United States v. Stadium Apartments, Inc.

• Decision Date: 15 June 1970
• Docket Number: No. 22708.,22708.
• Citation: 425 F.2d 358
• Parties: UNITED STATES of America, Appellant, v. STADIUM APARTMENTS, INC., et al., Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

425 F.2d 358 (1970)

UNITED STATES of America, Appellant, v. STADIUM APARTMENTS, INC., et al., Appellee.

No. 22708.

United States Court of Appeals, Ninth Circuit.

April 14, 1970.

Rehearing Denied June 15, 1970.

Sherman Furey, U. S. Atty., Boise, Idaho, Wm. D. Ruckleshaus, Asst. Atty. Gen., Civ. Div., Dept. of Justice, Washington, D.C., for appellant.

Thomas C. Lynch, Atty. Gen. of Cal., Slade Gorton, Atty Gen. of Olympia, Wash., Gary K. Nelson, Atty. Gen. of Phoenix, Ariz., Allan G. Shepard, Atty. Gen. of Idaho, Boise, Idaho, Frank G. Lujan, Atty. Gen. of Territory of Guam, Agana, Guam, amicus curiae.

Before DUNIWAY and ELY, Circuit Judges, and SMITH,^* District Judge.

DUNIWAY, Circuit Judge:

This case presents the question whether state redemption statutes should apply when the Federal Housing Authority (FHA) forecloses a mortgage which it has guaranteed. We hold that such statutes do not apply.

The federal statute here involved is Title VI of the National Housing Act, 12 U.S.C. §§ 1736-1746a. The stated objective of Title VI is "to assist in relieving the acute shortage of housing * * * available to veterans of World War II at prices within their reasonable ability to pay * * *." 12 U.S.C. § 1738(a). The statute confers authority upon the Secretary (formerly the Commissioner) "to make such rules and regulations as may be necessary to carry out the provisions of this subchapter." 12 U.S.C. § 1742. Such regulations were promulgated, and those that were in force in November 1949, when the mortgage here in question was executed and insured appear in the 1947 Supplement to the Code of Federal Regulations. (24 C.F.R. § 580 (1947 Supp.).) Citations to C.F.R. in this opinion are to the 1947 supplement.

The way in which the Act and regulations operated are well illustrated in this case. In 1949, appellee Stadium Apartments, Inc., desired to construct, under Title VI, an apartment house in Caldwell, Idaho. It applied to Prudential Insurance Company for a loan. Such a loan was eligible for insurance under 12 U.S.C. § 1743(a). The conditions for eligibility are set out in 12 U.S.C. § 1743(b). The mortgagor must be approved by the Secretary, who can impose certain regulations upon both the mortgagor and the property mortgaged. Certain terms of the mortgage are also prescribed. Application for approval was made, as required by 24 C.F.R. §§ 580.1-580.7. The FHA then issued a commitment of insurance, as required by 24 C.F.R. § 580.8. The mortgage was executed upon a form prescribed by FHA, and accepted for insurance. 24 C.F.R. §§ 580.10-580.37. The amount of the insured loan was $130,000. The mortgage contained this provision:

"The Mortgagor, to the extent permitted by law, hereby waives the benefit of any and all homestead and exemption laws and of any right to a stay or redemption and the benefit of any moratorium law or laws."

Stadium Apartments defaulted in 1966, and Prudential assigned the mortgage to the Secretary of Housing and Urban Development, pursuant to 12 U. S.C. § 1743(c). The Secretary paid Prudential the amount then due, as required by 12 U.S.C. § 1743(c). The United States then obtained a default judgment foreclosing the mortgage, 12 U.S.C. §§ 1713(k), 1743(f). The district judge, in spite of the foregoing provision, framed the foreclosure decree to allow for a one-year period of redemption, as provided by 2 Idaho Code § 11-402.¹ The question is whether this was error.

Stadium Apartments, Inc., having defaulted, is not represented here. Because the question is of some importance, we were disturbed that the government had chosen to appeal this uncontested case, when hitherto the FHA has at times consented to decrees providing for post-sale redemption rights as required by state laws.² We therefore determined, following the initial oral argument in which only government counsel appeared, that the Attorneys General of the states within our circuit and of the Territory of Guam should be invited to submit amicus curiae briefs. The State of California has done so, taking a position opposed to that advocated by the government. Washington, Arizona and Guam adopt California's view. We were also unsure that the government's position in this case comported with the policies of various federal lending agencies; hence, we requested information from the government regarding such policies, as well as relevant statistics on past lending practices. Armed with this information, and additional briefs, and having now had the benefit of further oral argument, we are more fully prepared to render our decision.

