Schroeder v. U.S.

• Citation: 569 F.3d 956
• Decision Date: 22 June 2009
• Docket Number: No. 07-36073.,07-36073.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Parties: Alberta E. SCHROEDER, Plaintiff-Appellant, v. UNITED STATES of America, acting through the Farmers Home Administration, United States Department of Agriculture; its successor in interest, The Rural Housing Service of the United States Department of Agriculture; and State Director for the Farmers Home Administration for the State of Oregon its successor State Director for Oregon of the Rural Housing Service of the United States Department of Agriculture, Defendants-Appellees.

569 F.3d 956

Alberta E. SCHROEDER, Plaintiff-Appellant, v. UNITED STATES of America, acting through the Farmers Home Administration, United States Department of Agriculture; its successor in interest, The Rural Housing Service of the United States Department of Agriculture; and State Director for the Farmers Home Administration for the State of Oregon its successor State Director for Oregon of the Rural Housing Service of the United States Department of Agriculture, Defendants-Appellees.

No. 07-36073.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 5, 2009.

Filed June 22, 2009.

William F. Schroeder, Vale, OR, for the plaintiff-appellant.

Suzanne A. Bratis and Kelly A. Zusman, Assistant United States Attorneys, United States Attorney's Office for the District of Oregon, Portland, OR, for the defendant-appellee.

Gideon Anders, National Housing Law Project, Oakland, CA, and Ed Johnson, Oregon Law Center, Portland, OR, for the amici curiae.

Appeal from the United States District Court for the District of Oregon, Anna J. Brown, District Judge, Presiding.

Before: SUSAN P. GRABER, RAYMOND C. FISHER, and MILAN D. SMITH, JR., Circuit Judges.

MILAN D. SMITH, JR., Circuit Judge:

Plaintiff-Appellant Alberta Schroeder appeals a grant of summary judgment for the United States in her suit seeking to quiet title in an apartment complex she owns and operates. Under the National Housing Act loan program into which she entered in 1984, Schroeder was required to use her property exclusively as low-income housing until she fully repaid her loans. Schroeder argues that, although the loans have not yet come due, the government must now accept payment in full on her loans, thereby allowing her to terminate her participation in the National Housing Act program. The district court ruled that the Emergency Low Income Housing Preservation Act of 1987 (ELIHPA) forecloses Schroeder's arguments and declined to grant equitable relief. We affirm the decision of the district court.

FACTUAL AND PROCEDURAL BACKGROUND

I. The Housing Act of 1949 and the Emergency Low Income Housing Preservation Act of 1987

Congress passed the Housing Act of 1949, 42 U.S.C. §§ 1441-1490, to encourage private investment in housing for elderly and low-income rural residents. Section 515 of Title V of the Housing Act authorized the Department of Agriculture Farmers Home Administration (FmHA) (which was later incorporated into the Rural Housing Service (RHS)) to make direct loans to borrowers seeking to finance affordable housing (RHS loans or § 515 loans). See 42 U.S.C. § 1485. Involved property owners, in exchange for reduced interest rates and other subsidies, agreed to rent their covered properties only to qualified elderly and low-income tenants at affordable rates until the owners had fully repaid their RHS loans. 42 U.S.C. § 1490a. Initially, loans made under this program provided borrowers with an unrestricted right to repay their loans at any time. Franconia Assocs. v. United States, 536 U.S. 129, 135, 122 S.Ct. 1993, 153 L.Ed.2d 132 (2002).

In 1987, responding to fears that the supply of affordable rural housing was dwindling because borrowers were prepaying their RHS loans, Congress enacted ELIHPA, 42 U.S.C. § 1472(c).¹ Under ELIHPA, RHS may accept "prepayments" on covered loans only if the property owner first complies with ELIHPA's "elaborate requirements" designed to preserve low-income housing. DBSI/TRI IV Ltd. P'ship v. United States, 465 F.3d 1031, 1035-36 & n. 2 (9th Cir.2006) (describing prepayment procedures under 42 U.S.C. § 1472(c)); see also Kimberly Assocs. v. United States, 261 F.3d 864, 867 (9th Cir. 2001).

Under these procedures, the owner must first give notice of intent to prepay. 42 U.S.C. § 1472(c)(3). Then, the government must offer the owner a financial incentive to remain in the program. Id. § 1472(c)(4)(A). If the owner still wishes to prepay, the owner must offer to sell the property to any qualified nonprofit organization or public agency at fair market value. Id. § 1472(c)(5)(A)(i). If the property is not sold within 180 days, RHS may then accept the prepayment from the owner. Id. § 1472(c)(5)(A)(ii); DBSI/TRI, 465 F.3d at 1035.

