In re Epps
| Decision Date | 13 February 1990 |
| Docket Number | Bankruptcy No. 88-14204S,Civ. A. No. 89-7713. |
| Citation | 110 BR 691 |
| Parties | In re Yvonne EPPS, Debtor. Yvonne EPPS, Plaintiff, v. LOMAS MORTGAGE USA, INC. and U.S. Department of Housing and Urban Development, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
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Geoffry Walsh, Philadelphia, Pa., for plaintiff.
Gary E. McCafferty, Philadelphia, Pa., for Lomas Mortgage USA, Inc.
Virginia R. Powel, Asst. U.S. Atty., for U.S. Dept. of Housing & Urban Development and Jack Kemp.
At issue in this adversary proceeding is the interplay of Bankruptcy Code Chapter 13 with post-assignment relief under the Department of Housing and Urban Development's (HUD's) Mortgage Assignment Program. Before the court are defendant HUD's motions to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, 12(b)(2) for lack of personal jurisdiction, and 12(b)(6) for failure to state a claim upon which relief can be granted. For the reasons stated below, the motions will be denied.
It is undisputed that on April 19, 1974, plaintiff Yvonne Epps and her husband Thomas Epps purchased a home located at 2419 North 77th Avenue, Philadelphia. Their purchase was financed with a $15,450 loan from Lomas and Nettleton Company (Lomas and Nettleton),1 in exchange for which the Eppses gave Lomas and Nettleton a note and a purchase money mortgage secured by the premises. The loan was to be repaid over twenty-five years at an interest rate of eight and one-half percent. Significantly, the Federal Housing Administration (FHA) insured the loan pursuant to the National Housing Act (NHA), 12 U.S.C. § 1701 et seq. Although plaintiff separated from her husband after its purchase, the home has continued to serve as her principal residence since 1974.
After defaulting on her mortgage payments in 1981, plaintiff requested HUD to accept an assignment of the mortgage and to act as mortgagee pursuant to 12 U.S.C. § 1715u(b)(1). HUD acceded to plaintiff's request and took the assignment from Lomas and Nettleton on December 18, 1981. When plaintiff became delinquent in payments to HUD, HUD's field office recommended foreclosure. On January 1, 1988, HUD's Office of General Counsel assigned the mortgage and note to defendant Lomas Mortgage USA, Inc. (Lomas). Lomas had a contractual duty to HUD to foreclose the mortgage. Then, on December 2, 1988, plaintiff filed a petition under Chapter 13 of the Bankruptcy Code.
Lomas filed a proof of claim in plaintiff's bankruptcy case on December 30, 1988. Specifically, Lomas claims $19,112.46 in prepetition arrears and a current principal balance of $13,698.40.
On June 21, 1989, plaintiff filed an adversary complaint in bankruptcy court against HUD, Lomas, HUD Secretary Jack Kemp, and the Chapter 13 trustee, Edward Sparkman. The defendants responded on August 1, 1989 by filing three related motions.
First, HUD contended that the adversary proceeding was an "unrelated non-core proceeding" and moved pursuant to 28 U.S.C. § 157(d) for the withdrawal of the automatic reference to the bankruptcy court. Second, HUD and Secretary Kemp moved the bankruptcy court to stay the adversary proceeding pursuant to Bankruptcy Rule 5011(c) until this court disposed of the motion to withdraw its reference. Finally, HUD filed in this court the instant motions to dismiss.
On August 8, 1989, the bankruptcy court denied defendants' motion to stay. On October 19, 1989 this court granted HUD's motion to withdraw the reference and ordered that the adversary proceeding be returned to the district court.2
In her adversary complaint and in the brief opposing HUD's motions to dismiss, plaintiff asserts that HUD entered into several forbearance agreements with her subsequent to the assignment from Lomas and Nettleton. Complaint ¶ 13. According to plaintiff, those agreements provided for suspended payments of pre-assignment arrears on interest, principal, and escrow charges in addition to partial forbearance of payments of principal and interest due under the original mortgage and note. Complaint ¶ 13.