It is settled that the applicable law is federal. In a decision that has become a leading case on the question, United States v. View Crest Garden Apts., Inc., 9 Cir., 1959, 268 F.2d 380, 381, arising under the National Housing Act, Title II, 12 U.S.C. § 1707 ff. we held:

"But we do find it to be clear that the source of the law governing the relations between the United States and the parties to the mortgage here involved is federal. (Citations omitted) * * * It is therefore equally clear that if the law of the State of Washington is to have any application in the foreclosure proceeding it is not because it applies of its own force, but because either the Congress, the FHA, or the Federal Court adopts the local rule to further federal policy." 268 F.2d at 382.

The first question is whether the Congress adopted state law in its definition of "mortgage" and "first mortgage." California argues that it did. The language relied upon appears in 12 U.S.C. § 1736(a), and reads:

"The term `mortgage\' means a first mortgage on real estate, in fee simple, or on a leasehold (1) under a lease for not less than ninety-nine years which is renewable; or (2) under a lease having a period of not less than fifty years to run from the date the mortgage was executed; and the term `first mortgage\' means such classes of first liens as are commonly given to secure advances on, or the unpaid purchase price of, real estate, under the laws of the State in which the real estate is located, together with the credit instruments, if any, secured thereby."

We rejected California's argument in View Crest, supra, where identical language in 12 U.S.C. § 1707 was relied upon. We said:

"The argument is that in adopting the state definition of `first mortgage,\' Congress intended to adopt all the incidents of the mortgage relation under state law including remedies on default and the appointment of receivers. That this is not the case is clear from reading section 1713 of the same Act which defines certain acts as being in default (part g) and sets out certain remedies that the FHA can pursue such as institution of foreclosure (part k) proceedings without reference to whether or not there is such a remedy for the default described in the State where the property is located. Moreover, there is no apparent reason for assuming that Congress in incorporating by reference certain duties under state law also meant to restrict the United States to the state remedies for breach of those duties * * *." 268 F.2d at 382.

We then proceeded to point out the convenience inherent in defining "first mortgage" in terms of local law, thus making available local recording acts, and continued:

"A different set of factors come into play when the planning stage and the working stages of the agreement have been terminated. After a default the sole situation presented is one of remedies. Commercial convenience in utilizing local forms and recording devices familiar to the community is no longer a significant factor. Now the federal policy to protect the treasury and to promote the security of federal investment which in turn promotes the prime purpose of the Act — to facilitate the building of homes by the use of federal credit — becomes predominant. Local rules limiting the effectiveness of the remedies available to the United States for breach of a federal duty can not be adopted." 268 F.2d at 383.

We think that the validity of this approach is emphasized by the fact that the definition relied upon does not refer to state law in defining "mortgage"; it does so only in defining "first mortgage." And the statute now before us, like the statute considered in View Crest, defines default without reference to state law (12 U.S.C. §1743(c)) and provides for remedies without reference to state law (12 U.S.C. § 1743(c)) and porating the provisions of § 1713(k)). No other federal statute is relied upon.³

We conclude that the Congress did not adopt state redemption statutes as part of the federal law.

The second question is, did the FHA adopt those statutes? California says that it did, relying on two arguments. First, it points to the regulations. 24 C.F.R. § 580.18 provides:

"The mortgage must contain a provision or provisions, satisfactory to the Commissioner, giving to the mortgagee, in the event of default or foreclosure of the mortgage, such rights and remedies for the protection and preservation of the property covered by the mortgage and the income therefrom, as are available under the law or custom of the jurisdiction."

No similar provision exists for the mortgagor. Instead, 24 C.F.R. § 580.21 merely provides:

"The mortgage may contain such other terms, conditions and provisions with respect to * * * foreclosure proceedings * * * and other matters as the Commissioner may in his discretion prescribe or approve."

To be eligible for insurance the mortgage must be executed on a form approved by the Federal Housing Commissioner. (4 C.F.R. § 580.10.)

We cannot find in this language an adoption of state redemption statutes. If anything can be said for it, it is that § 580.21 permits a provision against such rights.

Second, California points to the waiver language contained in the mortgage, quoted above in our statement of facts, and particularly to the phrase "to the extent permitted by law." This phrase, California says, must refer to Idaho law, because (1)...