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MANNERS v. SECRETARY OF HUD

August 26, 1971

Elsa and Estella MANNERS, and Carlos Kastanon, on behalf of themselves, and all other persons similarly situated, Plaintiffs,
v.
SECRETARY OF HOUSING AND URBAN DEVELOPMENT, Eugene A. Gulledge, et al., Defendants


Dooling, District Judge.


The opinion of the court was delivered by: DOOLING

MEMORANDUM and ORDER

DOOLING, District Judge.

 There is no essential dispute of fact on the present motion for an injunction against the eviction of the plaintiff tenants from foreclosed properties the mortgages on which have been insured by the Secretary of Housing and Urban Development under the provisions of 12 U.S.C. § 1709. Plaintiffs contend, and argue on behalf of all other tenants similarly situated, that they cannot be evicted, even though their tenancies were subject to the mortgage and, under ordinary property principles could be terminated in foreclosure, without good cause shown in a proceeding characterized by due process. The two properties here involved, one owned by Federal National Mortgage Association (FNMA) and the other owned by Buffalo Savings Bank (the Bank) are located in the Brownsville-East New York area, and, plaintiffs argue, they are, and the neighborhood in which they are located is peculiarly the object of and eminently in need of exactly the sort of housing assistance instituted by the many and multiform housing assistance, urban redevelopment, slum removal, and property rehabilitation and renovation programs that have been provided by federal, state and city legislation, and that have been the subject of so much public and private endeavor and so many complex integrations of public assistance and private enterprise.

 A significant part of the public-law effort in housing has centered on governmental underpinning of traditional mortgage financing of new construction. 12 U.S.C. § 1709 authorizes the Secretary of Housing and Urban Development to insure mortgages on residential properties for occupancy by up to four families. Broadly, the insurance follows the now familiar pattern of a commitment to insure which makes possible the obtaining of the mortgage loan, followed by the Secretary's issuance of a contract of insurance when the terms of the commitment have been satisfied and the mortgage loan has been fully advanced. When a default occurs in such a mortgage arrangement, a usual consequence is the conventional mortgage foreclosure, or other acquisition of the property subject to the mortgage upon default, followed by the determination of the amount of insurance benefit and its liquidation with debentures and/or cash. 12 U.S.C. § 1710(a) provides that --

 
"(a) In any case in which the mortgagee * * * shall have foreclosed and taken possession of the mortgaged property in accordance with the regulations of * * * the Secretary, or shall, with the consent of the Secretary, have otherwise acquired such property. * * *"

 the mortgagee shall be entitled to receive the benefits of the insurance upon

 
"(1) the prompt conveyance to the Secretary of title to the property which meets the requirements of rules and regulations of the Secretary in force at the time the mortgage was insured, and which is evidenced in the manner prescribed by such rules and regulations, and (2) the assignment to him of all claims of the mortgagee against the mortgagor or others, arising out of the mortgage transaction or foreclosure proceedings, except such claims as may have been released with the consent of the Secretary * * * And provided further That, notwithstanding any requirement contained in this chapter that debentures may be issued only upon acquisition of title and possession by the mortgagee and its subsequent conveyance and transfer to the Secretary, and for the purpose of avoiding unnecessary conveyance expense in connection with payment of insurance benefits under the provisions of this chapter, the Secretary is authorized, subject to such rules and regulations as he may prescribe, to permit the mortgagee to tender to the Secretary a satisfactory conveyance of title and transfer of possession direct from the mortgagor or other appropriate grantor and to pay the insurance benefit to the mortgagee which it would otherwise be entitled to if such conveyance had been made to the mortgagee and from the mortgagee to the Secretary."

 A separate subdivision, Section 1710(g), provides that notwithstanding any other provision of law relating to the government's handling of real property

 
"the Secretary shall have power to deal with, complete, rent, renovate, modernize, insure, or sell for cash or credit, in his discretion, any properties conveyed to him in exchange for debentures and certificates of claim as provided in this section: * * *"

 After there had been a default and the Bank had, on or before July 24th, 1970, commenced a foreclosure action, the plaintiffs Manners became tenants in the two-family residence at 610 Sheffield Avenue, Brooklyn, New York, of which the Bank was mortgagee and the mortgage on which the Secretary had insured. A Notice of Pendency of the foreclosure action was filed July 24th, 1970, and the plaintiffs Manners, therefore, acquired a possessory interest subject to the mortgage and to any judgment in the action. A judgment of foreclosure and sale was entered on February 16th, 1971. The sale took place on March 23d and on March 30th a referee's deed of sale was made to the Bank. The Bank exhibited its deed to the plaintiffs Manners and demanded possession of them and they refused it. A motion for possession was then made on April 15th, 1971, and an order was, ultimately, made, on notice to the plaintiffs Manners, under date of June 14th, 1971. Execution of the order was by its own terms stayed until July 26th, 1971, in apparent contemplation of the present action.

