Alder Terrace Inc. v. United States

39 Fed. Cl. 114, 1997 U.S. Claims LEXIS 183, 1997 WL 543132
CourtUnited States Court of Federal Claims
DecidedSeptember 4, 1997
DocketNo. 96-500C
StatusPublished
Cited by6 cases

This text of 39 Fed. Cl. 114 (Alder Terrace Inc. v. United States) is published on Counsel Stack Legal Research, covering United States Court of Federal Claims primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Alder Terrace Inc. v. United States, 39 Fed. Cl. 114, 1997 U.S. Claims LEXIS 183, 1997 WL 543132 (uscfc 1997).

Opinion

OPINION

ROBINSON, Senior Judge.

This action arises out of contracts between the Department of Housing and Urban Development (“HUD” or “the agency”) and plaintiffs relating to the construction and operation of low- and moderate-income rental housing. Plaintiffs claim they were prohibited by congressional legislation from prepaying their mortgage after 20 years as allowed by contract and forced to remain subject to HUD regulations in violation of the original agreements. Currently, the case is before the court on defendant’s December 3, 1996 Motion to Dismiss plaintiffs’ complaint pursuant to Rule 12(b)(1), (4) of the Rules of the U.S. Court of Federal Claims. Plaintiffs filed their response in opposition on January 23, 1997, to which defendant replied on March 6, 1997. Oral arguments were heard on June 17, 1997, in the National Courts Building, Washington, D.C. For the reasons set forth below, defendant’s motion to dismiss is hereby granted.

Background

During the 1960s and 1970s, Congress enacted legislation to encourage private developers to construct, own, and manage housing projects for low- and moderate-income residents. Congress authorized HUD to provide mortgage insurance, below market interest rate loans, and interest rate subsidies to stimulate the private development of such housing. Plaintiffs agreed under section 221(d)(3) of the National Housing Act, as amended, 12 U.S.C. §§ 17152(d)(3), 1715z-l, to construct and operate rental housing for low- and moderate-income residents. Plaintiffs further agreed to enter into regulatory agreements with HUD governing their operation. These agreements imposed significant restrictions on: the tenants to whom plaintiffs could rent; the rents the owners could charge; the profits they could receive; and the maintenance and financial operation of each project. Contemporaneous with the execution of the regulatory agreements, plaintiffs entered into long-term deeds of trust1 with private lending institutions and executed secured notes. After final endorsement of these notes and deeds of trust by the Federal Housing Commissioner on December 26, 1968, Sparkman and McLean Company assigned the deeds of trust to the Government National Mortgage Association (“GNMA”). HUD endorsed the notes, and they were insured under section 221(d)(3) or section 236 of the National Housing Act and the accompanying regulations. The date of final endorsement by the Federal Housing Administration (“FHA”) was January 5,1969.

Simultaneous with the execution of the regulatory agreements and the notes, HUD and the lender entered into contracts for mortgage insurance. By their terms, the regulatory agreements were to remain in effect only as long as the mortgage insurance contacts between HUD and the lenders remained in effect, or during any time HUD held or was obligated to insure a mortgage on the project. The section 221(d)(3) notes endorsed by HUD FHA Form No. 1734, provided in part:

The debt evidenced by this Deed of Trust Note may not be prepaid, either in whole or in part, prior to the final maturity date hereof without the prior written approval of the Federal Housing Commissioner, except a maker which is a limited dividend corporation may prepay without such approval after twenty (20) years from the date of final endorsement of this note by the Federal Housing Commissioner.

The section 236 notes endorsed by HUD FHA Form No. 41769-d, provided in part:

The debt evidenced by this Deed of Trust Note may not be prepaid, either in whole or in part prior to the final maturity date hereof without the prior written approval [117]*117of the Federal Housing Commissioner, except where: (1) the prepayment is in connection with the release of an individual unit for sale to a lower income, elderly, or handicapped person; or (2) the maker is a limited dividend corporation which is not receiving payments from the Commissioner under a rent supplement contract pursuant to section 101 of the Housing and Urban Development Act of 1965, and the prepayment occurs after the expiration of twenty (20) years from the date of final endorsement____

Consistent with the language of the HUD-endorsed notes, the HUD regulations that implemented sections 221 and 236 permitted limited distribution mortgagors to prepay their mortgages 20 years after endorsement and terminate their regulatory agreements with HUD. See 24 C.F.R. § 221.524(a)(l)(ii) (1986). Plaintiffs, who entered into the regulatory agreements pursuant to section 236, qualified as limited distribution mortgagors and were not receiving payments from the Commissioner under rent supplement contracts pursuant to section 101 of the HUD Act of 1965. Accordingly, plaintiffs were entitled under section 236, the HUD regulations, and their notes to: prepay their mortgages twenty years from the date of HUD’s endorsement securing their mortgages; cancel their mortgage insurance; and use or dispose of their investments as they saw fit.

The Emergency Low Income Housing Preservation Act of 1987 (“ELIHPA”), 12 U.S.C. § 1715Z, authorized HUD, subject to various conditions, to provide limited, specified incentives2 to those owners who were unable to meet the conditions set forth in ELIHPA and who would be compelled to continue to operate their projects for the benefit of low-income tenants. Congress directed the Secretary to issue implementing regulations by May 21, 1988. However, HUD did not publish final implementing regulations until September 21, 1990. These regulations and HUD notices were to govern HUD’s approval of plans of action (“POAs”), which the owners were required to submit in order to apply for-incentives. Plaintiffs submitted a proper notice of intent (“NOI”) to prepay their mortgage, but upon being barred from prepayment, canceled their mortgage insurance. Their request to terminate them mortgage insurance was approved in July 1989 and became effective retroactively in December 1988.

The twenty-year prepayment date for plaintiffs’ projects passed January 5, 1989. Nonetheless, plaintiffs were initially barred from prepaying their mortgages and terminating their regulatory agreements by Congress’ enactment on February 5, 1988 of ELIHPA. This act compelled the owners to continue their participation in the government’s housing programs by imposing an emergency moratorium on plaintiffs’ right to prepay their mortgage balances or to cancel their mortgage insurance subject to the satisfaction of the Secretary of HUD (“Secretary”). The limitations on HUD’s discretion to approve prepayments, found at 12 U.S.C. § 4108(a), provide in pertinent part:

The Secretary may approve a plan of action that provides for termination of the low income affordability restrictions ... only upon a written finding that—
(1) implementation of the plan of action will not—
(A) materially increase economic hardship for current tenants ... ;or

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Related

Hampton Associates v. Board of Assessors
751 N.E.2d 437 (Massachusetts Appeals Court, 2001)
Alder Terrace, Inc. v. United States
161 F.3d 1372 (Federal Circuit, 1998)
Adams v. United States
42 Fed. Cl. 463 (Federal Claims, 1998)
Celentano v. United States
41 Fed. Cl. 596 (Federal Claims, 1998)

Cite This Page — Counsel Stack

Bluebook (online)
39 Fed. Cl. 114, 1997 U.S. Claims LEXIS 183, 1997 WL 543132, Counsel Stack Legal Research, https://law.counselstack.com/opinion/alder-terrace-inc-v-united-states-uscfc-1997.