Yunis v. U.S.

Decision Date24 July 2000
Docket NumberNo. CV 97-7863 RAP.,CV 97-7863 RAP.
Citation118 F.Supp.2d 1024
PartiesMuhammad YUNIS, Plaintiff, v. UNITED STATES of America, Depart. of Veterans Affairs and Does 1-10, Inclusive, Defendants. United States of America, Counterclaimant, v. Muhammad Yunis, Individually and as Trustee of the Sky Meadow Street Trust UDT 9/11/97; Kendall L. Angell, as Trustee for the Angell Family Trust UDT 6/20/97; Sky Meadow Association, a California nonprofit corporation; and Coast Assessment Service Company, a California Corporation, Counterdefendants.
CourtU.S. District Court — Central District of California

James J. Mazzeo, James J. Mazzeo Law Offices, San Diego, CA, for Plaintiff.

Leon W. Weidman, Kurt E. Ramlo, Asst. U.S. Atty., Office of U.S. Attorney, Los Angeles, CA, Michael D. May, Michael May Law Offices, Anaheim, CA, for Defendants.

ORDER GRANTING THE GOVERNMENT'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING THE PLAINTIFF AND COUNTERDEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

RICHARD A. PAEZ, Circuit Judge, Sitting by Designation.

I. Introduction

In this quiet title action under 28 USC § 2409(a), plaintiff Yunis seeks to quiet title to real property that he purchased at a non-judicial foreclosure sale initiated by Sky Meadow Association ("Sky Meadow") when defendant United States Department of Veterans Affairs ("VA") failed to pay association assessment fees. Plaintiff and counterdefendants Sky Meadow and Coast Assessment Service Company ("Coast Assessment") maintain that the sale was authorized under Sky Meadow's Declaration of Covenants, Conditions, and Restrictions ("CC & R's") and state law. Plaintiff further argues that because the sale was authorized by state law and sanctioned by federal law, the trustee's sale terminated the VA's rights to the property.1

Although the VA does not dispute that the non-judicial foreclosure sale complied with state law, it challenges the propriety of Sky Meadow selling property owned by the United States. The VA contends that under the Property and Supremacy Clauses of the Constitution, only the United States can sell or otherwise dispose of property owned by the United States. The United States also contends that the resolution of this issue is properly governed by federal and not state law. Thus, the United States, pursuant to its counterclaim, seeks a declaration that the Trustee's Deed Upon Sale conveying the subject property to plaintiff is void. The VA recognizes, however, that were the Court to grant such relief, the United States would be obligated to reimburse plaintiff Yunis for the amount he paid for the property ($2,186.75) and pay all past due assessment fees to Sky Meadow.

Because there are no factual disputes regarding the VA's failure to pay assessment fees and the events leading up to the foreclosure sale, the legal issue raised by the VA, i.e. whether the Supremacy and Property Clauses of the Constitution preclude the use of non-judicial foreclosure by a private party to sell property owned by the United States in order to satisfy a debt it admittedly owes, is ripe for partial summary judgment. Upon consideration of the parties' cross motions for partial summary judgment, the Court has concluded, for the reasons set forth below, that the VA's motion should be granted and that the cross-motions by plaintiff and counter-defendants should be denied.2

At the outset, the Court recognizes and the VA does not dispute that it was the VA's own negligence in failing to pay the association assessment fees that prompted Sky Meadow to initiate foreclosure proceedings under the CC & R's. The VA employees' negligence, however, does not justify or validate a non-judicial foreclosure sale of property owned by the United States. To allow such a sale under state law in the context of this case would be detrimental to the national interest of providing eligible veterans with financial assistance in obtaining home loans from private mortgage lenders. Thus, the Court agrees with the VA that federal law should govern the outcome of this action, and the appropriate rule of decision is federal and not state law.

II. Factual Background

In 1992, Zoltan Buky and his wife purchased a residence located at 5981 Sky Meadow Street, Riverside California. Because Zoltan Buky was an army veteran, he qualified for assistance under the VA's Home Loan Guaranty Program and his loan was guaranteed by the VA. The VA Home Loan Guaranty Program allows eligible veterans to forego the private lenders' normal requirement of a 20% down payment, thereby enabling the veteran to purchase a home with little or no down payment. Under the program, if the veteran defaults on the loan payments the private lender can foreclose on the deed of trust and then convey the property to the VA. Upon conveyance of the property, the VA pays the lender fair market value, determined by an appraisal, less the estimated cost to the VA of marketing and selling the property. Under the statutory scheme the lender retains the right to claim additional loss for unpaid interest and costs incurred in servicing the defaulted loan, plus legal expenses related to the foreclosure. 38 U.S.C. § 3732

