National Housing Law Project Housing Law Bulletin

In 1976, Georgia Legal Services initiated a statewide class action suit against the Farmers Home Administration (FmHA) on behalf of Section 202 single-family borrowers, contending that the agency's use of that state's nonjudicial foreclosure proceeding violated the Constitution because borrowers were not personally notified of the availability of moratorium relief, were not provided the opportunity to apply for relief prior to foreclosure, and did not have an opportunity to present defenses to the foreclosure actions in a court proceeding. Williams v. Butz, No. CV176-153 (S.D. Ga. filed 1976). After a preliminary injunction was issued against the agency enjoining it from nonjudicial foreclosure of single-family home loans, the plaintiffs and FmHA entered into a consent decree in 1977 wherein, among other things, FmHA agreed to use only judicial foreclosures in Georgia, to reinstate and reprocess several hundred single-family loans that had been foreclosed nonjudicially, and to notify all borrowers of the availability of moratorium relief and interest credit subsidy at the time of loan closing, upon a borrower's missing a mortgage payment and prior to foreclosure. Importantly, the decree specified the exact language that must be included in the notices to borrowers who had missed payments and defaulted on their loans. Williams v. Butz, No. CV176-153 (Oct. 7, 1977) (Consent Decree).¹

Twenty years later, in 1997, the Rural Housing Service (RHS), the successor agency to FmHA, centralized all of its loan servicing for Section 502 direct borrowers in its St. Louis, Missouri, office and standardized its various delinquency and foreclosure notices for borrowers in all states, including Georgia. The standardized notices did not include the language specified in the 1977 consent decree. When Georgia Legal Services became aware of the omission in 1998, it notified RHS of its failure to comply with the consent decree and demanded that the agency take immediate action to comply.

On August 10, 1998, RHS advised Georgia Legal Services that it would comply with the Williams consent decree by suspending all pending foreclosure activity in Georgia and providing delinquent borrowers with the required notice as well as additional loan servicing. As a result, 271 borrowers whose loans had been accelerated had their foreclosure proceedings suspended until after they received the required notices and had an opportunity to contact their local Rural Development office for servicing. In addition, over 5,000 Georgia borrowers whose loans were at least 60 days delinquent received a new notice that included the required language and provided them an opportunity to apply for moratorium relief and other loan servicing.

When RHS centralized its loan servicing, it stopped a long-standing and highly effective FmHA practice of contacting borrowers personally for major servicing actions, such as the annual renewal of mortgage subsidies, now called payment assistance, whenever the borrowers failed to respond to mailed notices. Instead, RHS's central processing unit now simply calls borrowers by phone and if they fail to respond, it proceeds to take action, such as terminating the subsidies or proceeding to foreclosure. As a result, the number of borrowers whose mortgage subsidies are terminated has increased substantially and, not surprisingly, the RHS delinquency and foreclosure rate has shot up dramatically. In Georgia, over 1,700 borrowers had their mortgage subsidy terminated in a little over one year since RHS centralized its servicing due to the borrowers' failure to respond to mailings asking for information necessary to recertify the borrowers for the mortgage subsidy. Since most of these borrowers became delinquent as a result of the subsidy termination and did not receive the notice required by the Williams consent decree, RHS agreed to also undertake a special servicing effort in Georgia by contacting these 1,700 borrowers to determine why they lost their assistance and if they are in fact eligible.

Georgia Legal Services' vigilance in this matter should encourage other practitioners to dust off old consent decrees to determine whether the parties who entered the decree are continuing to abide by them and, if necessary, to seek their compliance. In this case, it is doubtful that the affected borrowers could have been helped except through reliance on a 20-year-old consent decree.
 

¹  In 1990, after a protracted court battle, FmHA successfully petitioned the District Court to modify the consent decree to allow it to use Georgia's non-judicial foreclosure proceeding. Williams v. Butz, No. 176-153 (S.D. Ga. June 20, 1990). This modification, however, did not alter the agency's obligation to comply with the other notice provisions that were incorporated into the consent decree.