Ferrell v. Pierce
| Decision Date | 21 March 1986 |
| Docket Number | No. 85-2186,85-2186 |
| Citation | 785 F.2d 1372 |
| Parties | James and Joyce FERRELL, et al., Plaintiffs-Appellees, v. Samuel R. PIERCE, Jr., Secretary of the United States Department of Housing and Urban Development (HUD), et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
William P. Wilen, Legal Assistance Foundation of Chicago, Chicago, Ill., for plaintiffs-appellees.
Robert Ziner, Dept. of HUD, Office of Litigation, Washington, D.C., for defendants-appellants.
Before BAUER and WOOD, Circuit Judges, and GRANT, Senior District Judge. *
This is an appeal from a district court order holding the United States Department of Housing and Urban Development ("HUD") in contempt of court. The district court based its contempt citation upon its finding that HUD had violated the terms of a 1979 consent decree. The 1979 consent decree superseded a 1976 consent decree which settled a class action suit filed by mortgagors who potentially were eligible for a federal government mortgage assistance program. The contempt citation grew out of a dispute over how HUD should calculate a mortgagor's date of default in determining whether the mortgagor qualifies for relief under the program. For reasons detailed below, we vacate the contempt citation and remand this case.
The plaintiff class filed this nationwide class action suit against HUD in 1973, alleging that HUD had violated its duties under 12 U.S.C. Sec. 1715u (1976) and other housing statutes to provide relief to homeowners with HUD-insured mortgages who faced foreclosure because of their defaults. The plaintiff class consists of members who applied for HUD's mortgage assignment program and were rejected by HUD. In 1976, the parties agreed to a consent decree settling the case. In November of 1979, the district court approved an amended decree which superseded the 1976 consent decree.
The 1979 amended decree incorporated HUD Handbook 4191.2 (now numbered 4330.2) as "binding instructions" for implementing the amended decree. Under the terms of paragraph 3 of the amended decree, HUD is required to administer the amended decree substantially in accordance with the terms of the Handbook, is prohibited from making any modifications during the term of the agreement which would curtail the basic rights of mortgagors under the program then in existence, and is required to give notice to plaintiffs' counsel prior to final action on any modification. Paragraph 14 of the amended decree sets out the duration of the obligations:
Except as provided in this paragraph, the rights and obligations created by the Amended Stipulation shall terminate five years from date of execution [August 2, 1979 to August 2, 1984]. The termination of the Department's specific obligations under this Amended Stipulation shall not diminish or compromise the Department's obligation construed under the National Housing Act as amended, and Section 2 of the Housing Act of 1949 and Section 2 of the Housing and Urban Development Act of 1968 to provide foreclosure avoidance relief for mortgagors in temporary financial distress, and the Department shall provide assistance or relief in the form of the present assignment program or an equivalent substitute to permit mortgagors in default on their mortgages to avoid foreclosure and to retain their homes during periods of temporary financial distress.
In 1980, Congress enacted the Housing and Community Development Act of 1980, Pub.L. No. 96-399, 94 Stat. 1614 (1980), which authorized HUD to establish a Temporary Mortgage Assistance Program ("TMAP"), a less costly method of providing mortgage foreclosure assistance to homeowners of HUD-insured mortgages. In 1982, HUD promulgated regulations to implement TMAP.
HUD moved for the district court to modify the 1979 amended decree to specify that the TMAP regulations were not subject to the decree. Plaintiffs, contending that HUD failed to live up to the 1979 decree, moved to hold HUD in contempt. On April 7, 1983, the district court denied both motions. Ferrell v. Pierce, 560 F.Supp. 1344 (N.D.Ill.1983), aff'd, 743 F.2d 454 (7th Cir.1984) (Coffey, J., dissenting). The court did hold that the TMAP regulations were subject to the decree and violated the decree. The court enjoined HUD from implementing the regulations. 560 F.Supp. at 1372.
One issue that arose during the 1983 proceedings was the proper method of calculating a mortgagor's date of default. The district court adopted the plaintiffs' view, which made some mortgagors eligible for the assistance program under circumstances where the HUD and TMAP rules would preclude assistance. On July 11, 1983, the district court issued a clarifying opinion which again adhered to the plaintiffs' view of determining the date of default.
