Johnson v. Dept. of Housing and Urban Development

• Decision Date: 31 October 1989
• Docket Number: No. 88-2293 C (5).,88-2293 C (5).
• Citation: 724 F. Supp. 1257
• Parties: Karen JOHNSON, et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD), et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

724 F. Supp. 1257

Karen JOHNSON, et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD), et al., Defendants.

No. 88-2293 C (5).

United States District Court, E.D. Missouri, E.D.

October 31, 1989.

Ann B. Lever, Kayla Vaughan, and Susan Alverson, Roger J. Bertling, Legal Services of Eastern Missouri, Inc., St. Louis, Mo., for plaintiffs.

William Travis, St. Louis, Mo., for Southern Commercial Bank.

Joseph B. Moore, Asst. U.S. Atty., St. Louis, Mo., for HUD and Samuel Pierce.

Donald F. Flint, Chief Counsel, Dept. of HUD, St. Louis, Mo., for HUD.

Thomas M. Newmark and Thomas P. Hohenstein, Gallop, Johnson and Newman, St. Louis, Mo., for Hillvale Associates, Medve-Wald Partnership and Rodan Management, Inc.

Margaret Plank, Federal Programs Branch, Dept. of Justice, Washington, D.C., for Federal defendants.

MEMORANDUM

LIMBAUGH, District Judge.

A. Introduction.

This cause arises out of an agreement in April, 1988 between defendants Hillvale Associates and Southern Commercial Bank, mortgagor and mortgagee, respectively, of the Hillvale Apartments project in the City of St. Louis (the private defendants), to terminate federal mortgage insurance for the project. Plaintiffs, three tenants of Hillvale Apartments, assert that the private defendants' agreement to terminate federal insurance and the United States Department of Housing and Urban Development's (HUD's) acceptance of the termination of insurance, and its resultant termination of regulatory control over the Hillvale Apartments, violated the mortgage insurance contract, the National Housing Act (NHA), the Emergency Low Income Housing Preservation Act of 1987 (the Preservation Act), and regulations promulgated thereunder.

Plaintiffs seek a declaration that HUD violated the Administrative Procedure Act, 5 U.S.C. § 706(2)(A),(C) and (D) by: (1) approving the termination of insurance without requiring private defendants to comply with the requirements of the 1983 amendments to the NHA provisions governing the prepayment of federal mortgage insurance, 12 U.S.C. § 1715z-15; (2) approving the termination of insurance without requiring private defendants to obtain the written consent of the Secretary for prepayment as required by HUD regulations governing prepayment of federally insured mortgages, 24 C.F.R. § 221.524(a), and by the federal insurance contract; (3) approving the termination of insurance without requiring the private defendants to comply with the requirements of the Preservation Act; (4) approving the termination of insurance without providing the tenants of Hillvale Apartments an opportunity to be heard in accordance with NHA provisions governing prepayment of federally insured mortgages, 12 U.S.C. § 1715z-15; and (5) refusing to void the termination of insurance. Plaintiffs also seek a declaration that the private defendants violated the 1983 amendments to the NHA provisions, 12 U.S.C. § 1715z-15, and 24 C.F.R. § 221.524(a), as well as the Preservation Act. Plaintiffs also seek relief alleging that both HUD and the private defendants violated plaintiffs' due process rights by terminating the low-income affordability restrictions without providing plaintiffs notice and an opportunity to be heard. Finally, plaintiffs contend that the private defendants breached a federal contract by terminating the mortgage insurance, which led to the termination of the low-income affordability restrictions.

B. Summary Judgment Standards.

This matter is now before the Court on both federal and private defendants and plaintiffs' cross-motions for summary judgment. Courts have repeatedly recognized that summary judgment is a harsh remedy which the courts should only grant when the moving party has established his right to judgment with such clarity as not to give rise to controversy. New England Mutual Life Ins. Co. v. Null, 554 F.2d 896, 901 (8th Cir.1977). Even though courts do emphasize that summary judgment is an extreme measure, they recognize its beneficial purpose of avoiding useless, expensive and time-consuming trials when there really is nothing for the trier of fact to determine. Lyons v. Board of Education of Charleston, 523 F.2d 340, 347 (8th Cir.1975).

