avoiding foreclosure, to pay off the mortgage debt, take an assignment of the mortgage from the mortgagee and work out a payment plan (or forebearance agreement) with the mortgagor. Because the mortgagee assigns the mortgage to HUD, this type of foreclosure relief is commonly referred to as an "assignment program."

When the plaintiffs brought suit in 1973, HUD was not actively operating any mortgage foreclosure relief program. To understand fully the sort of problems which foreclosure relief might avoid, we shall recount the allegations made by several of the named plaintiffs.

For example, James and Joyce Ferrell alleged that in 1971 they purchased a home in Chicago for $22,600. The mortgage was insured by HUD under a program designed for low to moderate income purchasers, 12 U.S.C. Sec. 1709 (1976). The Ferrells lived in the home with their four minor children. In mid-1972 Joyce Ferrell became ill and was forced to resign from her employment, where she had been earning $550 per month. Because of this drop in the family's income, the Ferrells were not able to pay their August 1972 mortgage payment of $220 until September 30, 1972. On October 13, they paid an additional amount of $220 representing the September payment. Eight days later these two payments were returned to the Ferrells as insufficient to bring the mortgage current. On November 11 the Ferrells sent $660 for August, September and October, and on November 25, they sent another $220, believing that these payments would bring the mortgage current. Meanwhile, however, Unity Savings and Loan Association, the mortgagee, had filed, on November 6th, a foreclosure action; hence, the November payments were also returned to the Ferrells. The allegations of the complaint assert that James Ferrell informed Unity Savings in August that his wife was ill but that in rejecting subsequent payments Unity Savings made no inquiry about the reasons for the late payments.

A major problem encountered by the plaintiffs, although not detailed in the Ferrells' allegations, is that in falling temporarily behind in payments--even slightly--the mortgagor may incur significant late charges and costs. For example, plaintiff William McCluster was $36 behind in his mortgage payments when he was informed by his mortgage payments when he was informed by his mortgagee's attorneys that McCluster would have to pay $621.40 in attorneys fees and costs, plus his next mortgage payment in advance, to bring his mortgage up to date. McCluster fell behind in his payments because of a two month lag between the termination of his employment and the initial receipt of his old-age social security benefits. The plaintiffs also alleged that numerous improper practices of mortgagees were causing hardship for HUD-insured mortgagors and thus frustrating the realization of the nation's housing goals.

The relief sought in the Second Amended Complaint related to two alleged failures of HUD. First, the plaintiffs sought an order requiring HUD to monitor and regulate mortgagees to prevent "premature and precipitous" foreclosures. Second, the plaintiffs requested an order requiring HUD to provide foreclosure relief. The original settlement agreement and Amended Stipulation provided for both categories of relief sought by the plaintiffs.

The original settlement and Amended Stipulation provided only for an assignment program. The original settlement, entered as a consent decree with court approval on July 29, 1976, incorporated a detailed plan for a HUD assignment program. The HUD plan had been adopted in May 1976 and applied to all home mortgages fully insured by HUD. The plan prescribed in detail the conditions under which a mortgage assignment would be accepted, when forebearance would be appropriate and the procedure for obtaining relief under the program. The 1976 settlement agreement required HUD to adopt "explicit and expeditious" time limits for processing assignment requests. HUD also agreed to inform participating mortgagees that they could not begin foreclosure until HUD had decided whether to take an assignment. Violation of this provision by a mortgagee could lead to suspension or termination of the mortgagee's participation in HUD mortgage insurance programs.

The 1976 settlement did not finally resolve the dispute between the parties because the plaintiffs believed that HUD was not processing assignment requests in accordance with the settlement. Apparently, a high percentage of assignment applications were being erroneously denied. The plaintiffs threatened to seek contempt citations against the Secretary and other HUD officials. These efforts were dropped, however, when the parties reached agreement on August 2, 1979, on the terms of the Amended Stipulation. The Amended Stipulation contained specific and significant substantive and procedural constraints on HUD's operation of the assignment program. Specifically, HUD agreed, in Paragraph 3 of the Amended Stipulation (reproduced below) that it would operate the assignment program for five years in accordance with its newly-revised handbook and that it would not, during the five year term of the Amended Stipulation, curtail the "basic rights" of participating mortgagors:

3. HUD Handbook 4191.2, attached hereto as Appendix A, shall constitute binding instructions for implementation of the assignment program subsequent to the entry of this order. The Department shall administer the assignment program substantially in accordance with the terms of said Handbook. Said Handbook is incorporated hereto [sic] by reference and supersedes HM 76-43 and HM Mortgagee Letter 76-9, which documents were contained in this Court's order of July 29, 1976, as Exhibits A and B. The provisions of the Handbook may be modified in accordance with the Department's usual procedures. However, during the term of this Amended Stipulation the Department will not make any modification which would curtail the basic rights of mortgagors under the program now in existence. The Department will give notice to plaintiffs' counsel prior to final action on any modification.

HUD also agreed in Paragraph 14 of the Amended Stipulation to continue to provide, after expiration of the Amended Stipulation's five year term, foreclosure relief in the form of the assignment program or an "equivalent substitute." Paragraph 14 provided, in full:

14....