Warren v. Government National Mortg. Ass'n

Decision Date29 January 1980
Docket NumberNo. 79-1244,79-1244
Citation611 F.2d 1229
PartiesVivian WARREN, Appellant, v. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION et al., Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

James L. Muller, Legal Aid of Western Missouri, Kansas City, Mo., for appellant.

Alan E. South, Crews, Milliard & South, Kansas City, Mo., for appellees.

Before ROSS and STEPHENSON, Circuit Judges, and McMANUS *, district judge.

McMANUS, District Judge.

This is an appeal by Vivian Warren (plaintiff) from a final judgment in favor of Government National Mortgage Association (GNMA), holding no violation of her fifth amendment rights resulting from an extra-judicial foreclosure under a deed of trust. In her complaint, predicated principally under 28 U.S.C. § 1331 (federal question), plaintiff sought declaratory and mandamus relief. 1

Plaintiff and her husband 2 were the owners of a residence in Kansas City, Missouri, which they purchased in August of 1966 from the United States Department of Housing and Urban Development (HUD). As part of the purchase price, they executed a note, secured by a deed of trust, to the Federal National Mortgage Association MA. Thereafter, by Congressional Act, FNMA was converted into GNMA, a private corporation wholly-owned by the federal government. 12 U.S.C. § 1716 Et seq. Plaintiff's note and deed of trust were transferred and assigned to GNMA. The deed of trust included a "Power of Sale" clause, 3 which in the event of default permitted the trustee to initiate an extrajudicial foreclosure sale in accordance with Missouri statutory procedures. 4

In September of 1970, the successor trustee under the deed of trust a private attorney retained by GNMA and not otherwise employed by the federal government mailed a letter, first class not registered nor certified receipt, to the plaintiff and her husband, notifying them that GNMA deemed the payments on the note to be in default and that, as holder of the note, GNMA had elected to declare the entire principal due. The letter, therefore, demanded payment of the entire balance but contained no mention or threat of foreclosure by a trustee's sale. For whatever reasons, 5 plaintiff made no response to the letter.

Thereafter, GNMA foreclosed against plaintiff by causing the trustee to advertise in a newspaper, used almost exclusively for such legal notices, and to conduct a public sale, all in compliance with the power of sale clause in the deed of trust. GNMA was the purchaser at this sale.

After the foreclosure sale, plaintiff was notified by letter of the sale and demand was made for possession on or before October 26, 1970. She did not vacate the premises and GNMA brought an action for unlawful detainer in the Missouri Magistrate's Court, securing a judgment in that case on January 11, 1971. GNMA secured possession of the property by a writ of restitution on or about April 7, 1971.

Plaintiff's challenge rests essentially on her contention that she was denied fifth amendment due process rights to notice and hearing Prior to the foreclosure sale. 6 We affirm on the basis of no federal government action.

The Due Process Clause of the Fifth Amendment to the United States Constitution provides that: "No person shall . . . be deprived of . . . property, without due process of law; . . . " It applies to federal government not private action, Public Utilities Comm'n v. Pollak, 343 U.S. 451, 461, 72 S.Ct. 813, 96 L.Ed. 1068 (1952); while the fourteenth amendment due process clause applies to the states, See, e. g., Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 172-73, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972); Shelley v. Kraemer, 334 U.S. 1, 13, 68 S.Ct. 836, 92 L.Ed. 1161 (1948). The standard for finding federal government action under the fifth amendment is the same as that for finding state action under the fourteenth amendment. See, e. g., Geneva Towers Tenants Org. v. Federated Mortgage Investors, 504 F.2d 483, 487 (9th Cir. 1974); Ponce v. Housing Authority of Tulare County, 389 F.Supp. 635, 648 (E.D.Cal.1975). That standard is that there must exist "a sufficiently close nexus between the (government) and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the (government) itself." Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351, 95 S.Ct. 449, 453, 42 L.Ed.2d 477 (1974).