The standards for determining whether to grant summary judgment are well settled. Pursuant to federal Rule 56(c), a district court may grant a motion for summary judgment if all the information before the Court shows that "there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Poller v. Columbia Broadcasting System, 368 U.S. 464, 467, 82 S.Ct. 486, 488, 7 L.Ed.2d 458 (1962). The fact that both sides may move for summary judgment does not automatically establish that there are no genuine issues of material fact; nor does it establish that either party is entitled to such a judgment. It is left to the Court to reach such a determination based on the information before it. United States v. Porter, 581 F.2d 698, 703 (8th Cir.1978). Upon review of the pleadings, the Court finds that there are no genuine issues of material fact. Thus, one of the parties is entitled to judgment as a matter of law.

C. Statement of the Facts.

The Court finds the following facts: Plaintiffs Karen Johnson, Dorothy Pearson and Yvonne Edmond are tenants at the Hillvale Apartments, located at 5830 Selbert Court in the City of St. Louis, Missouri. The Hillvale Apartments are owned by defendant Hillvale Associates and managed by Rodan Management, Inc.

In 1967 the original owners of the Hillvale Apartments executed a deed of trust on the property to secure a promissory note held by First National Bank in St. Louis. The note carried FHA insurance, and was payable at the rate of six percent per year until final endorsement by HUD and thereafter through maturity at three percent per year. The maturity date was December 1, 2008. As a condition to obtaining federal mortgage insurance on the note, the original owners of the complex entered into a regulatory agreement with the predecessor of what is now HUD. On September 30, 1968, after final endorsement of the note and deed of trust by FHA, First National Bank in St. Louis assigned the note to the Government National Mortgage Association (GNMA). In 1984 GNMA auctioned the Note to Mid America Bank and Trust, which then became the mortgagee with the mortgage insurance in place.

Hillvale Associates purchased the apartment complex in 1985. In June 1986, Mid-America assigned the original deed of trust and note to Southern Commercial. On April 28, 1988 Hillvale Associates and Southern Commercial Bank submitted a joint request to HUD for voluntary termination of the federal insurance on the note, accompanied by the original loan document for cancellation of the insurance endorsement. On July 20, 1988 HUD sent an acknowledgement of termination of the mortgage insurance to Southern Commercial Bank. Both the request for termination and the termination itself took place after the effective date of the Preservation Act on February 5, 1988. Hillvale did not prepay the mortgage, but simply released the federal mortgage insurance. There is no suggestion on the part of any party, nor does the Court find any indication in the pleadings, that the agreement between the mortgagor and mortgagee to terminate the federal mortgage insurance was in anyway fraudulently induced or motivated.

The tenants received no notice from either the owner or HUD concerning any of these transactions until October 24, 1988. On that date defendant Rodan Managements, Inc., sent them a letter stating that Hillvale was no longer a HUD subsidized project under the § 221(d)(3) Below Mortgage Interest Rate (BMIR) program and that rents for current tenants would increase to $325.00 for two-bedroom units and $350.00 for three-bedroom units, effective December 1, 1988. The federal defendants refused to void these transactions as contrary to federal law. Thus, plaintiffs brought this action seeking relief.

D. Statutory and Regulatory Framework.

Congress enacted the National Housing Act of 1937 "to remedy ... the acute shortage of decent, safe, and sanitary dwellings for families of low income." National Housing Act, Ch. 896 § 1, 50 Stat. 888 (1937). This Act established a Federal Housing Authority, which is now the Department of Housing and Urban Development, to oversee the disbursement of funds and loans for the development of low-rent housing and slum clearance projects.

By the 1960s Congress determined that a housing gap existed. Millions of middle-income families were unable to finance the purchase of homes but were not so poor as to be entitled to public housing. To develop housing for these families, Congress passed the National Housing Act of 1961. Orrego v. HUD, 701 F.Supp. 1384 (C) (N.D. Ill.1988).

The 1961 Act provided for a below mortgage interest rate program (BMIR). See, 12 U.S.C. § 1715l. The § 221(d)(3) program encourages private development of housing for moderate and low income individuals by insuring low interest mortgages for owners who construct and maintain multifamily dwellings. After the construction of the project is completed, the project deed of trust or mortgage is purchased by GNMA. When GNMA becomes the assignee, the mortgage bears an effective below market interest rate of approximately 3%.

In addition to having the benefit of a 3% mortgage, owners receive further direct and indirect financial benefits from participation in the § 221(d)(3) program. Their mortgages are insured against default by HUD; they may obtain a 90% mortgage with a comparatively small amount of initial equity capital; and owners may obtain various tax deductions and offsets.

As a condition of receiving the benefits of such insured mortgages, project owners are regulated by the Secretary of HUD under a "Regulatory Agreement" that places limitations on their activities in the subsidized project with respect to "rents, changes and methods...