Meridian Mortgage Corp. v. United States

24 Cl. Ct. 811, 1992 U.S. Claims LEXIS 1, 1992 WL 1298
CourtUnited States Court of Claims
DecidedJanuary 6, 1992
DocketNo. 90-278C
StatusPublished

This text of 24 Cl. Ct. 811 (Meridian Mortgage Corp. v. United States) is published on Counsel Stack Legal Research, covering United States Court of Claims primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Meridian Mortgage Corp. v. United States, 24 Cl. Ct. 811, 1992 U.S. Claims LEXIS 1, 1992 WL 1298 (cc 1992).

Opinion

OPINION

BRUGGINK, Judge.

The pending cross motions for summary judgment raise a novel question concerning the issuance of Federal Housing Administration (“FHA”) General Insurance Fund debentures. The precise issue is when debentures first become “outstanding” for purposes of a notice of early redemption. Plaintiff, holder by assignment of rights to receive over $11 million in FHA debentures, claims that since the debentures had not yet been created as paper certificates, but were merely reflected as accounts within the Treasury Department’s computer system, they were not subject to a call notice. Defendant takes the opposite view. Approximately six months’ interest is at stake. The relevant facts are not disputed. For the following reasons, and after oral argument, the court concludes that defendant’s position is correct.

FACTUAL AND LEGISLATIVE BACKGROUND

Pursuant to section 207 of the National Housing Act of 1937 (the “Act”), 12 U.S.C. § 1713 (1988), in the event of default, a mortgagee on a federally insured rental housing loan can collect the insurance benefits in the form of debentures. Id. § 1713(g). Debentures thus issued must be “signed by the Secretary [of HUD], by either his written or engraved signature, shall be negotiable, and shall be dated as of the date of default ... and shall bear interest from such date____” Id. § 1713(i).

Under statutory authority,1 an agreement was developed between HUD and the Department of the Treasury entitled “Pro[813]*813cedure for the Conduct of Transactions by the Treasury Department on Behalf of the Federal Housing Administration in connection with Mutual Insurance Fund and Housing Insurance Fund Debentures and Interim Certificates for Such Debentures”. Under the agreement,2 the Treasury Department acts as agent for HUD, for among other things, the issuance and redemption of debentures. Also pursuant to the agreement,3 and by practice since 1988, the Federal Reserve Bank of Philadelphia acts as fiscal agent for the Treasury with respect to these types of debentures.

The steps leading to the creation of debentures were outlined in the affidavits of Gary G. Zimmerman 4 and Walter Childs.5 According to Zimmerman:

The claim examination process begins with the receipt of fiscal data. The fiscal data is reviewed for the accuracy of the claim. The process includes verifying the mortgage balance, escrow balances, reserve for replacement balances and any special escrow deposit balances____
When all balances are verified and/or adjusted, and notice of legal clearance has been received, the claim is processed for final settlement.
When the necessary paperwork has been prepared, it is sent to the Federal Reserve Bank by overnight mail for the issuance of debentures authorized. The requisition that is sent is the authorization for issuance of the debentures.

Childs picks up the narrative:

The debentures at issue ... were all issued based on paper schedules transmitted by HUD. After receipt of a schedule at [the Federal Reserve Bank of] Philadelphia and verification of the information thereon, debentures of the requested amount and loan (“CUSIP”) are entered into an account for the owner in the FHA debenture system (“system”). An “Original Issue Authorization Advice” is produced, verifying that the data has been entered into the system.

Childs Affidavit at ¶ 6.

At this point, once the debenture in the requested amount is entered into the system under the account owner’s name, the Treasury Department considers the debenture “registered” to that owner. Childs Supplemental Affidavit at 112. That determination is derived from two provisions of the “General Regulations Governing U.S. Securities,” set out in Title 31, Part 306 of the Code of Federal Regulations. The first provision states that “[a] registered security refers to a security the ownership of which is registered on the books of the [Treasury] Department.” 31 C.F.R. § 306.-2(n) (1989) (emphasis in original). The second provision states that “[t]he Treasury Department reserves the right to treat the registration as conclusive of ownership.” 31 C.F.R. § 306.10.

Childs goes on to describe the post-registration procedures:

... The system automatically updates appropriate computer files via a batch process that is effected the evening of the same day the data is manually entered into the system. A “Statement of Account” is generated whenever a transaction occurs, and is mailed to the owner____ The entry of original issue data in the system is a transaction that automatically generates a statement of account. The “Reason(s) for this Statement” shown on such a Statement of Account is “Original issue (OI).” The Statement of Account also shows a description of the owner’s holdings as of the date it is generated, and the balance in the account. The transaction date shown on the Statement of Account is the date the original issue transaction [814]*814was processed (entered in the system). The transaction date is also the date the debentures are recorded as part of the outstanding debt of the United States. The Statement of Account also shows a “retro-active interest” amount, which is paid by check upon establishment of the FHA debenture account____ The payments of retro-active interest on the debentures at issue ... were made on September 21, 1989____ Subsequent to the establishment of a debenture account on the FHA system, debenture stock of the appropriate series and denomination is withdrawn from the vault at FRB Philadelphia ... and inscribed with the owner’s name, as specified in the HUD schedule. The debenture serial numbers are thereafter entered into the debenture account that has already been established. The debentures are mailed by certified mail to the owner at the address specified on the HUD schedule, unless the owner arranges to pick up the debentures.

Childs Affidavit at ¶ 6 (Citations omitted).

This process was followed with respect to Meridian’s debentures. Through assignment and assumption agreements, or through purchase agreements, Meridian had received from three different mortgage companies the rights to receive Series MM 12/01/2007 and 12/01/2008 debentures bearing annual interest at twelve and seven eighths percent when issued. There were three different construction projects involved. The transaction with respect to Stonewood Apartments is representative. After default, the mortgage was assigned to HUD on December 8, 1988. On December 29, the fiscal data was received. On September 12,1989, the Multifamily Claims Branch (“MCB”) completed its review. On September 13, the MCB authorized issuance of debentures in the amount of $2,799,500 and sent an original issue authorization to the FRB for processing. This authorization reflects “Final settlement.” On September 20, 1989, the FRB produced an “Original Issue Authorization Advice,” indicating the creation of an account within the system.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Young v. Clarendon Township
132 U.S. 340 (Supreme Court, 1889)
Barnum v. Okolona
148 U.S. 393 (Supreme Court, 1893)

Cite This Page — Counsel Stack

Bluebook (online)
24 Cl. Ct. 811, 1992 U.S. Claims LEXIS 1, 1992 WL 1298, Counsel Stack Legal Research, https://law.counselstack.com/opinion/meridian-mortgage-corp-v-united-states-cc-1992.