 Plaintiff Kastanon was apparently a tenant in the two-family residence at 429 Warwick Street, Brooklyn. The bond and mortgage on 429 Warwick Street had been executed by the owners of record Fleitas to United Institutional Servicing Corp. and the Secretary insured the mortgage. The mortgage went into default almost as soon as it was made, but the mortgage had been transferred to FNMA, apparently within a month of its making. FNMA commenced its foreclosure action in April 1970 and filed a Notice of Lis Pendens. Plaintiff Kastanon was served as a "John Doe" tenant-defendant with summons and complaint on October 24th, 1970. Judgment of foreclosure and sale was entered December 23d, 1970, the sale took place on January 29th, 1971, and FNMA became the purchaser in foreclosure receiving the referee's deed on January 29th and recording it on February 9th, 1971. FNMA personally served a ten day notice to vacate on plaintiff Kastanon on February 24th, 1971, and, vacatur not following, a motion for possession was served on plaintiff Kastanon on April 19th, 1971; that motion has been postponed until August 5th, 1971, again in apparent contemplation of the proceedings in the present case.

 Plaintiffs essentially contend that their occupancy of the property is in some sort stamped with a public character and is under public supervision, and that, as a consequence, it cannot be terminated by arbitrary fiat, but can be terminated only on some ordered and reasonable scheme which, to the extent that it relates termination to a specified condition of fact, provides for at least minimal due process procedures in the determination of the existence of the termination-precipitating facts. Their reliance naturally is on Thorpe v. Housing Authority of Durham, 1969, 393 U.S. 268, 89 S. Ct. 518, 21 L. Ed. 2d 474; Escalera v. New York City Housing Authority, 2d Cir. 1970, 425 F.2d 853; Caulder v. Durham Housing Authority, 4th Cir. 1970, 433 F.2d 998; Colon v. Tompkins Square Neighbors, Inc., S.D.N.Y. 1968, 294 F. Supp. 134; Talbot v. Romney, S.D.N.Y. 1970, 321 F. Supp. 458; and McQueen v. Druker, D. Mass. 1970, 317 F. Supp. 1122.

 There is no doubt that each of the cases cited can be differentiated from the present case. Perhaps they differ most strikingly in that here the "tenant interest" is more tenuous and fragile than in the other cases, and, further, in the evident purpose of the present statutory scheme to make it possible for the Secretary to acquire insured property, in the event of a default foreclosure and a demand for insurance benefit, free and clear of all encumbrances, including tenancies, so that the Secretary can deal effectively with the property either by preparing it for the market and marketing it, rehabilitating it, or otherwise disposing of it in terms of the overall responsibilities of the Secretary in his office and under this and the other Acts under which he has administrative responsibilities. The Act fairly clearly contemplates that the insured mortgagee is to deliver title and possession. But since the Secretary has power to deal fully and freely with the property after it is acquired, and to hold and rent it, it is immediately obvious that situations could exist in which undisturbed tenancies, even in such 2-family houses as are here involved, would be advantageous in the Secretary's administration of the property. Hence, there is here implicit room for exercise of an informed judgment, in the public interest, on the advisability of insisting on vacant possession.

 In the narrow perspective of Sections 1709 and 1710 the interest of those who happen to be tenants is not clearly indicated as an interest intended to be benefited by the legislation, even insofar as the legislation may be thought implicitly to authorize the Secretary to take properties subject to tenancies and to create tenancies in them. True, tenants of the class whom plaintiffs wish to represent, that is tenants in a depressed and deteriorating area in Brooklyn, are broadly in a class manifestly intended to be advantaged by the entire complex of housing legislation and legislation devoted to urban development, renewal, and redevelopment. And it is plain enough that every provision of all of these statutes must be read, and every power and authority expressly or impliedly granted in them interpreted, in light of their over-all purposes of social betterment. Nevertheless, in the particular aspect here relevant of the operations of the particular law directly involved, the dominant interest is the interest of the Secretary in getting control of the property in the most manageable form so as to impose the fewest and slightest obstacles to his effectively dealing with the property in terms of the over-all purposes of the whole body of legislation. Hence, anything that the Secretary did to generalize practices with respect to existing occupancies and tenancies could expectedly and properly be weighed heavily for what might seem like ...


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