Walker v. Pierce
| Decision Date | 06 July 1987 |
| Docket Number | No. C-87-2628 RFP.,C-87-2628 RFP. |
| Citation | 665 F. Supp. 831 |
| Court | U.S. District Court — Northern District of California |
| Parties | Leona WALKER, Gene Clark, Lucille Jones, on behalf of themselves and all others similarly situated, Plaintiffs, v. Samuel R. PIERCE, Jr., in his official capacity as Secretary, United States Department of Housing and Urban Development; United States Department of Housing and Urban Development, an agency of the United States, Defendants. |
Edward G. Weil, San Francisco Neighborhood Legal Assistance Foundation, San Francisco, Cal., Catherine M. Bishop, National Housing Law Project, Berkeley, Cal., for plaintiffs.
Michael Sitcov, Asst. U.S. Atty., U.S. Dept. of Justice, Civ. Div., Washington, D.C., for defendants.
MEMORANDUM AND ORDER GRANTING PRELIMINARY INJUNCTION
The plaintiffs in this class action seek a preliminary injunction halting the sale by the Department of Housing and Urban Development ("HUD") of mortgages on several hundred multifamily housing projects located throughout the nation. Specifically, the plaintiffs request an injunction prohibiting the defendants from:
The court grants the preliminary injunction as requested.
On May 1, 1987, HUD announced that it would sell approximately 311 mortgages on multifamily housing projects located throughout the nation. See Declaration of Morris Bourne, ¶ 5 and Exh. B (filed June 23, 1987) (hereinafter "Bourne Decl."). These mortgages fall into two general categories. The "assigned mortgages," which comprise the majority of the sale, are mortgages that were previously insured by HUD under eleven different sections of the National Housing Act, 12 U.S.C. §§ 1701 et seq., and were assigned to HUD when the owners of the housing projects defaulted on the mortgages. The "assigned mortgages" also include some loans that were current when assigned to HUD under section 221(g)(4) of the National Housing Act, 12 U.S.C. § 1715l(g)(4). See id. ¶ 6. The second category of mortgages offered for sale are "purchase money mortgages" ("PMM's"), which were originated by HUD in connection with the sale of formerly HUD-owned housing projects. Before HUD owned these PMM projects, they were also insured by HUD under various provisions of the National Housing Act. See id.
HUD's May 1, 1987 Sale Announcement states that the mortgages will be sold to the highest bidder in two phases. In the first phase, which occurred on June 2, 1987, HUD solicited bids for each of the 311 mortgages. See id. ¶ 5. Thirty-one mortgages were sold during this phase, although the defendants have stipulated that the sales will not be closed until July 8, 1987. See Stipulation in Lieu of Temporary Restraining Order at ¶ 5 (filed June 1, 1987) (hereinafter "Stipulation"). Of these 31 mortgages, six were PMM's, and 18 were sold to the project owners. See Bourne Decl. ¶ 17. During the second phase, the mortgages not sold in the first phase (with the exception of certain PMM's), will be sold as a group to a legal entity or issuer not sponsored or insured by HUD or any other branch of the federal government. That entity will securitize the mortgages and sell the mortgage-backed securities to competitively selected underwriters, with HUD receiving a percentage of the gross proceeds. See Stipulation ¶ 3.
All of the projects subject to mortgages that are included in the sale at issue here are governed by Regulatory Agreements between HUD and the project owners. These Regulatory Agreements remain in effect as long as the mortgage is insured or held by HUD. See Bourne Decl. ¶ 11. There are different Regulatory Agreements in effect for the various HUD insurance programs and types of project owners. See id. The provisions typically included in these Regulatory Agreements include the following: (1) rent controls; (2) limitations on security deposits, admission charges, and other charges to tenants; (3) a requirement that the project be maintained in good repair and condition; (4) a prohibition of discrimination against families with children; and (5) a requirement that a reserve fund for repairs and replacement be maintained and used as approved by HUD. Because HUD intends to sell the mortgages without insurance, these Regulatory Agreements will terminate when the mortgages are sold. See id. Exh. B (letter of May 1, 1987 from Thomas T. Demery).
