Johnson v. U.S. Dept. of Agriculture
Decision Date | 18 June 1984 |
Docket Number | No. 83-7059,83-7059 |
Citation | 734 F.2d 774 |
Parties | Gabriel JOHNSON, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. UNITED STATES DEPARTMENT OF AGRICULTURE, et al., Defendants-Appellees. |
Court | U.S. Court of Appeals — Eleventh Circuit |
Allen J. Barkin, Legal Services Corp. of Ala., Joseph E. Carr, IV, Bay Minette, Ala., for plaintiffs-appellants.
E.T. Rolison, Jr., Thomas H. Figures, Asst. U.S. Atty., Mobile, Ala., Fred W. Harris, Jr., Regional Atty., U.S. Dept. of Agriculture, Atlanta, Ga., for defendants-appellees.
Appeal from the United States District Court for the Southern District of Alabama.
Before RONEY, FAY and CLARK, Circuit Judges.
This lawsuit is a class action by approximately 48,000 residents of Alabama who borrowed money from the Farmers Home Administration (FmHA) under the Rural Housing loan program of Section 502, Title V of the Housing Act of 1949, 42 U.S.C. Sec. 1472 (1980) (the Act). Appellant, Gabriel Johnson, represents a class of mortgagors who seek to set aside the FmHA's foreclosure of their homes. Earnestine Marshall intervened to represent a class of borrowers who are threatened with foreclosure. FmHA foreclosures in Alabama are processed non-judicially. This is permissible under Alabama state law and is authorized in the mortgage contracts by a "power of sale." The class challenges this non-judicial foreclosure method on due process and equal protection bases. The United States District Court for the Southern District of Alabama denied appellants' motion for a preliminary injunction to prevent non-judicial foreclosure. We reverse.
The appellants ask us to decide whether the district court abused its discretion in denying the motion for preliminary injunction. The issues as framed by the appellants are:
1. Whether the District Court erred in finding that Appellants are not likely to succeed on the merits of the case.
foreclosure meets minimal standards of due process.
2. Whether the District Court erred in finding that issuing the preliminary injunction would disserve the public interest.
3. Whether the District Court erred in finding that Appellants failed to show that losing their homes, if the injunction were not granted, would outweigh the loss to Appellees if the injunction were granted.
4. Whether the District Court erred in finding that Appellants have not proved that losing their homes will be irreparable injury if the injunction is denied, in that the government can respond in damages and that subsequent owners can be ejected because of the filing of lis pendens notices.
The instant case is one of three pending before this panel that challenge the FmHA lending procedure. This case is the only one which deals specifically with Section 502 loan procedures. The other two cases involve 7 U.S.C. Sec. 1981(a) (1980) under which the Secretary is authorized to grant loan deferrals for loans made under the Consolidated Farm and Rural Development Act (CFRDA). Rowell v. Secretary of Agriculture, No. 83-7147; Curry v. Block, No. 82-8544. Though some issues may seem similar, this Housing Act case is very distinct in that a whole regulatory scheme has been developed to administer the Housing Act which is not yet in place for the CFRDA. These three cases are among many decided and pending that address the FmHA lending programs. Rowell is an Alabama case and Curry is from Georgia. In Curry, Judge Alaimo ordered the FmHA to promulgate regulations for CFRDA similar to those issued for the Housing Act. This case tests the implementation and constitutionality of the Housing Act regulations. The Housing Act procedures utilized in Georgia were reviewed in Williams v. Butz, No. CV-176-173 (S.D.Ga. Oct. 1979). In 1977, the FmHA entered a settlement in the Williams case by which it agreed henceforth to employ only judicial foreclosures in Georgia, notwithstanding that Georgia law allowed the use of non-judicial foreclosures.
Before going into the specific facts of the named plaintiffs, it is helpful to discuss the program under which these mortgages were made. The FmHA, a division of the Department of Agriculture, is authorized to make home loans to low-income rural families. The purpose of the Act is to provide decent housing to low-income families who otherwise lack the financial means to buy a home. 42 U.S.C. Sec. 1441. To qualify for a Section 502 loan the borrower must have been refused credit by a private financial institution, id., and must have an income of less than approximately $15,000 in Alabama. 42 U.S.C. Sec. 1471(b)(3); 7 C.F.R. Sec. 1944 Ex. C, Subpt. A (1983). 1 For this purpose, "income" is any income planned to be received in the coming year by the applicant or a member of his household. 7 C.F.R. Sec. 1944.2(c). Pensions, social security, welfare, unemployment benefits, and child support payments are included in the income calculation. Id. at Sec. 1944.8(c)(2)(iv)(8)(v). The Section 502 program authorizes direct loans, not grants, therefore the applicant must demonstrate repayment ability under the regulatory standards. Id. at Sec. 1944.8(2).
