Scott E. Mollen
Scott E. Mollen ()

Landlord-Tenant—Section 8—Due Process—Administrative Procedure Act—Citing HUD Regulations, Handbook, Owner’s Policies and Common Sense, Court Found That HUD Failed to Afford Notice and Process to Occupant Whose Mother Removed Her From the Family Composition Records

The plaintiff lived in an apartment complex that is “a ‘project-based’ Section 8…housing development subsidized” by the U.S. Department of Housing and Urban Development (HUD).

In or before 2007, without the plaintiff’s knowledge, the plaintiff’s mother eliminated the plaintiff from “the household composition forms.” However, the plaintiff continued to live in the apartment. When the mother moved out and the plaintiff sought to take over the lease, the defendants denied the plaintiff’s request to continue the Section 8 subsidy, on the grounds that the plaintiff was not a party to the lease. The plaintiff challenged that determination, “alleging violations of the Due Process Clause and the Administrative Procedure Act (APA).” HUD moved for “judgment on the pleadings and summary judgment.” The court granted HUD’s motions in part and denied the motions in part.

The plaintiff lived in the apartment complex since the mid-1980s. In 1998, the plaintiff moved with her family to the subject apartment (apartment). The subject lease was signed by the mother. The lease obligated the mother to report “if a ‘household member moves out of the unit’” and incorporated “certification and recertification of tenant eligibility forms.” The forms required that the tenant-of-record “list the names of all individuals residing in the apartment.” The mother “oversaw” compliance with Section 8′s reporting and recertification mandate. However, the plaintiff had twice joined the mother in signing a recertification form as co-head of the household and she recalled “producing pay stubs on a number of occasions for the purpose of reporting the family’s income.”

Sometime in or before 2007, and unbeknownst to the plaintiff, the mother verbally advised the management office (manager) that the plaintiff no longer lived in the apartment. The mother did not recall when or why she removed the plaintiff’s name from the household composition. She acknowledged that “she had been a drug addict…and her memory of that period is a ‘total blur.’” Although the mother had submitted notarized statements to the owner, advising that two children and a grandchild had vacated the apartment, she had not submitted such statement for the plaintiff. Recertification forms submitted by the mother between 2007 and 2011, did not list the plaintiff “as a member of the household composition,” notwithstanding that the plaintiff lived in the apartment. During those years, the plaintiff was employed and her income should have been included to properly calculate the subsidy.

The mother testified that for three consecutive years, she had tried to “re-add” the plaintiff to the recertification system, but the owner had refused the requests. The mother claimed that the owner had advised her that once family members are removed from the composition, they could not be added later. The mother asserted that she complained to the manager, but was unaware that she could or should have contacted a contract administrator of HUD. The plaintiff was never added back to the household composition.

In or about 2010, the mother had vacated the apartment. Notwithstanding that she had signed an annual recertification form in 2011. In 2012, the plaintiff learned that she had been removed from the household composition and had attempted to submit the annual subsidy recertification paperwork to the owner.

The plaintiff alleged that HUD deprived her of due process when she was removed from the household composition without the owner verifying the removal and notifying the plaintiff, when HUD denied the plaintiff’s continued receipt of her family’s subsidy “for failure to appear on the lease” and when “HUD refused to waive handbook requirements for individuals to be considered remaining members of a tenant family.”

HUD argued that it was the mother’s actions and not HUD’s actions, that terminated the plaintiff’s property interest. However, HUD’s regulations, handbook, the owner’s “own policies, and common sense all dictate that HUD and [owner] had an obligation to verify that [plaintiff] had left the apartment before terminating her property interest in the [subsidy].” The court found that the plaintiff “was afforded no notice or process associated with this deprivation, in violation of the Due Process Clause” and therefore, denied HUD’s motions for summary judgment and on the pleadings with respect to that “deprivation.”‘

The court noted that the HUD regulations, handbook, and owner’s policy “all require independent verification when an individual is removed from the household composition.” The court noted that the aforementioned “safeguards all protect an individual’s property interest in their [subsidy], but none were afforded to [plaintiff.]“

The court further explained that “[a]t a minimum, due process requires that the government provide ‘notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’” The court concluded that “[w]ithout a modicum of due process, [plaintiff's] due process rights were violated, and judgment in HUD’s favor would be improper.”

