U.S. v. Garno

• Decision Date: 13 August 1997
• Docket Number: No. 96-CV-60260-AA.,96-CV-60260-AA.
• Citation: 974 F.Supp. 628
• Parties: UNITED STATES of America, Plaintiff, v. Kenneth J. GARNO and Beverly E. Garno, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

Page 628

974 F.Supp. 628

UNITED STATES of America, Plaintiff, v. Kenneth J. GARNO and Beverly E. Garno, Defendants.

No. 96-CV-60260-AA.

United States District Court, E.D. Michigan, Southern Division.

August 13, 1997.

Francis Zebot, Asst. U.S. Atty., Detroit, MI, for Plaintiff.

Gregory G. Justis, Petoskey, MI, for Defendants.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

HACKETT, District Judge.

This is an eviction action in which the federal government claims that it is entitled to title and possession of the land upon which defendants live. On the other hand, defendants challenge the validity of the foreclosure proceedings under which the government claims entitlement to the land and seek judicial review of a prior adverse administrative decision. Now before the court is the government's motion for summary judgment. For the following reasons, the government's motion shall be granted.

I. FACTS

For over 28 years, defendants Kenneth Garno and Beverly Garno have resided in Palmyra Township, Lenawee County, Michigan on an eight acre farm¹ conducting seed corn farming operations and other agricultural activities. To finance their farming operations, defendants borrowed substantial sums from Trustcorp Bank, Lenawee (Trustcorp) through a loan program backed by the United States government, acting through the Farms Home Administration (FmHA). Eventually, defendants defaulted on their loan.

As a result, on August 17, 1988, Trustcorp foreclosed upon defendants' property by advertisement. The federal government bid at the sheriff's sale and purchased the property to protect its mortgage interest.

On August 17, 1989, defendants' redemption period expired without defendants having exercised their redemption rights. Defendants, however, claim that they were never advised of their redemption rights, and that when they spoke with the local FmHA supervisor after the sale, they were told to "just wait, because new guidelines were being worked out in Washington" to help people in their situation.

Shortly after the redemption period expired, on September 15, 1989, the government, in accordance with its servicing regulations governing inventory farm property, 7 C.F.R. §§ 1951-S, 1955-D, entered into a lease of the property with defendants. The lease term ran from October 1, 1989, to September 30, 1994, and called for monthly rent of $1,500.

In September of 1992, defendants fell behind on their rent payments, although they had managed to pay about $40,000 before defaulting on the lease. Defendants are currently $12,100 delinquent and have not made any payments since September 22, 1992, the date FmHA sent defendants a notice advising that their lease was being terminated and ordering them to vacate the property. At that point, defendants obtained legal counsel and requested an appeal of the FmHA's adverse action.

On July 19, 1993, a final administrative decision was issued by the FmHA National Appeals Division (NAD) which upheld the FmHA's action. Thereafter, defendants filed a complaint for judicial review by this court. See Garno v. United States, 93-CV-74465-DT. However, several months after filing suit, the parties stipulated to dismiss the complaint without prejudice and remand the matter to the FmHA for further administrative proceedings.

Next, on April 1, 1994, a FmHA supervisor sent defendants a letter offering them two leases on the farm property for a total payment of $1,709 per month based on the same appraisals used to determine rental rates in the previous lease. Defendants appealed the determination of lease amounts, arguing that the appraisal value was too high.

On June 15, 1994, a hearing officer of the NAD reversed the FmHA's adverse action because (1) the FmHA failed to offer defendants a "buyback option" in addition to a lease, as required by FmHA Instruction 1951-S, § 1951.911(a)(5); and, (2) the FmHA based its determination of lease amounts entirely on a prior real estate appraisal, failing to obtain from the County Supervisor a survey of lease amounts of farms in the immediate area with similar soils, capabilities and income, as required by FmHA Instruction 1951-S, § 1951.911(a)(6)(iii). Thus, the FmHA was directed to offer defendants a specific buyback amount and terms and also to offer a lease based on a local survey of comparable leases.

On July 27, 1994, the FmHA provided defendants with another offer which proposed to divide the farm property into two parcels of land and charge rent as follows: the monthly rental amount for the house and three acres under Homestead Protection would be $552, and the monthly rental for the remaining five acres and buildings could be leased under the leaseback/buyback provisions for a monthly rental of $966, for a total monthly rental of $1,518. Once again, defendants appeal this "adverse" offer.

