Gatter v. Cleland

• Decision Date: 13 April 1981
• Docket Number: Civ. A. No. 79-2296.
• Court: U.S. District Court — Eastern District of Pennsylvania
• Parties: Nancy GATTER et al. v. Max CLELAND et al.

512 F. Supp. 207

Nancy GATTER et al. v. Max CLELAND et al.

Civ. A. No. 79-2296.

United States District Court, E. D. Pennsylvania.

April 13, 1981.

Bonnie P. Bazilian, Community Legal Services, Philadelphia, Pa., Mark Kaufman, Delaware County Legal Assistance Ass'n, Inc., Darby, Pa., for plaintiffs.

Antoinette R. Stone, Asst. U. S. Atty., Philadelphia, Pa., for federal defendants.

Mari M. Gursky, Philadelphia, Pa., for Fidelity Bond & Mortgage Co. and Lomas & Nettleton Co.

MEMORANDUM

CLIFFORD SCOTT GREEN, District Judge.

This class action suit filed pursuant to the Veteran's Benefit Act of 1958 (38 U.S.C. § 1801 et seq.) is before this Court on cross-motions for summary judgment. Plaintiffs, Nancy Gatter and Kenneth and Alma Marie Bernstein, are homeowners with mortgages guaranteed or insured by the Veteran's Administration (VA). Plaintiffs, on behalf of themselves and the class they represent,¹ are seeking declaratory and injunctive relief pursuant to 38 U.S.C. § 1801 et seq. the Fifth Amendment of the United States Constitution, and the Administrative Procedure Act (APA) 5 U.S.C. § 701 et seq. requiring VA implementation of a refunding program for their mortgages destined for foreclosure. Individually, plaintiffs request an order in the nature of a mandamus requiring the VA to accept assignments of their mortgage loans. For the reasons discussed hereafter, the Federal defendant's motion is granted. Under the Veteran's Home Loan Guaranty and Insurance Program, 38 U.S.C. § 1801 et seq., before suit on or foreclosure of a delinquent loan may occur, the lender must notify the VA of default, 38 U.S.C. § 1816(a) and the VA may within 30 days exercise its option to take an assignment of the mortgage to relieve the private lender of his risk of loss. If such assignment is accepted by the VA, the private mortgagee pursuant to VA Regulation 4318 (38 C.F.R. 36.4318) assigns the defaulted mortgage to the VA and the mortgagor veteran makes monthly payments to the VA based on a repayment plan.

Plaintiffs, who defaulted on their VA guaranteed loans, contend that the Federal defendants have: 1) failed to implement any mortgage refunding program for VA guaranteed mortgages 2) failed to notify plaintiffs of their right to be considered for refunding of their mortgages and 3) failed to establish criteria for refunding which, if applied, would implement Congressional intent concerning refunding. Plaintiffs further assert that they are entitled to a hearing before an adverse decision is made by the VA.

Plaintiff, Nancy Gatter and her husband William, a Marine Corp Veteran, purchased a home at 6712 Vandike Street, Philadelphia, Pa. on November 16, 1973 for $16,000. A Mortgage in this amount was obtained from the defendant, Fidelity Bond and Mortgage Co. The terms of the mortgage required the Gatters to pay $68.00 per month for 30 years. This loan from Fidelity was guaranteed by the VA because William Gatter's veteran status entitled him to this benefit under the Veterans Housing Program established by the Veteran's Benefit Act of 1958, 38 U.S.C. § 1801 et seq.

Plaintiff and her husband met their monthly mortgage obligation until October 1977 when William Gatter's financial status deteriorated rendering him unable to make further payments.

On or about December 27, 1977, Donald E. Schneider, Fidelity's servicing agent completed VA Form 26-6850 (Notice of Default) and sent it to the VA, thus giving notice of Gatter's default for the months of October, November, and December 1977.

On or about January 5, 1978, Schneider completed VA Form 26-6851 (Notice of Intent to Foreclose) and sent it to the VA, giving notice of the mortgagee's intention to foreclose.

During this time, the Gatters experienced marital difficulties that resulted in William Gatter's leaving the family residence in March 1978, and causing the mortgage account to become further delinquent.

On April 17, 1978 Fidelity filed a complaint in mortgage foreclosure against the Gatters. This suit is still pending.

Both before and after suit in mortgage foreclosure, the Gatters discussed the possibility of foreclosure with VA personnel. Plaintiff alleges that neither she or her counsel was ever informed of the existence of the refunding program, while defendants claim that refunding the Gatters' mortgage was considered. Plaintiff claims that the only assistance offered by VA personnel was the advice to secure funds to cure the mortgage default.

