National Housing Law Project Housing Law Bulletin

The Mutual Help Homeownership Opportunity Program provides subsidies to housing authorities to make available homeownership opportunities for low-income participants. Under the program, the prospective homebuyer must make, or have made on his or her behalf through a native corporation, a nonrefundable contribution of land. The participant must also execute the Mutual Help and Occupancy Agreement (MHOA), a HUD form contract, with the IHA. Under the MHOA, a homebuyer makes monthly payments, a minimum portion of which goes toward administrative expenses, with surpluses being credited to a "equity payments account." The monthly payment depends upon the homebuyer's income. To achieve homeownership more quickly, the homebuyer may also make additional voluntary overpayments to another equity account. The purchase price for the home declines over a period of 25 years, eventually reaching zero, and the home may also be purchased at any time during the contract's terms upon the satisfaction of several conditions. In the event of a termination of the contract, the homebuyer receives a refund of any amounts remaining in the equity account(s), once delinquencies or necessary repair costs are covered.

At issue in this case was the simple question of whether, upon an alleged breach of the MHOA, the housing authority could regain possession by using the state statutory forcible entry and detainer (eviction) proceeding, or whether instead the IHA was required to seek another possessory remedy, such as ejectment or foreclosure.

There is nothing unusual about the facts underlying this dispute. After about 10 years into the contract, the homebuyer fell behind in his payments and also left the housing for an extended period, both alleged breaches of the MHOA. The housing authority then filed an eviction action, which was settled with entry of a conditional order for possession. When the homebuyer failed to return to the village, the IHA sought enforcement of the order. The homebuyer then sought to vacate the order, challenging the subject matter jurisdiction of the district court, claiming that the MHOA was not a lease but instead involved equitable interests not cognizable in an eviction action. Both the district court and the appellate court rejected the homebuyer's position, holding that the MHOA was a lease-purchase agreement, which was properly the subject of an eviction proceeding and within the jurisdiction of the district court. The Alaska Supreme Court then granted the homebuyer's petition for a hearing and reversed.

The IHA had essentially claimed that the MHOA was a lease-option. It pointed to a list of homebuyer obligations under the MHOA similar to those established by Alaska's version of the Uniform Residential Landlord and Tenant Act. It also emphasized a number of other provisions similar to obligations imposed upon subsidized housing tenants, such as income reporting and inspection requirements, restrictions on allowable residents and a ban on subletting, as well as the IHA's control of insurance for the property.

The homebuyer, on the other hand, emphasized a number of provisions as evidence that the MHOA was an installment sale contract, not a lease-option. He pointed to the use of the term "homebuyer" in the agreement (rather than tenant), the nonrefundable contribution of land, the existence of equity accounts, the ability to purchase during the term of the contract upon payment of the current balance, and so forth.

The Alaska Supreme Court first clarified that eviction jurisdiction includes an award of possession, which constitutes equitable relief. Although the court recognized that an eviction action may result in equitable relief, these are swift and summary proceedings, unsuited for resolution of more complex disputes involving equitable ownership interests. As a general matter, eviction courts do not have jurisdiction over all equitable actions.

The court properly framed the issue of the district court's jurisdiction as depending upon whether equitable interests existed in the dispute, not whether equitable relief could be awarded. The court resisted the temptation to label the MHOA as either a lease-option or installment sale, instead recognizing it as a "hybrid" contract extremely difficult to categorize. Critical for the court was that the contract creates equitable interests in the homebuyer, in contrast to the status of a tenant with no equity facing dispossession under a summary eviction proceedings. A homebuyer's equity may come from the land contributed to the transaction, capital improvements, appreciation in value, or direct equity contributions. For the court, this potential equity was enough to remove the case from summary eviction jurisdiction.

HUD had submitted an amicus curiae brief in support of the IHA's position, touting its consistent interpretation of the MHOA as a lease. Relegating HUD's position to a footnote, the court found HUD's regulations irrelevant.³ The court found equitable interests despite HUD's denial of their existence, and this finding was determinative. The existence of equitable interests under state law was sufficient to deprive the district court of jurisdiction under the summary eviction process. The court recognized that HUD is without power to interpret state laws, and HUD's regulations do not preempt or otherwise override state law on this point.

1. See 24 C.F.R. Part 905, Subpart E (1995).
2. For example, many public housing authorities (PHAs) and Indian Housing Authorities (IHAs) operate units under HUD's "Turnkey III" program, in which homeowners built equity toward the goal of eventual homeownership. See, e.g., 24 C.F.R. Part 905, Subpart G (IHA Turnkey III program) and Part 904, Subpart B (PHA Turnkey III program) (1995).
3. HUD's regulation states,

[T]he IHA may terminate the MHO agreement by written notice …enforced by eviction procedures applicable to landlord-tenant relationships. Foreclosure is an inappropriate method for enforcing termination of the homeownership agreement, which constitutes a lease (with an option to purchase). The homebuyer is a lessee during the term of the agreement and acquires no equitable interest in the home until the option to purchase is exercised.

24 C.F.R. § 905.446(a) (1995).