US v. American Nat. Bank and Trust Co. of Chicago

• Decision Date: 12 September 1983
• Docket Number: No. 83 C 2447.,83 C 2447.
• Citation: 573 F. Supp. 1317
• Parties: UNITED STATES of America, Plaintiff, v. AMERICAN NATIONAL BANK AND TRUST CO. OF CHICAGO, as Trustee under Trust No. 25919; Beneficiaries of American National Bank and Trust Company, Trust No. 25919; Sack Realty, Defendants.
• Court: U.S. District Court — Northern District of Illinois

573 F. Supp. 1317

UNITED STATES of America, Plaintiff, v. AMERICAN NATIONAL BANK AND TRUST CO. OF CHICAGO, as Trustee under Trust No. 25919; Beneficiaries of American National Bank and Trust Company, Trust No. 25919; Sack Realty, Defendants.

No. 83 C 2447.

United States District Court, N.D. Illinois, E.D.

September 12, 1983.

Mary Anne Mason, Asst. U.S. Atty., Chicago, Ill., for plaintiff.

John K. Kallman, Ann E. Merryfield, Rudnick & Wolfe, Chicago, Ill., for defendants.

MEMORANDUM OPINION

PRENTICE H. MARSHALL, District Judge.

In this mortgage foreclosure suit, the United States has moved for immediate possession of the mortgaged property or in the alternative, for appointment of a receiver to take possession pending the outcome of this litigation. The Secretary of Housing and Urban Development is the lawful holder of the mortgage executed by mortgagor American National Bank, the trustee of the property. The beneficial owners and Sack Realty, the managing agent of the property, are also joined as defendants. The defendants have no objection to HUD taking possession of the real property and the application of rents later received toward payment of the indebtedness. Defendants contest, however, the request by plaintiffs to be granted immediate possession of bank accounts associated with or derived in any way from the mortgaged property, tenant's security deposits, and all property of the mortgagor of any nature in, on, connected with or used in the operation of the mortgaged property.

The United States asserts that HUD is entitled to possession of the property by virtue of a clause in the mortgage which reads:

Mortgagee shall be entitled to the appointment of a receiver by any court having jurisdiction, without notice, to take possession and protect the property described herein and operate same and collect the rents, profits and income therefrom.

Exhibit B to Complaint, Paragraph 5. The courts have consistently read such clauses to permit the appointment of a receiver. United States v. Queen's Court Apartments, Inc., 296 F.2d 534 (9th Cir.1961); Garden Homes v. United States, 207 F.2d 459, 460 (1st Cir.1953); United States v. Mountain Village Co., 424 F.Supp. 822 (D.Mass.1976).

Appointment of a receiver is further justified by the special circumstances of this case. Among these circumstances is that although the owners of the project claimed lack of funds as the explanation for failing to make numerous repairs found necessary by a HUD inspection, Exhibit I to Plaintiff's Motion, the balance sheet for the project showed large sums of money invested in United States Treasury Bills. Exhibit B to Plaintiff's Motion. Such an investment is in direct violation of the Regulatory Agreement between HUD and defendant Sack Realty, which requires all rents and receipts of the project to be kept in an FDIC insured bank.¹ Although the defendant Sack Realty was notified in writing that such an investment violated the Regulatory Agreement, Exhibit G to Plaintiff's Motion, the funds were not restored to the use of the project.

A further justification for appointing a receiver is the policy underlying the Federal Housing Act through which the project was funded. Government financing promotes the goal of suitable housing for lower income families. 12 U.S.C. § 1701 et seq. (1976). If programs for government funding are to continue, the government must have its investments protected. As the court said in View Crest Garden Apartments, Inc. v. United States, 281 F.2d 844 (9th Cir.1960), "good reasons appear for holding that federal policy requires affording every reasonable protection to the security of federal investment." Id. at 848.

The United States asserts that giving HUD possession of the property and imposing strict reporting requirements on HUD is the equivalent of appointing a receiver. See, Real Estate Finance Law §§ 4.30-32 (1979 ed.). Because the defendants have no objection to rendering possession to HUD rather than to a receiver, possession of the property is granted to the...