The facts regarding plaintiff Bernsteins' VA guaranteed loan are similar to the Gatters. The Bernsteins purchased a home in Philadelphia in September 1977 for approximately $29,000. Lomas Nettleton financed this purchase and took a VA guaranteed mortgage. Under the terms of the mortgage, Bernstein was to pay $273.00 per month for 30 years. In June 1978, Kenneth Bernstein lost his job which reduced his income from $17,000 to $7,500 per year. Subsequently, in September 1978, Bernstein developed lung cancer forcing him not to work and to depend on welfare payments of $552.00 per month. The Bernsteins asked Lomas to accept partial payments until Kenneth Bernstein was awarded his Social Security disability benefits, but the company refused to accept this repayment plan. On March 6, 1978 Lomas & Nettleton filed suit to foreclose the mortgage and this suit is still pending. The Bernsteins argue that the VA never informed them of the availability of the refunding program.

The parties have stipulated and accordingly I find that the VA has not set up a program for the assignment of mortgages pursuant to 38 U.S.C. § 1816(a).² It is also undisputed that the VA has not and does not presently intend to notify mortgagors or lendors that it has a program by which it will consider accepting assignment of mortgages that are in default. As the parties have at conference stated their positions and waived formal oral argument and since there are no material facts in dispute, this matter is now ripe for summary judgment.

The issue of whether the VA's non-implementation of a mortgage refunding program is judicially reviewable is controlled by § 10 of the Administrative Procedure Act (APA). 5 U.S.C. § 702 (1976) mandates that judicial review be available to those persons adversely affected or aggrieved by agency action. However, 5 U.S.C. § 701(a) (1976) provides two exceptions to judicial review of agency action: (1) statutes preclude judicial review (2) or where agency action is committed to agency discretion by law.

Because § 1816(a) does not specifically preclude judicial review, we must determine whether agency action regarding the non-implementation of a refunding program falls within the committed to agency discretion exception. The Supreme Court has warned that it will not "lightly interpret a statute to confer unreviewable power on an administrative agency" for the "ultimate analysis is always one of Congress' intent." Southern Ry. Co. v. Seaboard Allied Milling Corp., 442 U.S. 444, 454, 99 S.Ct. 2388, 2394, 60 L.Ed.2d 1017 (1979). Congress' intent to restrict access to judicial review must appear from "clear and convincing evidence." Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967). The committed to agency discretion exception is a narrow one and the legislative history of the APA indicates that it is applicable in those rare instances when "statutes are drawn in such broad terms that in a given case there is no law to apply." S.Rep.No.752, 79th Cong. 1st Sess., 26 (1945). Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 410, 91 S.Ct. 814, 821, 28 L.Ed.2d 136 (1970).

The Third Circuit has suggested three criteria which bear upon a determination of unreviewability:

1) The broad discretion given an agency in a particular area of operation.

2) The extent to which the challenged agency action is the product of political, economic or managerial choices that are inherently not subject to judicial review.

3) The extent to which the challenged agency action is based upon some special knowledge or expertise.

Local 2855, AFGE (AFL-CIO) v. United States, 602 F.2d 574, 578-79 (1979), See also Bramley v. Webster, 476 F.Supp. 351, 352 (E.D.Pa.1979).

Application of the foregoing principles to the relevant statute 38 U.S.C. § 1816(a) lead to the conclusion that the Administrator's option to set-up a refunding program falls within the committed to agency discretion exception of 5 U.S.C. 701(a)(2).

38 U.S.C. § 1816(a) provides:

§ 1816 Procedure on default.

(a) In the event of default in the payment of any loan guaranteed under this chapter, the holder of the obligation shall notify the Administrator who shall thereupon pay to such holder the guaranty not in excess of the pro rata portion of the amount originally guaranteed, and shall be subrogated to the rights of the holder of the obligation to the extent of the amount paid on the guaranty. Before suit or foreclosure the holder of the obligation shall notify the Administrator of the default, and within thirty days thereafter the Administrator may, at the Administrator's option, pay the holder of the obligation the unpaid balance of the obligation plus accrued interest and receive an assignment of the loan and security. Nothing in this section shall preclude any forbearance for the benefit of the veteran as may be agreed upon by the parties to the loan and approved by the Administrator. The Administrator may establish the date, not later than the date of judgment and decree of foreclosure or sale, upon which accrual of interest or charges shall cease.

(emphasis added).

With respect to the Administrator's power to grant refunding, § 1816(a) is written in the language of permission and discretion. This provision states that the "Administrator may, at the Administrator's option," receive an assignment of a loan from a defaulting veteran. Defendants contend that Congress' intent to vest complete discretion in the Administrator is not only indicated...