Vail v. Brown
| Citation | 841 F. Supp. 909 |
| Decision Date | 14 January 1994 |
| Docket Number | No. 3-89-CV-609.,3-89-CV-609. |
| Parties | Ronnie VAIL, Richard A. Dixon, Bruce Lillquist, Larry Stanley, Daryl Y. Cooper, and Timothy C. Gartland, on behalf of all others similarly situated v. Jesse BROWN, or his successor, Secretary of the Department of Veteran's Affairs. |
| Court | U.S. District Court — District of Minnesota |
Douglas Paul Radunz, Radunz Law Office, Minneapolis, MN and David A. Leen, Leen & Moore, Seattle, WA, for plaintiffs.
Lonnie F. Bryan, U.S. Atty. Office, Minneapolis, MN, for defendant.
This matter is before the Court on cross-motions for summary judgment, and on plaintiffs' motion for implementation of the Eighth Circuit's directives in Vail v. Derwinski, 946 F.2d 589 (8th Cir.1991), amended by, 956 F.2d 812 (8th Cir.1992).2 The Court heard oral argument on May 7, 1993. The parties have subsequently engaged in negotiations and filed additional submissions with the Court.
This class action3 was commenced on September 15, 1989, by military veterans who purchased homes in Minnesota under the Department of Veteran's Affairs ("VA") home loan guarantee program. See generally, 38 U.S.C. §§ 3701-3751. The plaintiff class consists of veterans who either defaulted on their own VA-guaranteed loans, or sold their homes to buyers who defaulted after assuming those mortgages. This action challenges the VA's exercise of its indemnity rights following the use of Minnesota's statutory non-judicial foreclosure procedures, in the absence of prior notice to the affected veteran.
In 1990, the district court4 granted summary judgment in favor of the plaintiffs, holding that the VA was "without authority to enforce deficiency judgments against members of the plaintiff class for loan guaranty payments made to mortgage lenders following non-judicial foreclosure of Minnesota real estate." See Vail v. Derwinski, 742 F.Supp. 1039, 1043 (D.Minn.1990). On appeal, the Eighth Circuit modified the district court's order. The Circuit Court held that the VA may exercise its indemnity rights against a veteran after non-judicial foreclosure, but only after the VA has made "a good faith attempt to provide reasonable personal notice to the veteran of the foreclosure sale." Vail, 946 F.2d at 594. The court held that failure to give such notice was a violation of the Due Process Clause of the Fifth Amendment.
Plaintiffs now seek an order (a) implementing the Eighth Circuit's directive, and (b) establishing a system for repayment of funds by the VA to class members whose due process rights were violated by the VA's failure to provide adequate notice prior to non-judicial foreclosure. Plaintiffs also request prospective relief in the form of a permanent injunction.
The VA provides housing assistance to qualified veterans by providing a government guaranty for home loans made to veterans by private lenders. In the event of a default on these mortgages by a veteran or a subsequent purchaser, the lender is required to give the VA at least 30 days' notice before foreclosing on the property. 38 U.S.C. § 3732(c)(3) (1991); 38 C.F.R. § 36.4317 (1993).5 The VA then has 15 days to instruct the lender how to proceed. 38 C.F.R. § 36.4324 (1993). The VA may either purchase the loan, or advise the lender to go forward with foreclosure. 38 U.S.C. § 3732(c)(3) (1991). Should the VA direct the lender to proceed with foreclosure, the lender must follow the VA's instructions as to the appropriate method and timing. 38 C.F.R. § 36.4324(f) (1993). Foreclosure of the property is conducted in accordance with state law. 38 U.S.C. § 3720(a)(6) (1991). Minnesota law allows both judicial and non-judicial foreclosure. See Minn.Stat. §§ 580.01, et seq., and 581.01, et seq. (1988).
The VA must reimburse the lender for certain losses, or deficiencies, following the foreclosure sale. 38 U.S.C. § 3732(c) (1993); 38 C.F.R. § 36.4321 (1993). The veteran, in turn, is obligated to reimburse the VA for any sum paid by the VA to the private lender. 38 C.F.R. § 36.4323(e) (1993). If a veteran allows a purchaser to assume the VA-guaranteed mortgage, and the purchaser defaults, the veteran remains liable for the mortgage debt and any consequent deficiency, unless the veteran obtained a release from the VA prior to the sale of the property. See 38 U.S.C. § 3713 (1993); 38 C.F.R. § 36.4323(f) (1993).6 The amount of the deficiency chargeable to the VA on its guaranty, and therefore recoverable from the veteran, is the difference between the sale price of the property and the amount of the loan, up to the amount of the guaranty. 38 U.S.C. § 3732(c) (1991). Once the debt is established, the VA deducts the amount of such debt from funds owed to the veterans by the United States. See Vail, 946 F.2d at 590.