The court also noted that even if the mother and the plaintiff violated their lease by failing to include the plaintiff and her income in the recertification forms, such argument is irrelevant since “[n]either [the mother] nor the [plaintiff's] [subsidy] could be terminated without due process.” The court stated that the plaintiff was entitled to “an opportunity to respond” before her subsidy was terminated.

The court further held that in 2012, the plaintiff’s rights to due process were violated, even if “she was not entitled to her mother’s [subsidy] as a remaining family member,” because she was “entitled to due process as a Section 8 applicant.” “Merely applying for Section 8 housing entitles an individual to certain due process rights….

Moreover, “a Section 8 project’s owner’s discretion is sufficiently circumscribed such that applicants to Section 8 housing possess a protected interest and are entitled to some due process safeguards.” The plaintiff attempted to submit annual recertification paperwork in 2012, but “never received written notice of [the owner] and HUD’s decision to deny her request, nor any information about how to challenge the decision….” Although “an applicant for governmental benefits[] has a less weighty interest than someone who is currently receiving benefits and is threatened with reduction or termination of those benefits,” the plaintiff “received no notice and no explanation” and that was “constitutionally insufficient.” The court did not need to determine what process the plaintiff was entitled to since the plaintiff had been “deprived a property interest without any due process.”

The court then held that the plaintiff cannot state a cause of action for a violation of due process based on HUD’s refusal to grant a waiver pursuant to the HUD handbook, since “HUD’s decision did not deprive [plaintiff] of a property right.” Since “HUD has discretion to grant waivers, [plaintiff] cannot assert a legitimate claim of entitlement sufficient to trigger due process protections.”

HUD had “failed to follow its own procedures—for example, by orally denying [plaintiff's] verbal waiver request rather than instructing her to file a written request that would be reviewed and responded to by written decision.” “A breach of procedural requirements does not create a due process violation unless an individual was ‘denied a fair forum for protecting his…rights.’” Thus, “HUD’s motions for judgment on the pleadings and summary judgment with respect to [plaintiff's] due process claims related to the denial of her waiver request” was granted.

The plaintiff had alleged four violations of her rights under the APA, i.e., HUD’s denial of her “request for a waiver of the HUD handbook requirement regarding remaining family members,” HUD’s affirmance of the owner’s violations of the housing assistance payments contract as to the plaintiff’s “removal from the household composition and loss of the [subsidy],” HUD’s refusal “to recognize her right to the [subsidy] under the terms of her lease” and HUD’s refusal “to continue the [subsidy] and for raising the rent to the fair market.”

The plaintiff had sought judicial review under 5 U.S.C. §706(2). The statute permits administrative agency actions, findings, and conclusions “that are ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law’ based on a review of ‘the whole record or those parts of it cited by a party’” to be set aside.

The court was unable “to identify the relevant administrative record regarding plaintiff’s APA claims.” It appeared that “much of the record does not exist.” Accordingly, the court found that “HUD’s failure to articulate its reasons in a way that would allow for judicial review is a clear violation of the APA.” The court was “unable to grant HUD’s motions for judgment on the pleadings and summary judgment without an administrative record to consider.” Since there appeared to be “no administrative record that articulates even the barest explanation for its decision,” the court held that HUD’s actions were “arbitrary and capricious.” Thus, HUD’s “motions for judgment on the pleadings and summary judgment with respect to [plaintiff's] APA claims” were denied and the court remanded the case to HUD for further proceedings consistent to the subject decision.

Greene v. Carson, 14 Civ. 3676, NYLJ 1202790759991, at *1 (SDNY, Decided June 14, 2017), Torres, J.


Foreclosure—Equitable Mortgage—Although Reformation Was Barred by the Statute of Limitations, the Court Applied the Doctrine of Equitable Mortgages

A plaintiff sought to foreclose on a consolidated mortgage encumbering a residential property. The mortgage secured debt under three loans undertaken by defendant “A” in the amount of $1.5 million. The first loan was made in 1991, when “A” executed a note and mortgage “in favor of Apple Bank for Savings, in the principal loan amount of $500,000.” “Apple Bank then assigned the note and mortgage to Chemical Bank” in 1993, “which in turn assigned the note and mortgage to GreenPoint Bank by assignment dated October 19, 1995.”

“A” thereafter “executed a second note and mortgage dated Sept. 21, 1995 in connection with a loan by GreenPoint Bank in the…amount of $500,499.41, also secured” by the same property. “The two mortgages were consolidated and modified so as to constitute a single lien in the amount of $1,000,000, by a consolidation, extension and modification agreement (CEMA)….”

