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LEWIS v. HILLS

July 21, 1978

Wilford and Maxine LEWIS, Sylvester and Bertha Brown, Grace Cato, Individually and on behalf of all others similarly situated, Plaintiffs,
v.
Carla A. HILLS, Secretary of the United States Department of Housing and Urban Development, et al.



The opinion of the court was delivered by: DITTER

The question presented in this case is whether defendants' refusal to afford an oral, evidentiary hearing to plaintiffs claiming certain benefits under the National Housing Act (Act) amounts to a due process violation under the Fifth Amendment. Although I conclude that plaintiffs have a property interest in these benefits so that due process protections apply, I also find that the government's interest in providing for the efficient administration and processing of these claims far outweighs plaintiffs' interest and their requests for evidentiary hearings should be denied. Therefore, defendants' motion for summary judgment must be granted.

Plaintiffs *fn1" originated this class action *fn2" challenging the procedures used by the defendants (hereinafter HUD, the Secretary, or the government) in processing claims for benefits under Sections 518(b) and (d) of the National Housing Act, 12 U.S.C. §§ 1735b(b), (d). Plaintiffs seek an order enjoining HUD from refusing to give claimants under these sections an oral, evidentiary hearing before an impartial hearing examiner to challenge the denial of their claims. They also request that, prior to this hearing, they be given access to the HUD file pertaining to the individual claim and, at the hearing, they be permitted to be represented by counsel, have witnesses testify in their own behalf, and confront and cross-examine adverse witnesses including those who conducted inspections or were involved in the processing of their claim. In addition, plaintiffs ask that the hearing examiner provide them with a written decision based only upon evidence submitted at the hearing.

 I. The Procedural and Factual Background

 a. Section 518

 Section 518(b) of the National Housing Act, 12 U.S.C. § 1735b(b), authorizes the Secretary to make expenditures to correct, or reimburse the owner for certain defects in a dwelling covered by a mortgage insured under either Section 203, 221, or 235 of the Act. To be eligible for benefits, the home must have been more than one year old on the date the mortgage insurance commitment was issued, it must be a one to four-family dwelling unit, the defect must have existed on the date of the insurance commitment, and the defect must have been one which a proper appraisal inspection could reasonably be expected to have disclosed. Most importantly, it must have been a structural defect or one which so seriously affected use and livability as to create a serious danger to the life and safety of the inhabitants of the home. *fn3" Section 518(d) of the Act, 12 U.S.C. § 1735b(d), affords essentially the same coverage as Section 518(b), although it applies only to those mortgages issued after January 1, 1973, and prior to August 3, 1976. These claims must have been filed by August 3, 1977.

 b. The Claims Procedure

 A total reiteration of the complicated procedure prescribed by the Secretary for processing claims *fn4" is unnecessary. In summary, however, once a claim is filed it is initially reviewed by the HUD area office. Assuming that the claim is not rejected for failing to meet the eligibility requirements, *fn5" the HUD case binder on the property is reviewed to see what conditions may be eligible for correction. The original appraisal report *fn6" is examined to discover whether defects were noted, what repairs to the dwelling were originally required to insure the mortgage, and whether subsequent inspections were made to discover if the repairs were accomplished. For those defects claimed by the homeowner but not specified in the appraisal, the HUD office is charged with judging whether or not the defect existed on the date of the appraisal inspection. Following this preliminary review, the HUD Valuation Section dispatches to the property an inspector who renders a report summarizing any statement by the homeowners and his own conclusions as to the claimed defects. This report is reviewed by the chief appraiser and then forwarded to the branch chief (here, the Chief of Single Family Mortgages) for a "final" determination. The claimant is then notified by letter the extent to which his claim is eligible *fn7" or ineligible for benefits.

 This is by no means the end of the process, however. At the homeowner's request, within 30 days, reconsideration of any of the disallowed claims can be had. The case file is returned to the local HUD office for a second review and, in many cases, a second inspection of the property. The area office director reviews these findings, and if he agrees with the original decision, the case is sent to the HUD regional office for a last review.

 c. The Named Plaintiffs

 Wilford and Maxine Lewis purchased their home in Philadelphia, on November 26, 1969, with a mortgage insured under Section 221 of the National Housing Act. Although settlement was held, they were unable to move into the home because of its allegedly defective condition. They lived instead in an apartment until July, 1970. Thereafter, from July, 1970, thru November, 1971, the Lewises lived in a parent's home across the street from the building at issue, while making continuous visits to their home to insure that it was not being vandalized. In September, 1975, *fn8" they filed a Section 518(b) claim requesting reimbursement for 53 items. *fn9" All claims were disapproved by letter dated March 23, 1976. The next day, plaintiffs' counsel wrote to the HUD Regional Counsel, seeking an oral, evidentiary hearing, a request which was denied. The Lewises also asked that they be given the opportunity to inspect and copy their Section 518(b) file. This request was refused and plaintiffs were notified that this information could only be secured through a Freedom of Information Act request. In addition, plaintiffs' counsel was denied the right to inspect the file personally. On April 14, 1976, the Lewises appealed under existing HUD procedures the denial of their claim. *fn10"

 Plaintiff Grace Cato purchased her home in Philadelphia, on September 30, 1969, with her parents under a Section 221 mortgage. On March 2, 1976, she filed a Section 518(b) claim, listing at least nine serious defects in the property. Complaint, Exhibit H. As with the Lewises, every item was rejected as being ineligible for consideration. She also requested an oral, evidentiary hearing, which was denied, and she appealed the denial of her claim through established HUD channels. *fn11"

 II. The Alleged Deprivation of Due Process Rights *fn12"

 The Supreme Court has set out a two-step process for determining whether there has been a deprivation of procedural due process. First, it must be ascertained whether there is a property interest at issue and, if so, whether due process protections attach. Second, if the interest is a protected one, it must be determined how much process is constitutionally due. Goss v. Lopez, 419 U.S. 565, 577, 95 S. Ct. 729, 738, 42 L. Ed. 2d 725 (1975); Morrissey v. Brewer, 408 U.S. 471, 481, 92 S. Ct. 2593, 2600, 33 L. Ed. 2d 484 (1972).

 In Board of Regents v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 2709, 33 L. Ed. 2d 548 (1972), the Supreme Court elaborated on the nature of the interest needed to invoke due process protection:

 
To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined. It is a purpose ...

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