In 2002, in response to property owners' legal challenges to ELIHPA, the Supreme Court held that the Act "effected a repudiation of" the existing loan contracts. Franconia, 536 U.S. at 143, 122 S.Ct. 1993. On remand, the Court of Federal Claims clarified the property owners' rights and recourse: "The promissory notes at issue could not be much clearer in allowing plaintiffs to prepay at any time, indicating unambiguously that `[p]repayments of scheduled installments, or any portion thereof, may be made at any time at the option of the Borrower.'" Franconia Assocs. v. United States, 61 Fed.Cl. 718, 730 (2004) (alteration in original). The government, therefore, has a "concomitant obligation" to accept the prepayment, and ELIHPA repudiated the property owners' rights. Id. at 730-33. As a result, a property owner whose contracts have been adversely affected by ELIHPA may bring a claim for damages against the government. Franconia, 536 U.S. at 143, 122 S.Ct. 1993.

Because the United States was not acting in its capacity as sovereign in enacting ELIHPA, the government may not assert a sovereign immunity defense in such an action. Id. at 141, 122 S.Ct. 1993 ("`When the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.'" (quoting Mobil Oil Exploration & Producing Se., Inc. v. United States, 530 U.S. 604, 607, 120 S.Ct. 2423, 147 L.Ed.2d 528 (2000))); see also Kimberly, 261 F.3d at 867-70. But the United States is not "free to disobey" ELIHPA; it may accept a borrower's prepayment only after following the procedures described in ELIHPA. DBSI/TRI, 465 F.3d at 1041. Therefore, borrowers who wish to prepay must either comply with ELIHPA's procedures or seek damages under the Tucker Act in the Court of Federal Claims. See Franconia, 536 U.S. at 138, 122 S.Ct. 1993; DBSI/TRI, 465 F.3d at 1041.

II. Schroeder's Property and Loans

Schroeder currently owns and operates a six-unit lowincome housing project located in Heppner, Oregon, known as the Willow View Apartments. Schroeder's predecessor, the Midas Company, purchased the property in 1975 using a forty-year, $170,300 loan from the FmHA (the 1975 Loan), the terms of which were evidenced by a promissory note and mortgage on the property.

Schroeder purchased the Willow View Apartments in August 1984, approximately three years before ELIHPA became law. With the government's consent, Schroeder assumed the 1975 Loan and executed another promissory note, a deed of trust, and a loan agreement as part of a fifty-year, $3500 Housing Act loan (the 1984 Loan). Accordingly, Schroeder became liable for two loans on the property (collectively, the Loans), which respectively became due in 2015 and 2034. Both promissory notes gave Schroeder the unconditional right to prepay in full the principal sums due thereon at any time. However, the deed of trust associated with the 1984 Loan included a provision requiring Schroeder to use the property only for low-income housing for a twenty-year period, beginning in August 1984 (the Loan Covenant). In addition, the 1984 loan agreement (which referenced both of the Loans) included a provision further restricting the use of the property by stating that, "[s]o long as the loan obligations remain unsatisfied, the Borrower shall not use the house for any purpose other than as rental housing and related facilities for eligible [i.e., elderly and low-income] occupants." Schroeder operated the property for the next twenty years, making regular payments on the Loans.

The Loan Covenant expired on September 1, 2004. That same day, Schroeder attempted to tender the full amount outstanding on both Loans. In her payment request, Schroeder stated that she had difficulty managing the property due to her advanced age and that the property's rental income was insufficient to permit her to hire a manager. In March 2006, the government sent Schroeder an incentive offer to continue operating the property as low-income housing. In April 2006, Schroeder tendered full payment on both Loans, but her tender was rejected by RHS. Schroeder, in turn, rejected RHS's incentive offer and attempted to sell the property to a local housing authority at a substantially higher price than RHS's appraisal value. RHS continued to refuse to allow Schroeder to prepay the remaining debt owed on the Loans, maintaining that ELIHPA prohibits prepayment unless a property owner specifically complies with the Act's procedural requirements.

III. Procedural History

In May 2006, Schroeder filed this suit in Morrow County, Oregon, Circuit Court, seeking to compel the government to accept her full payment of the Loans, and to quiet title to her property. The government removed the case to federal court.

The parties filed cross-motions for summary judgment. Schroeder argued that ELIHPA does not apply to her property because the Loan Covenant had expired in 2004 and because she did not tender a "prepayment" within the meaning of ELIHPA. She also offered equitable arguments in support of her quiet title action.

A magistrate judge recommended granting Schroeder's motion for summary judgment and denying the government's motion for summary judgment. The magistrate judge concluded that, because the Loan Covenant had expired, equity favored granting Schroeder's quiet title action. The government filed objections. The district court rejected the magistrate judge's proposed findings and conclusions, and held that Schroeder was not entitled to quiet title to her property. Schroeder appeals.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. We review de novo the district court's grant of...