Fitzgerald v. Cleland

• Decision Date: 30 July 1980
• Docket Number: Civ. No. 76-54-B.
• Citation: 498 F. Supp. 341
• Parties: John W. FITZGERALD and Jane M. Fitzgerald, Plaintiffs, v. Max CLELAND, in his official capacity as Administrator of Veterans Affairs, and Philip Singer Day, Defendants.
• Court: U.S. District Court — District of Maine

498 F. Supp. 341

John W. FITZGERALD and Jane M. Fitzgerald, Plaintiffs, v. Max CLELAND, in his official capacity as Administrator of Veterans Affairs, and Philip Singer Day, Defendants.

Civ. No. 76-54-B.

United States District Court, D. Maine.

July 30, 1980.

Howard T. Reben, Portland, Me. (Donald F. Fontaine, Portland, Me., of counsel), for plaintiffs.

Paula D. Silsby, Asst. U.S. Atty., Portland, Me. (Thomas E. Delahanty, II, U.S. Atty., Portland, Me., of counsel), for defendant Cleland; George P. Limberis, Bangor, Me., for defendant Day.

OPINION AND ORDER OF THE COURT

TIMBERS, Circuit Judge:^*

This action arises from plaintiffs' default on a home loan guaranteed by the Veterans Administration (VA) and the subsequent foreclosure by the lender, The Bangor Savings Bank (the Bank), and the sale of the property by the VA. Plaintiffs contend (1) that the lender's foreclosure pursuant to 14 Me.Rev.Stat.Ann. § 6203(2) violated their Fourteenth Amendment right to due process; (2) that the VA's participation in the foreclosure proceeding violated their Fifth Amendment right to due process; (3) that the VA's decision without a hearing not to refund their loan after they defaulted was improper; (4) that they are entitled to the surplus realized by the VA as a result of its sale of plaintiffs' property; and (5) that the VA wrongfully removed plaintiffs' personal property from their house.

The action was tried to the Court on June 30, 1980, without a jury, and has been fully briefed and argued by counsel. After carefully considering the evidence as a whole and the arguments of counsel, the Court finds in favor of defendants in all respects and orders that judgment on the merits be entered in favor of defendants on all counts. The following opinion sets forth the Court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a).

I

The material facts are not in dispute and for the most part have been agreed to by all parties to this action.

Plaintiffs John and Jane Fitzgerald are residents of Milton, Vermont. For most of his adult life, John Fitzgerald has served in the military, primarily the Air National Guard. In 1977 he retired from the Air National Guard with the rank of Lieutenant Colonel. In order to supplement his income, he has worked part time for the United States Postal Service since 1958.

In 1971 plaintiffs owned a house and 450 acres in Milton, Vermont. The property was worth $97,000 and had outstanding mortgages of about $15,000. In the spring of 1971 plaintiffs moved to Belfast, Maine. They purchased the Belfast property for $15,000 and obtained a mortgage loan from the Bank for $13,500. Plaintiffs retained all of their Milton property except for the house and one acre which they gave to their son and daughter in exchange for their assuming the mortgage.

On October 26, 1971, plaintiffs also purchased residential property in Castine, Maine, which is the subject matter of this case. The purchase price was $45,000, of which $35,000 was financed by another mortgage loan from the Bank. Because of Mr. Fitzgerald's military service, plaintiffs were eligible for VA home loan benefits. Pursuant to the provisions of 38 U.S.C. §§ 1810-1819 and 38 C.F.R. §§ 36.4300-36.4364, the VA guaranteed the loan. Plaintiffs moved from Belfast to Castine in November of 1971 but retained their Belfast property.

Plaintiffs defaulted on their Castine mortgage payments from September through December 1973 but were able to cure the defaults in the Spring of 1974. From October through December, 1974, however, plaintiffs again defaulted on the Castine mortgage payments. By this time, plaintiffs also had defaulted on their Belfast mortgage payments.

Plaintiffs' explanation for these defaults was that their income had been reduced as a result of the Postal Service terminating Mr. Fitzgerald in 1970 because of scheduling conflicts with his military duties. From 1971 to 1972, Mr. Fitzgerald was on full time active duty with the military and was able to maintain his income. From late 1972 through 1974, however, he was on only half time duty. His income from his Postal Service job during this time would have been about $4,000 to $5,000 a year. The lack of this money, plaintiffs claim, caused them to default on their mortgage payments.¹

The Court finds, however, that another, more significant, reason for plaintiffs' default was that plaintiffs owned three different pieces of real estate. In addition to owning the houses in Belfast and Castine, plaintiffs had moved back to Milton in 1974. They reacquired the house and one acre from their son and daughter by reassuming the mortgage and by a verbal promise to pay their son and daughter $4,000. It seems clear that plaintiffs' overextension in real estate was the primary cause for the mortgage payment defaults.