Section 3732(a)(4)(A), Title 38, United States Code, directs the VA, upon receiving notice of the lender's intent to foreclose, to "provide the veteran with information and, to the extent feasible, counseling regarding ... alternatives to foreclosure ... including possible methods of curing the default, conveyance of the property to the VA by means of a deed in lieu of foreclosure ... and what the VA's and the veteran's liabilities would be with respect to the loan in the event of foreclosure." 38 U.S.C. § 3732(a)(4)(A) (1993) (effective March 1, 1988).
Before the VA can collect a debt arising from its guaranty payment, a veteran may challenge the existence or amount of the debt, or the veteran may request a waiver on the ground that he or she is not materially at fault, or that collection would violate equity and good conscience. See 38 C.F.R. §§ 1.911, 1.912 (1993). The veteran is entitled to a hearing on the waiver request, and may appeal an adverse decision to the Board of Veterans Appeals. Id. The veteran may then seek further review before the Court of Veterans Appeals and the Court of Appeals for the Federal Circuit. 38 U.S.C. §§ 7252, 7293 (1993). If a waiver is denied, the veteran may seek to compromise the debt with the VA. 38 C.F.R. § 1.970 (1993).
With this overview in mind, the Court now turns to the question at hand.
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The Court finds that no outstanding issues of material fact preclude summary judgment in this action.
The Fifth Amendment requires that, before a federal agency may take an action which affects a constitutionally-protected interest in life, liberty, or property, "parties whose rights are to be affected are entitled to be heard; and in order that they may enjoy that right they must first be notified." Fuentes v. Shevin, 407 U.S. 67, 80, 92 S.Ct. 1983, 1994, 32 L.Ed.2d 556 (1972). Such notice is to be "reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them the opportunity to present their objections." Vail, 946 F.2d at 593 (quoting Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950)); see also Mennonite Board of Missions v. Adams, 462 U.S. 791, 798, 103 S.Ct. 2706, 2711, 77 L.Ed.2d 180 (1983). It is "fundamental that the right to notice and an opportunity to be heard `must be granted at a meaningful time and in a meaningful manner.'" Fuentes, 407 U.S. at 80, 92 S.Ct. at 1994 (citing Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 1191, 14 L.Ed.2d 62 (1965)). "Notice by mail or other means as certain to ensure actual notice is a minimum precondition to a proceeding which will adversely affect the liberty or property interest of any party ... if its name and address are reasonably ascertainable." Mennonite Board, 462 U.S. at 800, 103 S.Ct. at 2712 (emphasis provided).
The Court recognizes that "due process is flexible and calls for such procedural protections as the particular situation demands." Mathews v. Eldridge, 424 U.S. 319, 334, 96 S.Ct. 893, 902, 47 L.Ed.2d 18 (1976). To determine what process is due before official action is taken, the Court weighs several factors: (1) the private interest that will be affected by the official action; (2) the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and (3) the government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail. Zinermon v. Burch, 494 U.S. 113, 127, 110 S.Ct. 975, 984, 108 L.Ed.2d 100 (1990) (quoting Eldridge, 424 U.S. at 335, 96 S.Ct. at 903).
A veteran-borrower has a protectible interest in attempting to avoid a determination that foreclosure is necessary, and in assuring that fair value is received for the property at the foreclosure hearing. See Vail, 946 F.2d at 593; Boley v. Brown, 10 F.3d 218 (4th Cir.1993). Accordingly, on review of this case, the Eighth Circuit held that the VA must make a good faith attempt to provide reasonable personal notice of the foreclosure sale to the veteran-borrower before it may recover under its indemnity contract. Plaintiffs argue that reasonable notice requires that the veteran be personally served in advance with notice of the date and time of the foreclosure sale. Plaintiffs also urge that the VA must either hold an administrative hearing at which a veteran may present his or her objections, or direct the private lender to conduct a judicial foreclosure. Plaintiffs also seek an order from this Court which would allow an affected veteran to be advised by legal counsel at this proposed suggested hearing.
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Freeman v. F.D.I.C., 93-5395
...of default stating intent to foreclose is merely a "threat of foreclosure," not adequate notice of foreclosure) with Vail v. Brown, 841 F.Supp. 909, 914-15 (D.Minn.) (notice of default stating intent to foreclose is adequate notice of foreclosure, even if date and time of foreclosure sale a......