United States v. White

• Decision Date: 11 March 1977
• Docket Number: No. WC 74-87-K.,WC 74-87-K.
• Citation: 429 F. Supp. 1245
• Parties: The UNITED STATES of America, Plaintiff, v. Garney WHITE and Margie White, Defendants.
• Court: U.S. District Court — Northern District of Mississippi

429 F. Supp. 1245

The UNITED STATES of America, Plaintiff, v. Garney WHITE and Margie White, Defendants.

No. WC 74-87-K.

United States District Court, N. D. Mississippi, Delta Division.

March 11, 1977.

COPYRIGHT MATERIAL OMITTED

Falton O. Mason, Jr., Asst. U. S. Atty., Oxford, Miss., for plaintiff.

Alvin O. Chambliss, Jr., Oxford, Miss., David M. Madway, Berkeley, Cal., for defendants.

MEMORANDUM OPINION

KEADY, Chief Judge.

In this case, the United States, which was the highest bidder at a nonjudicial foreclosure sale, brought eviction proceedings against defendants, Garney White and Margie J. White, husband and wife, as house purchasers who had defaulted on a Farmers Home Administration (FmHA) loan made under the Farm Housing Act of 1949. After foreclosure was effected in accordance with a power of sale contained in the deed of trust, this court entered summary judgment for the government. The Court of Appeals at first affirmed by means of Local Rule 21, 5 Cir., 536 F.2d 386. On petition for rehearing, the Fifth Circuit concluded that the basis of this court's summary judgment for the government was in doubt and remanded the case for determination of two issues: (1) Whether the defendant borrowers had waived any constitutional or statutory rights they may have had, and (2) if they had not, whether the procedure utilized by FmHA passed constitutional muster and met federal statutory requirements. 543 F.2d 1139 (5 Cir., 1976).

Following remand, the court conducted an evidentiary hearing at which the following relevant facts were revealed. In March 1971 the defendants applied for a rural housing loan to the FmHA at its Pontotoc County, Mississippi, office for the purpose of purchasing a dwelling house which was then in process of being completed by an independent builder, Jackson Lumber Company. The house was inspected by FmHA officials who determined that it had a value of $14,600, and the application of the Whites for a loan in that amount was approved in due course.

Garney White, then 46 years of age, was a person of limited education, and although he had received a fifth grade education he was unable to read or write other than to sign his name. After serving in the Army, he received a medical discharge for back and other injuries, making him 100% disabled. He continued under the care of Veterans Administration doctors and his income consisted principally of a veteran's pension of $82 per month. Margie J. White was better educated than her husband and worked as a clerk in a variety store. She had prior experience in reading and signing deeds of trust on loans made with private individuals and she, like Garney White, realized that the effect of such an instrument was to create a lien against the real estate, and that if payments were not made when due, the property was subject to foreclosure by the owner of the indebtedness.

After receiving notice that their loan had been approved, the defendants employed W. A. Grist, Pontotoc attorney, to check the title to the real property, represent their interests in the loan closing and fulfill other duties on their behalf incident to the transaction. Grist, who was on the approved list of FmHA attorneys for Pontotoc County, had prior experience in closing FmHA loans and his fee for the services rendered on this occasion was paid by the borrowers. The $14,600 loan was closed on March 30, 1971, when the borrowers appeared at the local FmHA office. Although both of the Whites testified that attorney Grist did not accompany them on this occasion, this is disputed by the testimony of Grist as well as the FmHA officials who affirmed that Grist was indeed present when the loan was closed. The court finds as a fact that Grist was then present as attorney for the borrowers and that Mrs. Dillard, one of the FmHA office employees prepared the promissory note and deed of trust, in accordance with custom, and indicated to the borrowers where they should sign. Grist had other papers, affidavits and the like, which he then presented to the Whites for execution to complete the loan.