If an applicant qualifies, a loan will be made if sufficient funds are available. 2 The loan may be in an amount equal to the entire purchase price of the home, 7 C.F.R. Sec. 1944.17(a), and may be for a term up to thirty-three years. Id. Sec. 1944.25(c). The interest rate on the loan is based on the cost of funds to the government. 42 U.S.C. Sec. 1490a(a)(1)(A); 7 C.F.R. Sec. 1944.25. A home purchased or constructed with a Section 502 loan must conform to the regulatory specifications and will generally be a very modest home. 7 C.F.R. Sec. 1944.11-16. This complies with the legislative purpose in the Housing Act to develop efficient and economical construction methods while alleviating the inadequate housing problem. S.Rep. No. 84, 81st Cong., 1st Sess., reprinted in 1949 U.S.Code Cong. & Ad.News 1550, 1551.
The mortgage note is standardized. 7 C.F.R. Sec. 1807; see id. Sec. 1944.33(c). All borrowers agree to many of the usual covenants in a commercial mortgage. By signing the note, the mortgagors agree to non-judicial foreclosure in a provision commonly known as a "power of sale." Although Alabama law authorizes the use of non-judicial foreclosure, whether or not a power of sale clause is contained in the note, Ala.Code Sec. 35-10-3 (1982), in this case the FmHA relies on Alabama Code Section 35-10-1 which permits non-judicial foreclosure when a power of sale is included in the note. The FmHA uses non-judicial foreclosure in approximately twenty states; in all other states, according to state law, mortgages must be foreclosed in a judicial proceeding. The manner of foreclosure is the crux of appellants' equal protection claim.
After a loan is made, an extensive regulatory scheme prescribes the manner, type and frequency of loan servicing. 7 C.F.R. Sec. 1951. The regulations are designed to help borrowers meet their notes and to assure accurate administration of the loans. Two provisions, "interest credit" and "moratorium" relief are designed to help a low-income borrower through a fixed period of time during which he is unable to meet the mortgage obligation. The interest credit subsidy reduces the interest rate paid on the mortgage in a proportion to the borrower's income. 7 C.F.R. Sec. 1944.34. Interest credit agreements may be entered into at the loan closing or at some later date in response to changes in the borrower's income. An interest credit subsidy has the immediate effect of reducing the amount of each monthly payment and thus perhaps, allowing the homeowner to keep his property. Administration of the interest credit subsidies is charged to the Secretary of Agriculture ("Secretary") who "may" provide this relief. 42 U.S.C. Sec. 1490a(a)(1)(B). Most of the appellants were given interest credits.
The Act also authorizes moratoria. 42 U.S.C. Sec. 1475. The statute contemplates that the Secretary promulgate regulations that provide for a complete suspension of interest and principal payments during a period when the borrower is unable to make payments "without unduly impairing his standard of living" and "due to circumstances beyond his control." Id. In cases of extreme hardship, the Secretary is also authorized to cancel interest that accrues during the moratorium period. Id. The moratorium is just one of many work-out plans, e.g., interest credit, reamortization, and repayment agreements, that are prescribed to help a borrower through a financially difficult time. See 7 C.F.R. Sec. 1951 Subpt. G. The moratorium "shall" be granted if a qualifying borrower applies. Id. Sec. 1951.313. Prior to December 9, 1981 the Secretary had promulgated 7 C.F.R. Sec. 1951.17(2)(i) (1977) which additionally required that the borrower had had a good credit history prior to experiencing the hardship. This regulation was amended on December 9, 1981 to include only the two statutory prerequisites for eligibility. 7 C.F.R. Sec. 1951.313 (1983). All of the loans of the representative plaintiffs had been accelerated before the 1981 amendment. 3
The FmHA county supervisor is responsible for servicing all Section 502 loans which includes the interest credit and moratorium provisions. Id. Sec. 1951.307. Each step of the loan process is governed by regulation as detailed as a list of points to discuss in the initial application interview. Most communication, i.e., payments, late notices, acceleration notices, is done through...
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