“North Fork Bank, as successor by merger to GreenPoint Bank, assigned the consolidated note and mortgage to Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for Green Point Mortgage Funding, Inc., by assignment dated April 13, 2006.” Also, on April 13, 2006, “A” executed a new note, in favor of GreenPoint Mortgage Funding, pursuant to which “she agreed to pay a new money loan in the original principal amount of $1,069,068.99, secured by a mortgage, collectively with the first and second mortgage, in favor of MERS as nominee for Green Point Mortgage Funding, encumbering” the same property. A second consolidation, extension and modification agreement (Second CEMA), together with a new consolidated note and consolidated mortgage, were entered executed and recorded on Aug. 23, 2006. “Unlike the first CEMA, the second CEMA did not list the complete mortgage chain.” The plaintiff, without contradiction, asserted that “A” has been in default since November 2009.

The plaintiff commenced the subject foreclosure action on Oct. 8, 2014. The first cause of action sought “an order of foreclosure.” The second sought reformation of the Second CEMA so that it would contain a “recitation of the complete mortgage chain.”

The plaintiff commenced the subject foreclosure action on Oct. 8, 2014. The defendant asserted, inter alia, that “reformation was not possible because the statute of limitations had expired, and that summary judgment could not be granted in the action without reforming the CEMA.”

The subject court in 2016, had held that “reformation was unavailable, because the applicable statute of limitations…had expired by the time this action was commenced….” The court noted that “the parties had not adequately addressed the issues of whether the CEMA is enforceable as written, or, if not, whether relief other than reformation of the CEMA is available.”

The plaintiff again moved for summary judgment, “appointing a referee to compute and for related relief.” The plaintiff argued that the consolidated mortgage could be enforced “despite the CEMA’s failure to recite the entire mortgage chain, and…, in any event, the doctrine of equitable mortgages should be applied here to allow plaintiff’s foreclosure on the consolidated mortgage.” “A” argued, inter alia, that “the failure to recite the entire mortgage chain in the CEMA is fatal” and “in the absence of an explanation of how the error occurred, no equitable remedy may be awarded.”

The court held that the plaintiff was entitled to a judgment of foreclosure, notwithstanding the unavailability of the relief of reformation. The court explained

“[A] consolidation of outstanding loans is a device intended for the convenience of only the contracting parties and cannot impair liens in favor of parties that are not the contracting parties, which retain their independent force and effect”…. The consolidated mortgage merely continues already existing encumbrances on the property, and the consolidated note continues to entitle its holder to foreclose on the consolidated mortgage. There is no confusion or issue as to the exact nature and extent of the debt or the property securing the obligation. Nor was there ever any confusion or dispute as to the chain of the mortgages leading up to the consolidated loan documentation. The failure to include a list of the chain of mortgages leading up to the consolidated mortgages is merely a trivial defect in a single document that should not prevent foreclosure on the consolidated mortgage.

The court further opined that the subject situation “warrants the application of the doctrine of equitable mortgages.” “New York has long recognized that ‘an equitable mortgage may be constituted by any writing from which the intention so to do may be gathered, and an attempt to make a legal mortgage, which fails for the want of some solemnity, is valid in equity’….”

The court cited appellate authority which explained that:

[A]n equitable mortgage may be constituted by any writing from which the intention so to do may be gathered, and an attempt to make a legal mortgage, which fails for the want of some solemnity, is valid in equity. While [a] court will impose an equitable mortgage where the facts surrounding a transaction evidence that the parties intended that a specific piece of property is to be held or transferred to secure an obligation…, it is necessary that an intention to create such a charge clearly appear from the language and the attendant circumstances…. [T]he availability of an equitable mortgage is not dependent upon the nature…of the error, but rather upon the existence of a clear intent between the parties that [certain] property be held, given or transferred as security for an obligation.

The court concluded that “[a]lthough the mortgage chain is complicated, the parties’ intent here was never in doubt. There is no question that ['A'] intended the subject property to serve as security for her $1.5 loan obligation. The evidence establishes, as a matter of law, grounds for the creation of an equitable mortgage.” The court further held that there was no requirement that the plaintiff “establish how the defect in the CEMA occurred before the equitable doctrine may be applied.” Accordingly, the court granted the plaintiff’s motion for summary judgment foreclose the mortgage.

Capital One v. Karp, 67229/ 2014, NYLJ 1202792210583, at *1 (Sup., WE, Decided June 22, 2017), Ruderman, J.