It is undisputed in this case that GNMA is a corporate entity, wholly-owned by the federal government, 31 U.S.C. § 846. It was created by the partition of the FNMA under the National Housing Act of 1968, 12 U.S.C. § 1716 Et seq., and is under the management and control of the Secretary of HUD, 12 U.S.C. §§ 1723(a) & 1723a(d). It has no capital stock, 12 U.S.C. § 1717(a)(2)(A). The economic benefits and burdens of its administration inure to the Secretary of the Treasury, 12 U.S.C. § 1722. Moreover, under 12 U.S.C. § 1717(b)(1), it is authorized to purchase, service, sell or otherwise deal in mortgages insured under 12 U.S.C. §§ 1701-1750g by the Federal Housing Authority (FHA). 7 Thus, GNMA is not only wholly-owned by the federal government but it also operates under federal government authority. 8

To recognize these relational facts, however, does not end the federal government action inquiry for, as was the case in Public Utilities Comm'n. v. Pollak, 343 U.S. 451, 72 S.Ct. 813, 96 L.Ed. 1068 (1952), the deciding issue in this regard is not simply whether GNMA is a government-owned or authorized corporation; rather, it is whether as such GNMA's foreclosure action pursuant to the contractual power of sale clause in the deed of trust was so closely linked to federal government regulation that it can in actuality be viewed more as the action of the federal government itself than that of GNMA. 9 Compare also Jackson v. Metropolitan Edison Co., 419 U.S. 345, 356-57 & n. 16, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974).

In approaching the latter issue, we emphasize that the power of sale clause as contained in the deed of trust is a contractual power having its genesis in the deed of trust itself and as such exists independent of any statute otherwise governing it. Compare, e. g., FNMA v. Howlett, 521 S.W.2d 428, 432 (Mo. en banc) Appeal dismissed 423 U.S. 909, 96 S.Ct. 210, 46 L.Ed.2d 137 (1975); Warren v. GNMA, 521 S.W.2d 441 (Mo. en banc 1975). As a party to the contract, and even though it was a governmentally-owned and authorized entity, GNMA had a right to resort to its contractual remedies just as a purely private entity had. See Atlantic Mutual Ins. Co. v. Cooney, 303 F.2d 253, 259 (9th Cir. 1962). Accord Rex Trailer Co., Inc. v. United States, 350 U.S. 148, 151, 76 S.Ct. 219, 100 L.Ed. 149 (1956).

We therefore are of the general opinion that mortgage foreclosures through power of sale agreements such as the one at issue here are not in and of themselves powers of a governmental nature. Compare Northrip v. FNMA, 527 F.2d 23, 31 (6th Cir. 1975); Bryant v. Jefferson Federal Savings and Loan Assoc., 166 U.S.App.D.C. 178, 180-81, 509 F.2d 511, 513-14 (D.C.Cir. 1974). The trial court implicitly recognized this when it concluded that "a wholly-owned government agency can enforce a valid Contractual provision for foreclosure without running afoul of the constraints of the Fifth Amendment, under all circumstances in which the foreclosure of the same contract by a private lender would be held not to violate the requirements of due process." Warren v. GNMA, et al., Civil Action No. 19006-2, Memorandum Opinion and Judgment at p. 6 (W.D.Mo., February 12, 1979) (Designated Record on Appeal p. 117).

Plaintiff's major contention in this regard is that, all these considerations notwithstanding, federal government action is implicated in this case because the deed of trust form was specifically approved by HUD regulations, 24 CFR § 203.17, and therefore GNMA's foreclosure action pursuant to that deed of trust was by implication also specifically approved by HUD. If this court were to accept plaintiff's argument, every FHA guaranteed mortgage held either by GNMA, FNMA or a private lending agency would be placed in the same position of constitutional uncertainty simply by virtue of the fact that the mortgage form must also be approved by a federal agency under HUD regulations. Moreover, plaintiff's argument ignores the point that the central inquiry is not whether the form of the deed of trust is approved by federal regulations, but rather it is whether there exists a sufficiently close nexus between the government regulations and the challenged activity specifically at issue so that the challenged activity itself may be fairly treated as truly that of the federal government directly. Cf. Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974). Accord, Roberts v. Cameron-Brown Co., 556 F.2d 356, 358 (5th Cir. 1977), ("The government must be involved With the activity that causes the actual injury." (emphasis added)).

The challenged activity specifically at issue in this case is GNMA's extrajudicial foreclosure pursuant to the power of sale terms of the deed of trust, performed in accordance with Missouri laws. Plaintiff cites 24 CFR Pts. 200 & 203 generally as support for her argument that the Secretary of HUD, vicariously through GNMA, directly regulates GNMA's foreclosure procedures here. We find nothing in those general provisions, however, constituting direct federal government regulation of GNMA's servicing policies, including what methods it may use to protect its financial interest in the mortgage on default.

Concededly, the Commissioner of the FHA is required to approve the form of the mortgage or deed of trust before it is eligible for FHA insurance under 24 CFR § 203.17, but that regulation does not dictate what foreclosure provisions are to be included in the deed of trust. Indeed, 24 CFR § 203.17(b), (c) and (d)...

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