National Housing Law Project Housing Law Bulletin

The preliminary injunction issued by the U. S. District Court for the Northern District of Illinois, ordering the Department of Housing and Urban Development to reinstate the single-family mortgage assignment program or an equivalent program in accordance with the consent decree reached in 1979 in Ferrell v. HUD, was recently reversed by the United States Court of Appeals for the Seventh Circuit./1/ In reversing the decision, the Court of Appeals found that the District Court erred in issuing the preliminary injunction because it failed to properly consider the likelihood of the plaintiffs prevailing on the merits of the claim. The Court of Appeals concluded that the District Court erroneously focused instead on the likelihood that plaintiffs would prevail on their motion for contempt against HUD for its failure to promptly move to vacate the consent decree after Congress amended the agency’s authority to operate the assignment program.

The Ferrell case was initiated in 1973 as a nationwide class action by owners of HUD-insured single-family homes who were facing foreclosure of their loans. They successfully argued that HUD had statutory authority to provide them with foreclosure relief by having the holders of the insured mortgages assign the mortgages to HUD whenever the owners defaulted on their loans due to circumstances beyond their control. They further argued that HUD's failure to exercise that authority violated the national housing goals./2/

In 1976, HUD and the plaintiffs in Brown, by then renamed Ferrell v. Hills, entered into a consent decree wherein HUD obligated itself to implement what has become known as the Assignment Program. Under the program, owners who defaulted on their loans due to circumstances beyond their control would have their mortgages assigned to HUD. After the assignment was complete, they would receive partial or full forbearance on their mortgage payments for up to 36 months./3/

The consent decree notwithstanding, HUD field offices failed to properly administer the newly created program. In 1979, after additional litigation challenging HUD's implementation of the 1976 consent decree, the parties entered into a court-approved Amended Stipulation to the 1976 consent decree. That stipulation obligated HUD to continue to operate the assignment program, or an equivalent alternative, indefinitely./4/

HUD staff never liked the assignment program and, through regulations, handbooks and administrative practices, erected numerous barriers to homeowners' obtaining the envisioned foreclosure relief. HUD's actions spawned a multitude of lawsuits challenging its repeated denial of assignments to individual homeowners for purportedly not meeting the eligibility criteria established by regulations and set out in HUD Handbooks./5/

In 1980, HUD's distaste for the assignment program prompted it to ask Congress for legislation authorizing the implementation of another mortgage relief program, called the Temporary Mortgage Assistance Payment Program (TMAP)./6/ After TMAP was enacted, HUD attempted to substitute that program for the Assignment Program. The plaintiffs in Ferrell successfully challenged HUD's actions by arguing that TMAP was not equivalent to the Assignment Program and that its substitution violated the 1979 consent decree in Ferrell./7/ As a result, TMAP was never implemented.

In 1996, HUD made another end-run at the Assignment Program by persuading Congress to repeal the statutory authority for the program and substitute provisions granting the Secretary of HUD discretionary authority to implement another foreclosure relief program, the Partial Payment program, to assist single-family homeowners. In an effort to terminate the program, the statute, which had been drafted by HUD, explicitly stated that "no provision of the [National Housing] Act, or any other law, shall be construed to require the Secretary to provide an alternative to foreclosure."/8/ In addition, it precluded judicial review of any and all HUD decisions with respect to the implementation of any foreclosure relief program./9/

In April of 1996, shortly after the statute’s enactment, HUD promptly terminated the Assignment Program. On September 27, 1996, HUD filed a motion with the court seeking to vacate the 1979 Amended Stipulation. In response, plaintiffs filed a motion with the court seeking to hold HUD in civil contempt for discontinuing the program in violation of the Amended Stipulation and without the court's prior permission. They also requested that HUD be directed to reinstate the assignment program or an equivalent, as required by the 1979 Amended Stipulation.

A hearing on the parties' motions was held in October 1996, after which the District Court concluded that resolution of HUD's motion to vacate the Amended Stipulation would require a lengthy court process. Consequently, the Court agreed with the plaintiffs that the briefing on the motions proceed in stages and that the first issue to be addressed was whether HUD should be ordered to reinstate the Assignment Program or an equivalent substitute pending resolution of the underlying issues. After the parties filed their briefs on that issue, the Court rejected the plaintiffs' argument for reinstating the program because they had not presented any evidence of irreparable harm as would be required to grant a preliminary injunction./10/ In response, the plaintiffs filed a renewed motion supported by evidence of the irreparable harm, and the court ruled in plaintiffs' favor by requiring HUD to reinstate the Assignment Program or an equivalent substitute./11/ It is that order, stayed by the District Court, which was the subject of the appeal to the Seventh Circuit.