The Buky's subsequently defaulted on their loan and the lender, Nationsbanc Mortgage Corporation, foreclosed on their trust deed on September 13, 1996. On September 16, 1996 a Trustee's Deed Upon Sale was recorded. On September 18, 1996, Nationsbanc transferred the Buky's property to the VA by recording a grant deed dated September 16, 1996. The grant deed specified that tax statements were to be mailed to the VA's Los Angeles office. At the time of the conveyance, Nationsbanc provided the VA with an appraisal that appraised the market value of the property at $68,000 as of July 1996.

As required by the Home Loan Guaranty Program, the VA paid Nationsbanc $57,725. On February 19, 1997, the VA paid Nationsbanc an additional $27,368.18. Thus, VA's total acquisition costs were $85,093.18. This sum was paid from what was then known as the VA's Home Loan Guaranty Revolving Fund.3

Pursuant to an agreement with VA, Homelife Discount Brokers assumed management responsibilities for the Sky Meadow property on October 17, 1996.4

On October 1, 1996, the newly opened VA San Diego field office assumed responsibility for VA-acquired properties in Riverside County. The VA's Los Angeles office notified its management and sales brokers of the change, and published notices in the Los Angeles Times and the San Diego Union-Tribune.

The Sky Meadow CC & R's which govern the homeowners association contain a provision granting the association lien rights to the properties in the association for unpaid assessment fees. Pursuant to the CC & R's, Sky Meadow reserved the right to secure payment of the assessment fees by non-judicially foreclosing on the assessment liens. These covenants, in the CC & R's, run with the land and are binding upon anyone acquiring any right, title, or interest in Sky Meadow.

After the VA acquired the Sky Meadow property it failed to pay the association assessment fees. On March 12, 1997, counterdefendant Coast Assessment, on behalf of Sky Meadow, mailed the VA a Pre-Lien Demand for unpaid assessment fees on the property. On March 28, 1997, Coast Assessment recorded a Notice of Delinquent Assessment against the property. On April 29, 1997, when the VA still had failed to pay the assessments, Coast Assessment recorded a Notice of Default and Election to Sell under the Assessment Lien. Coast Assessment claims to have posted the notice at 5981 Sky Meadow Street, the Buky's former residence.

On August 1, 1997, the VA listed the property for sale at $67,000. The VA received three offers to purchase, one for $67,111, another for $68,000, and one for $67,100.

Also on August 1, Coast Assessment claims to have posted a Notice of a Trustee's Sale at the residence, which noticed the sale for August 28, 1997. Mark L. Morger, President of Coast Assessment, states that he posted the notice at the property. The sale was rescheduled for September 11, 1997. On that day, Coast Assessment purported to sell the property to Muhammad Yunis.5 He paid $2,186.75, far less than the fair market value of the property and just one cent more than what was due in assessment fees. Coast Assessment recorded the Trustee's Deed Upon Sale conveying title to Yunis.

Coast Assessment mailed the Pre-Lien Demand, the Notice of Default and Election to Sell, and the Notice of a Trustee's Sale to the VA's Los Angeles field office rather than to the San Diego field office. The VA's San Diego office claims it never received any of the notices. The VA admits, however, that the various notices were delivered to the mail room at the VA's office in Los Angeles. The VA's San Diego office employees maintain that prior to the sale, they were never aware of Sky Meadow's attempt to collect the delinquent assessments or the foreclosure proceedings.

On October 9, 1997, after the sale, the VA offered to pay Yunis the amount he paid for the property. In addition, the VA offered to pay Sky Meadow all past due assessment fees. On January 26, 1998, Coast Assessment returned a check for $2,000 to the VA, which it had tendered for payment of any delinquent assessment fees. The VA continues to offer to pay all past due assessments from the date VA took title.

By congressional mandate, the VA is required to sell properties acquired through the Home Loan Guaranty Program for the highest price as quickly as possible. 38 U.S.C. § 3733(d). The VA uses funds from the Veterans Housing Benefit Program Fund to reimburse lenders for their losses and costs in acquiring the properties and replenishes the fund with the proceeds from subsequent sales. 38 U.S.C. § 3722(b),(c). Here, by foreclosing on its assessment liens, Sky Meadow caused the VA to sustain a substantial loss to its loan guaranty fund.

Under the provisions of the VA Home Loan Guaranty Program, only the Secretary of the VA is entitled...

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