Grist conceded that he did not read the loan documents to the Whites, testifying that he reviewed with them only the "highlights" of the loan, such as its amount, the rate of interest, the amount of monthly payments, the interest credit,¹ for which the Whites qualified, and certain other features of the loan agreement. More particularly, the attorney did not read or make any detailed explanation to the borrowers of ¶ 18 in the deed of trust, providing in relevant part: "Upon default aforesaid, at the request of the Government, Trustee may foreclose this instrument by advertisement and sale of the property as provided by law, for cash or secured credit at the option of the Government, personal notice of which sale need not be served on borrower, . . ." In preceding ¶ 17, the deed of trust recites: "Should default occur in the performance or discharge of any obligations secured by this instrument, . . . the Government, at its option, with or without notice, may: (a) declare the entire amount unpaid under the note and any indebtedness to the Government hereby secured immediately due and payable, . . ." Neither Grist nor FmHA officials explained to the borrowers that the loan documents gave the government the right to exercise power of sale in accordance with Mississippi law upon default in the payment of the indebtedness without first extending to the borrowers notice of the asserted grounds for default and an opportunity for the borrowers, in case of disputed matters, to be heard, prior to the acceleration of the indebtedness and commencement of foreclosure proceedings by FmHA.

At the time of the loan, the borrowers qualified for an interest credit, or subsidy, which would reduce their loan payments to $54 monthly. This credit was a subsidy for which the borrowers had to apply at the end of each two-year period. Without the original interest credit, FmHA officials calculated that the monthly payments would rise to $98. Not long after the Whites moved into the residence, they complained to FmHA of needed repairs to the house, and FmHA officials who inspected the premises agreed with some of the complaints. Efforts were made by FmHA to have Jackson Lumber Company, the builder, take necessary corrective action. Garney White made regular payments for 18 months, but after repairs were not made to his satisfaction, he refused to make further payments. At this time his alleged arrearage was no more than $22.40. The Whites, however, continued to deny the existence of any arrearage. This dispute was not resolved, but came to a head when the borrowers became 4 months delinquent on monthly payments and the FmHA officials decided to eliminate any interest credit; this action, which practically doubled the monthly payments, was taken on the grounds that Margie J. White had become gainfully employed and that the Whites had failed to execute a new interest credit agreement.

Beginning in April 1973, FmHA's local officials unsuccessfully attempted to get the borrowers to bring the account current. Instead, the defendants, after Grist had declined to represent them, engaged Stanley Taylor, a legal services attorney, to aid them in their problems with FmHA. Taylor obtained an independent appraisal of the house to determine the nature and extent of the defects. According to this appraisal, the defects were substantial and far more serious than those which FmHA inspectors had noted. Taylor not only submitted this appraisal to FmHA but called upon FmHA officials to consider the inability of the borrowers to make the account current due to circumstances beyond their control, particularly the physical disability and medical condition of Garney White, the total financial resources available to the borrowers, and whether they were unable to continue making payments without unduly impairing their standard of living. Taylor requested FmHA officials to investigate this aspect of the matter to determine what relief, if any, could be extended to them under § 505, Housing Act of 1949, 42 USC § 1475 (1970).² The record shows that no meaningful investigation was conducted by FmHA officials to determine the applicability of § 505 relief.

On November 12, 1973, R. M. McCord, FmHA's county supervisor, advised Garney White that upon failure to bring his account current by January 1, 1974, his case would be submitted to the County Committee and the District Supervisor as a preliminary step to foreclosure. Having then received no response, McCord, knowing the continued existence of the disputes with the Whites, informed them on December 4, that he, the County Committee and the District Supervisor had determined "that continued servicing of the loan will not accomplish the purpose for which the loan was made." Therefore, he advised defendants that they were required to take one of the following steps before December 31: (1) pay their account current; (2) sell the property and pay in full; (3) refinance the loan through a private lender; (4) transfer the property to an eligible borrower; (5) convey the property to the government.³ Attorney Taylor responded on December 18 and requested a hearing to consider whether the house met contract standards and the appropriateness of eliminating interest credit. On January 8, 1974, McCord and Taylor scheduled this hearing for the 29th of that month. However, on January 10, the Whites, then in default for much of 1973, received notice of acceleration and demand for payment from FmHA's state office, giving them until the 25th to pay in full the entire debt, plus interest, or suffer foreclosure of their property. The next day McCord wrote FmHA's state office requesting a delay in any action until the hearing was held on January 29. At this meeting, however, McCord advised Taylor that since the paperwork had already been forwarded to the state office, the County Committee was powerless to stop...