The May 1, 1987 Sale Announcement provides that certain PMM's executed after October 31, 1978 may be purchased only if the purchaser is able to get the project owner to sign a corrective deed. See id. Exh. B (Sale Announcement at 2-3). This corrective deed would extend certain provisions of the Regulatory Agreement that would otherwise terminate upon the sale of the mortgage. The Sale Announcement makes clear that the reason for requiring such a corrective deed is that "these provisions have a statutory basis and the Regulatory Agreement containing them will terminate upon sale." Id. Specifically, the provisions to be included in the corrective deeds are the following: (1) nondiscrimination against holders of Section 8 Housing Certificates (to comply with 12 U.S.C. § 1701z-12); (2) maintenance of the housing project as rental housing for a specified number of years (to comply with 12 U.S.C. § 1701z-11(c)(3)); (3) agreement to operate the project in accordance with any existing Section 8 Housing Assistance Payment ("HAP") contract (to comply with 12 U.S.C. § 1701z-11(a)); and (4) other special provisions of certain Regulatory Agreements, including HUD eviction procedures and agreement to renew Section 8 assistance or accept further Section 8 assistance if offered by HUD. See Bourne Decl. ¶ 15 and Exh. B (Sale Announcement at 2-3). No corrective deeds will be required by HUD for the assigned mortgages.
HUD has previously sold mortgages on other multifamily housing projects. Between March 1982 and July 1984, HUD conducted eight mortgage auctions, resulting in the sale of 449 mortgages. In the first six auctions, HUD offered mortgage insurance to the purchasers. On February 16, 1984, the Office of Management and Budget ("OMB") issued a directive barring the provision of mortgage insurance in connection with such sales. The next two auctions were therefore conducted without insurance. Investor interest in the mortgage sales dropped considerably when HUD ceased offering mortgage insurance. In the two sales preceding the OMB directive, HUD sold 85 and 53 mortgages, respectively. In the two sales following the directive, HUD sold only 17 and 9 mortgages, respectively. An auction of mortgages scheduled for November 1986 was cancelled for lack of interest. See Bourne Decl. ¶ 3 and Exh. A.
In the Ninth Circuit, there are two interrelated standards for the issuance of a preliminary injunction. In order to qualify for such relief, the moving party must demonstrate either (1) a probability of success on the merits and the possibility of irreparable injury, or (2) that serious legal questions are raised and the balance of hardships tips sharply in favor of the moving party. See Lopez v. Heckler, 713 F.2d 1432, 1435 (9th Cir.1983). These standards are not treated as separate tests by the Ninth Circuit, but rather as "the outer reaches `of a single continuum.'" Los Angeles Memorial Coliseum Commission v. National Football League, 634 F.2d 1197, 1201 (9th Cir.1980). The critical element in determining which version of the test to apply is the relative hardship to the parties. "If the balance of harm tips decidedly towards the plaintiff, then the plaintiff need not show as robust a likelihood of success on the merits as when the balance tips less decidedly." Benda v. Grand Lodge, 584 F.2d 308, 315 (9th Cir. 1978). Thus, it is sensible to divide this analysis into two sections, first addressing the merits of the legal claims, and then considering the balance of hardships to the parties.
The plaintiffs' complaint contains three separate causes of action. First, they claim that the defendants are violating a federal statute governing the prepayment of mortgages held by HUD. Second, they contend that the Secretary of HUD abused his discretion by failing to consider and balance the purposes and policies of the National Housing Act and other applicable federal statutes. Finally, the plaintiffs maintain that the decision to sell the mortgages constitutes rule-making, and therefore should have been subject to notice and comment procedures, as well as publication in the Federal Register. Each of these causes of action is asserted under the Administrative Procedure Act ("APA"), 5 U.S.C. § 702, which provides a right of judicial review for any person affected or aggrieved by agency action. The defendants challenge the plaintiffs' standing to assert any of these claims, and they also attack the claims on their merits.
To satisfy the basic requirements for standing under Article III of the Constitution, a plaintiff must demonstrate the existence of three factors: (1) a threatened or actual distinct and palpable injury to the plaintiff, (2) a fairly traceable causal connection between that injury and the...
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