Plaintiff also contends that at no time after HUD accepted assignment of the mortgage did the agency give plaintiff clear notice that her rights under the assignment program had terminated. Complaint ¶ 16. Neither had HUD, in the period after the forbearance agreements ended, met with plaintiff to agree upon terms for repayment of forbearance period escrow advances and accrued post-forbearance period interest and escrow advances. Complaint ¶ 17. Furthermore, after the forbearance period ended, HUD neglected to review plaintiff's financial condition to ascertain whether programs could be developed to assist plaintiff in repaying pre-assignment arrears and forborne portions of post-assignment payments. Complaint ¶ 18. Finally, HUD never considered recasting the mortgage or extending its maturity date in order to realize full payment. Complaint ¶¶ 18, 19.
Plaintiff proposes to cure mortgage arrearages through her Chapter 13 plan pursuant to 11 U.S.C. §§ 1322(b)(3) and (5) while continuing to make regular postpetition payments of principal and interest outside the plan. Complaint ¶ 21. Arguing that HUD is obligated to manage the Mortgage Assignment Program consistently with the consent decree in Ferrell v. Harris, No. 73-C-334 (N.D. Ill.1976), Complaint ¶ 25, plaintiff states that that consent decree mandates that HUD service plaintiff's mortgage consistently with 24 C.F.R. §§ 203.650-66 (1989) and the Administration of the Home Mortgage Assignment Program, HUD Handbook # 4330.2 (1979), Complaint ¶ 26, and that HUD foreclose the mortgage consistently with the Secretary-Held Servicing Handbook, HUD Handbook # 4335.2 (1986). Brief for Plaintiff at 10-11. According to plaintiff, Lomas is HUD's agent, Complaint ¶ 15, and Handbook # 4330.2 circumscribes the charges that HUD alone or through Lomas can require plaintiff to cure in her plan. Complaint ¶ 27. Consequently, plaintiff objects to Lomas's proof of claim because it unlawfully seeks the following: (a) accrued forbearance period interest on the full outstanding mortgage balance; (b) pre-assignment interest, principal, and escrow charges; and (c) post-assignment, prepetition escrow charges, including tax advances. Complaint ¶ 28.
Additionally, plaintiff contends that HUD's duties under Handbooks # 4330.2 and # 4335.2 require the agency to evaluate the prospects for reinstatement of an assignment program mortgage prior to HUD's recommending foreclosure and even after foreclosure litigation is commenced. Complaint ¶ 32, Brief for Plaintiff at 10-11. Indeed, plaintiff asserts that HUD is bound to consider the following alternatives to foreclosure: (a) development of a repayment program that would enable plaintiff to reinstate the mortgage and pay it in full by its original maturity date; and (b) calculation of a plan to pay amounts in default over a mortgage term extended ten years beyond the original maturity date should HUD determine that there is not a reasonable prospect of plaintiff fully paying the mortgage balance by the original 1999 maturity date.
Accordingly, plaintiff prays for the following relief: that Lomas's proof of claim be disallowed; that HUD and Secretary Kemp accept reassignment of the mortgage and restore plaintiff to active participation in the Mortgage Assignment Program; that HUD and Secretary Kemp develop a repayment program that will extend or recast the mortgage in a manner that will make possible plaintiff's curing of arrearages and full payment of her mortgage balance; and finally, that any proof of claim that HUD files in the bankruptcy proceeding be disallowed to the extent that it includes amounts that the HUD Handbooks do not permit.
Defendant HUD now moves, pursuant to Federal Rule of Civil Procedure 12(b)(1), to dismiss the adversary proceeding against the agency. HUD asserts not only that the doctrine of sovereign immunity shields it from suit but also that plaintiff's claims against HUD are not within this court's subject matter jurisdiction.
To buttress its invocation of the sovereign immunity bar, HUD maintains that the NHA provides no waiver of such immunity. HUD submits that, as a consequence, the only possible source of a waiver is 11 U.S.C. § 106. Section 106 provides as follows:
11 U.S.C. § 106 (emphasis added). According to HUD, it has never filed a proof of claim in plaintiff's bankruptcy proceeding. Moreover, the agency contends that it assigned all of its rights and interest in plaintiff's mortgage and note to Lomas prior to the filing of the Chapter 13 petition. Hence, HUD concludes, it has never asserted the sort of "claim" against plaintiff-debtor's estate that under §§ 106(a) and (b) constitutes a consent to suit. Furthermore, HUD argues that § 106(c) evinces no Congressional intent to abrogate the immunity of governmental units that make no claim on the debtor's estate. Therefore, because a waiver cannot be found in § 106, HUD submits that the wall of sovereign immunity bars claims against the agency in...
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