On April 5, 1984, the district court ordered HUD to reprocess, using the court's rule to calculate the date of default, all mortgagor requests to participate in the assignment program which were either pending on July 11, 1983, or had been reopened after that date. HUD did not appeal this order and has used the district court's rule to process all applications for the mortgage assignment program since July 11, 1983.
On June 27, 1984, after the time for HUD to appeal the district court's order had expired, plaintiffs filed a petition for contempt against HUD and three past or present HUD officials which led to this appeal. The plaintiffs contended that HUD was in contempt of the 1979 consent decree in using a different date of default rule (than the district court's 1983 construction) between January 1, 1980, and the district court's July 11, 1983 decision. On March 2, 1985, the district court issued a lengthy opinion holding HUD in civil contempt. The court ordered HUD to reprocess de novo all applications HUD had rejected in whole or in part because of HUD's rule since January 1, 1980, and to offer mortgagors entitled to relief their former property or a comparable one on terms at least as favorable as their prior mortgages. If HUD could not do either, the court ordered HUD to pay compensatory money damages.
On April 8, 1985, HUD moved pursuant to Fed.R.Civ.P. 59, asking the district court to vacate the contempt order, grant a new trial, and enter judgment denying the contempt citation. HUD raised two arguments: (1) HUD had been surprised by the district court's resolution of the contempt issue on a factual finding which HUD did not have an opportunity to litigate, and (2) the factual finding was clearly erroneous. On May 14, 1985, the district court denied HUD's Rule 59 motion. On June 28, 1985, the district court entered an extensive remedial order which specified time limits and methods of notice HUD must use to contact formerly HUD-insured mortgagors who fell within the ambit of the district court's March 2, 1985 order.
This contempt citation evolved from a controversy over how HUD figured a mortgagor's date of default. Section 1715u authorizes HUD to acquire mortgages in default by paying the mortgagees the unpaid balance of the loan and receiving an assignment of the loan. HUD would then arrange a new payment plan with the mortgagor on more favorable terms, such as lower monthly payments or a suspension of payments for up to thirty-six months until the mortgagor was financially able to resume full payments. To be eligible for this program, the mortgagor had to meet certain criteria, one of which was that "[t]he default must have been caused by a circumstance or set of circumstances beyond the mortgagor's control which temporarily renders the family financially unable to cure the delinquency within a reasonable time or make full mortgage payments." HUD Notice 76-43 at p 3(e) ().
The HUD Notice gave examples of circumstances that satisfied this criterion, but neither HUD Notice 76-43 nor Mortgagee Letter 76-9 (also incorporated into the 1976 consent decree) clearly specified how HUD should calculate when the necessary circumstances and the default itself had occurred. In the not uncommon situation where a mortgagor defaults more than once (i.e., fails to make a full mortgage payment within thirty days of the due date more than once), the documents incorporated into the 1976 consent decree, and the subsequent 1979 amended decree, did not clearly specify which date HUD should use as the date of default.
The following hypothetical illustrates how the dispute over the proper date of default may arise. Prior to January 1, 1980, mortgagor M is current. Beginning on January 1, 1980, M is more than thirty days late on all payments for the next three years, making only twenty-four of the thirty-six payments. On July 1, 1981, M loses his job (a circumstance qualifying him for the mortgage assistance program). If January 31, 1980, is M 's date of default, he is not eligible for the assistance program, because the default occurred prior to his job loss. If, however, M can "advance" his date of default by counting his twenty-four late payments, his date of default becomes January 31, 1982, which comes after his July 1, 1981 job loss, and M is eligible for the assignment program.
HUD, prior to the district court's 1983 decision, had determined the date of default at thirty days following the first missed payment after the account had been current for at least two months. In our example, using its "two-month rule," HUD would look at M 's circumstances occurring prior to January 31, 1980.
The district court, however, rejected HUD's rule and accepted the plaintiffs' argument that HUD should use an advancement rule, i.e., advance the date of default by giving the mortgagor full credit for all late payments. In our example, under the "advancement rule," HUD would look at M 's circumstances occurring prior to January 31, 1982. Therefore, under the advancement rule...
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