In reaching its conclusion, the District Court considered and decided three issues, all in favor of the plaintiffs: first, whether HUD had statutory authority to implement the assignment program or an equivalent program; second, whether the court had authority to order HUD to comply with the 1979 Amended Stipulation; and, third whether the plaintiffs had met the burden for obtaining a preliminary injunction./12/

In reversing the District Court, the Court of Appeals focused on the District Court’s conclusion that the plaintiffs had met their burden for obtaining a preliminary injunction. The Court of Appeals viewed the District Court’s analysis on this issue as flawed because it focused on the likelihood of the plaintiffs’ prevailing on their motion for contempt rather than the likelihood of prevailing on their underlying request that HUD continue to operate the Mortgage Assignment Program./13/

Turning to the issue of the likelihood that the plaintiff will prevail on the merits, the Court of Appeals concluded that Congress withdrew HUD’s explicit statutory authority to operate the Assignment Program. It further concluded that HUD had no independent statutory authority to operate the program. Citing to the provisions of the 1996 legislation that (1) state that no law shall be construed to require the Secretary to provide an alternative to foreclosure or to accept mortgage assignment, and (2) that preclude judicial review of any decisions of the Secretary to exercise, or fail to exercise authority under the remaining statutory assignment provisions, the Court of Appeals concluded that the 1996 legislation manifests Congress’ intent to terminate the Mortgage Assignment Program previously operated pursuant to the 1979 Amended Stipulation./14/

The Court of Appeals also rejected the plaintiffs’ contention, upheld by the District Court, that HUD had sufficient other statutory authority to operate an Assignment Program. Based on Congress’ 1996 repeal of the statute explicitly authorizing the program, the Court of Appeals concluded that Congress could not have intended to allow HUD to operate the program under the Agency’s general statutory authority when it repealed the program’s explicit statutory authority. Such a conclusion, the Court found, "would impute to Congress--undeserved--uncertainty and confusion in articulating national housing policy that the statutory text, fairly read, simply does not convey."/15/

The Court of Appeals also concluded, contrary to the District Court, that HUD did not have the authority to operate an equivalent substitute to the Assignment Program in the form of a mandatory partial claim program. It rejected the District Court’s conclusion that under 12 U.S.C. § 1715u(b) HUD is empowered to establish a program for payment of partial claims to a mortgagee that agrees to apply the claim amount to payment of a mortgage. In the Court’s view, that statutory provision is permissive, not mandatory, both with respect to HUD and the mortgagees and thus not the same as the previously authorized Assignment Program./16/

The Court of Appeals thus concluded that "Congress’ enactment of the [1996 legislation] has rendered HUD’s continued operation of the Mortgage Assignment Program statutorily unauthorized"/17/ and justified a modification of the consent decree. Therefore, it held that the plaintiffs had no likelihood of success on the merits and reversed the issuance of the preliminary injunction.

In closing, the Court of Appeals also rejected the idea that HUD should be held in contempt for failing to seek to vacate the consent decree in a timely fashion. According to the Court, the purpose of civil contempt is to coerce compliance or to compensate the complainant for loss sustained by disobedience. When the underlying order is no longer valid, the Court concluded, a civil contempt order would serve neither of those purposes. It thus reversed the District Court’s order./18/

Underlying the Court of Appeals’ decision is the fact that Congress, during the pendency of the appeal, at HUD’s urging in the 1998 Appropriations Act expressed its opinion specifically referring to the Ferrell litigation that it both intended to terminate the Mortgage Assignment Program and did not intend to create a substantial equivalent when it enacted the1996 legislation./19/

Notes

1    Ferrell v. HUD, 186 F.3rd 805, 1999 WL 538197 (7^th Cir., July 26, 1999).

2    See Brown v. Lynn, 385 F. Supp. 986, 998-99 (N.D. Ill. 1974).

3    See 12 U.S.C.A. § 1715u(b) (West 1996).

4    Ferrell v. Harris, No. 73 C 334 (N.D. Ill. Aug. 2, 1979) (Amended Stipulation, ¶ 14).

5    See, e.g., Federal Nat'l Mortgage Ass'n v. Rathgens, 595 F. Supp. 552, 557 (S.D. Ohio 1984).

6    See 12 U.S.C.A. § 1715u(a) (West 1996).

7    See Ferrell v. Pierce, 560 F. Supp. 1344, 1372 (N.D. Ill. 1983), aff'd, 742 F.2d 454 (7th Cir. 1984).

8    The Balanced Budget Downpayment Act, Pub. L. No. 104-99, 110 Stat. 26, 45-47 (1996).

9    Id.

10    See Ferrell, 1996 WL 680245 (N.D. Ill., March 31, 1996) (Slip Op. at 1).

11    Ferrell v. HUD, 1998 WL 160,916 (N.D. Ill., Mar. 31, 1998)(Slip Op. at 14).

12    Id. In the District Court's view, the standard for determining whether HUD would be required to reinstate the assignment program was identical to that on a motion for a preliminary injunction, namely, the prevention of irreparable harm to the plaintiffs pending resolution of the matter, which in the court's view, could be considerably delayed.

13    Ferrell v. HUD, 186 F.3d 811-812, 1999 WL 538197, Slip op. at 5 (7^th Cir., July 26, 1999) (hereinafter, all citations will be to the slip opinion). Without an explicit finding, the District Court opinion in fact found that the plaintiffs would prevail on the merits of their claim when it concluded that HUD had authority to operate an assignment program independent of the statutory authority repealed by Congress in 1996. As set out below, the Court of Appeals, disagreed with that conclusion and thus recharachterized the issue on appeal.

14    Id. at 812

15    Id. at 813

16    Id.

17    Id.

18    Id. at 814

19    Id. n. 7