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PREPAYMENT LITIGATION STRATEGIES AND UPDATE ON PREPAYMENT LITIGATION C. Clayton Gill May 18, 2005 Moffatt Thomas Prepayment Options 1. Nonlitigation alternatives The ELIHPA, Regulation 3560 (formerly 1965-E) prepayment process Transfers pursuant to Regulation 1965-B Quiet title – removing the property from 515 Program Money damages – recovering lost profit damages 2. Litigation options Moffatt Thomas RD’s Prepayment Process (ELIHPA/Reg 3560) For loans without use restrictions Submit application General vs. specific incentive offers Appraisal of property Incentives Determination of need for housing and impact on minorities Prepaying with restrictions vs. prepaying without restrictions Moffatt Thomas General Problems with RD’s Prepayment Process 1. Time-consuming and expensive 2. State agencies have differing interpretation of process (e.g., market studies) 3. Delays associated with agency workload Moffatt Thomas Specific Problems with RD’s Prepayment Process – Incentive Offers 1. Appraisals completed by appraisers 2. 3. 4. 5. selected by RD Post-transaction basic rent exceeding “comparable” market rents – ratcheting down the incentive offer New use restrictions may be imposed with acceptance of incentive offers Third-party equity loans vs. agencyfunded equity loans Availability of funding and RA Moffatt Thomas RD’s Prepayment Process Provides limited opportunity to enforce prepayment right If reject incentive offer, agency to make subjective determination if there is a need for the housing and if prepayment will impact minorities Need for housing – prepay with restrictions (existing tenants given life tenancy) Impact on minorities (must offer to sell to nonprofits for 180 days) Neither – may prepay without restrictions Moffatt Thomas RD’s Prepayment Process (cont’d) Offering properties for sale to nonprofits pursuant to Reg 3560 Offering price to be determined by RD appraisal, borrower appraisal, and perhaps third appraisal Must market and offer to regional and national nonprofits for proscribed period of time (180 days) If no nonprofit makes offer within 180-day period, RD to accept prepayment without restrictions Moffatt Thomas Potential Pitfalls Associated with Offering for Sale to Nonprofits 1. Time delays 2. Closings may be delayed because of rehabilitation issues, funding issues 3. What is required to satisfy “marketing for sale” is unclear Moffatt Thomas Transfers Pursuant to 1965-B 1. Allowed by administrative notice 2. Limited funding – $4.3 million a) Competitive bidding 3. Potential disadvantages a) Time and expenses b) Capital gains taxes associated with sale Moffatt Thomas Quiet Title (Kimberly) Judicial removal of government’s interests in your property Recognized as legitimate and valid cause of action by Ninth Circuit Court of Appeals (which governs Oregon) and two Idaho federal judges Goldammer v. Veneman (Oregon Federal District Court) Judge Anna Brown has issued opinion upholding Oregon 515 owners’ right to prepay property – based on Kimberly Moffatt Thomas Frequently Asked Questions 1. Must I go through the ELIHPA/1965-E (3560) process before filing quiet title lawsuit? No – Kimberly case determined that ELIHPA/1965-E do not apply to loans approved before ELIHPA enacted in 1988 Moffatt Thomas Frequently Asked Questions (cont’d) 2. Now that the Kimberly case is over and the government has lost, will the government accept my prepayment tender? No – notwithstanding the court’s rulings in Kimberly, the government is still asserting that 515 owners must comply with ELIHPA/1965-E (3560) Moffatt Thomas Frequently Asked Questions (cont’d) 3. If I file a quiet title lawsuit and I win, will the government have to reimburse me for my attorney fees? Uncertain – the legal standard is whether the government’s defense is substantially justified – courts should find that government’s defense is not substantially justified because it had a full and fair opportunity to litigate same issue in Kimberly and lost Moffatt Thomas Frequently Asked Questions (cont’d) 4. Why is the government continuing to reject 515 owners’ prepayment tenders? Because the tenant organizations are threatening to sue the government if they refuse to enforce the ELIHPA/1965-E (3560) Prepayment Prevention Program Moffatt Thomas Frequently Asked Questions (cont’d) 5. Where can I file a quiet title lawsuit? In the state your property or properties are located Moffatt Thomas Frequently Asked Questions (cont’d) 6. What happens if I win quiet title lawsuit? FREEDOM – your property will be freed from the 515 Program, including the restrictions on your annual returns from operating proceeds You will immediately lose any FmHA RA on property, but not HUD Section 8 rental subsidies Moffatt Thomas Money Damages Lawsuit (Franconia) These claims must be filed in Court of Federal Claims (Washington D.C.) Multiple decisions have been issued in Court of Claims finding government in breach of contract Remaining issue now appears to be limited to amount of money damages Moffatt Thomas Money Damages Lawsuit Potential damages Loss on return on equity because of inability to tap equity Potential return as conventional property less actual returns as 515 property Deterioration of property because of prolonged stay in 515 Program Moffatt Thomas Frequently Asked Question Can I bring both a quiet title lawsuit and a money damage lawsuit? Yes. You should be able to recover damages associated with the delays associated with the enforcement of your prepayment rights. Moffatt Thomas Expected Developments in 2005 1. Goldammer lawsuit filed by tenant organization in Oregon federal court will be dismissed, leading to another prepayment appeal in the 9th Circuit 2. NHLP and other tenant organizations are dedicating resources to fight quiet title lawsuits Moffatt Thomas For Further Information or Questions Please Contact: C. Clayton Gill Partner Moffatt, Thomas, Barrett, Rock & Fields, Chartered 101 S. Capitol Blvd., 10th Floor Post Office Box 829 Boise, Idaho 83701 email@example.com 1-800-422-2889 Moffatt Thomas
"Moffatt Thomas PREPAYMENT LITIGATION STRATEGIES AND UPDATE ON "