And once again, on October 26, 1994, the FmHA action was reversed because: (1) the FmHA's decision to divide the property into two parcels of three and five acres was not consistent with FmHA Instruction 1951-S, § 1951.911(b)(1), which provides that homestead property can include up to ten acres; and, (2) FmHA Instruction 1951-S, § 1951.911(b)(8)(i)(A) requires that the amount of rent charged for the lease must be based on equivalent rents charged for similar properties in the area, and the County Supervisor is responsible for documenting a sufficient number of equivalent rents to support the lease amounts. Although a FmHA contract appraiser prepared a rental survey to determine the rental amount for the lease, adjustments and changes to the initial survey prepared by the appraiser were either not explained or did not have supporting documentation to support the changes and, thus, failed to comply with § 1900.53(a)(1), which requires that all documentation and calculations necessary to FmHA decision-makers be accurate, complete, and included in the administrative file.

Accordingly, on November 25, 1994, the FmHA offered to lease the farm to defendants for $2,010, based on a rental survey dated July 12, 1994, and prepared by a certified appraiser. Defendants appealed again, arguing that the appraisal was improper because the property was separated into components with rental values attached to each, rather than the entire unit being considered as a homestead residence with one value. Defendants believed the proposed rent was excessively high and that the appraiser had not surveyed similar properties in the same area to determine an appropriate lease amount.

However, on March 29, 1995, a NAD hearing officer issued a decision upholding the FmHA's lease offer. The hearing officer held that the rental survey relied upon by the FmHA to determine the rent amount "compiled market rents for the different component parts of the Homestead Protection Property. The best available comparable market rents were considered in the determination. The certified appraiser noted the current use of the facilities included a seed corn operation which increased the difficulty in finding similar properties." The hearing officer then concluded that the offer to lease the property to defendants for $2,010 a month was supported by the facts and the law because:

The evidence shows the County Supervisor sought the advise [sic] of a certified real estate appraiser to advise what equivalent rents for similar properties are in the area. The County Supervisor exceeded what a reasonable person would conclude by requesting the advise [sic] of a certified real estate appraiser to establish market rents. The County Supervisor made a reasonable attempt to arrive at the market rent for the subject property.

Defendants appealed the unfavorable decision, but the Acting Director of Appeals upheld it on July 5, 1995, finding that: (1) defendants did not provide any new factual evidence that the rental rate determined was not representative of actual market conditions of similar properties; and, (2) the hearing officer's decision upholding the FmHA's determination of rental rate was supported by substantial evidence.

Consequently, on July 12, 1995, the local office of the Rural Economics and Community Development (RECD), formerly FmHA, sent defendants a letter requesting that they sign the lease and further advising that a security deposit would be required. However, because requiring a security deposit is contrary to RECD regulations, defendants appealed. Although an appeal hearing was scheduled on September 12, 1995, the local office of the RECD advised defendants that no deposit would be required. Thus, on August 31, 1995, the NAD sent defendants a letter advising that their appeal was withdrawn because the security deposit issue was moot.

By letter dated September 8, 1995, the government ordered defendants to vacate the property based on their occupancy without a lease. On September 12, 1995, defendants filed an appeal of the demand to vacate. On December 15, 1995, the NAD upheld the demand to vacate and that decision was later upheld twice on review on February 27, 1996, and May 17, 1996.

Finally, on May 29, 1996, the government filed this eviction action pursuant to 28 U.S.C. § 1345. In response, defendants challenge the validity of the foreclosure proceedings under which the government claims title and possession to the property and request judicial review of the May 17, 1996, administrative decision. Defendants seek: (1) an order declaring Trustcorp's foreclosure sale to be invalid for violations of the Michigan nonjudicial foreclosure statute, M.C.L §§ 600.3232 and 600.3224; (2) a de novo trial reviewing the May 17, 1996, administrative decision; (3) an order determining that the May 17, 1996, decision is contrary to the law and the facts, constitutes an abuse of discretion, and is not supported by substantial evidence of the whole record; (4) an order prohibiting the government from proceeding further with the eviction, or in the alternative, for a remand to the agency for...