On January 15, 1975, the Bank notified the VA that the mortgage on the Castine property was in default and requested immediate foreclosure because the property was vacant. By letter of January 16, 1975, the Bank informed plaintiffs of its intent to commence foreclosure proceedings against the Castine property. The following day the VA notified plaintiffs by letter of the imminent foreclosure on the Castine property. It is undisputed that plaintiffs received the last two letters.

In response to these notices, plaintiffs informed the Bank that they could not maintain the payments on both the Castine and Belfast properties. Plaintiffs stated that they would like to retain the Castine property and sell the Belfast property. They also said that they could maintain current payments on the Castine property although they could not pay the October to December 1974 payments as to which they had defaulted.² The Bank declined this offer and insisted that the defaulted payments also be paid.

Plaintiffs vigorously claim that, shortly after receiving the letters from the Bank and the VA, they also informed the VA that they could maintain current payments on the Castine property. They further claim that they told the VA (1) that Mr. Fitzgerald had been promoted in early 1975 to Lieutenant Colonel, resulting in additional annual income of $2,100; and (2) that the Castine property was for sale, with the exception of a small part which they wished to retain as their retirement home.

The VA denies that plaintiffs informed it of this information. The VA introduced a Record of Telephone Conversation dated January 20, 1975 between Mr. Fitzgerald and J. L. Donovan, a loan specialist with the VA. The Record indicates that Mr. Fitzgerald stated only that he could not maintain payments on both the Castine and Belfast properties; that "he would try and make a payment or two" on the Castine account; and that he hoped to sell one of the two properties.³ Giving due consideration to the credibility of the witnesses, the Court accepts the VA's version of the events in question as reflected in the Record of Telephone Conversation.

In early February 1975, the VA considered plaintiffs for participation in a VA refunding program. Under this program the VA, prior to the commencement of foreclosure proceedings, pays the lender the unpaid portion of the veteran's loan and the lender assigns its interest and security in the loan to the VA. 38 U.S.C. § 1816(a); 38 C.F.R. § 36.4318. The veteran then makes his monthly payments directly to the VA which, in effect, has become the lender. Theodore Hodgdon, Chief of Loan Services and Claims for the VA, testified that plaintiffs were denied participation in this program because Mr. Fitzgerald's statements over the telephone to Mr. Donovan indicated that (1) plaintiffs were unable to maintain current payments on the Castine property and (2) plaintiffs did not intend to retain that property since it was unoccupied and up for sale. The VA concedes, however, that plaintiffs were not informed that they were being considered for refunding and that no hearing was held prior to the decision to deny participation in the refunding program.

On March 24, 1975, the Bank foreclosed against the Castine property by having the Sheriff of Chittendon County, Vermont, personally serve plaintiffs with a notice of foreclosure. This procedure was pursuant to 14 Me.Rev.Stat.Ann. § 6203(2), which provides for initiation of foreclosure proceedings simply by service of notice upon the mortgagor.⁴ 14 Me.Rev.Stat.Ann. § 6204,⁵ however, provides that a mortgagor may redeem the property within one year after service of notice pursuant to § 6203(2).

The Bank then elected to assign its interest in the mortgage to the VA in accordance with the VA's guarantee of the loan pursuant to 38 U.S.C. § 1816 and 38 C.F.R. § 36.4320(b). On May 5, 1975, the VA paid the Bank $34,876.27, the total amount then due on the mortgage note, and the VA became subrogated to the Bank's rights in the foreclosure proceedings. 38 C.F.R. § 36.4323(a).

On May 23, 1975, the VA notified plaintiffs that it had acquired the mortgage on the Castine property from the Bank and that, pursuant to 14 Me.Rev.Stat.Ann. § 6204, they had one year from March 24, 1975 to redeem the property. Plaintiffs were given three options for redeeming their property: (1) pay the full amount due on the mortgage ($34,876.27); (2) sell the property and pay the amount due from the proceeds; or (3) arrange for another lender to refinance the mortgage. Plaintiffs did not exercise any of these options. On March 24, 1976, absolute title in the property vested in the VA.

On April 8, 1976, the VA requested that plaintiffs remove their personal property from the Castine premises on or before May 10, 1976. On June 1, 1976 and June 23, 1976, the VA again requested that plaintiffs remove their personal property. On June 29, 1976, the VA notified plaintiffs' attorney that it intended to remove the personal property from the Castine premises on July 6, 1976. On July 6, the personal property was moved from Castine to Bangor Van and Storage Company in...