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UNITED STATES v. MIKOLAITIS

January 26, 1988

United States of America, Plaintiff
v.
John M. Mikolaitis, and Antoinette M. Mikolaitis, Defendants


William W. Caldwell, United States District Judge.


The opinion of the court was delivered by: CALDWELL

William W. Caldwell, United States District Judge

 I. Introduction.

 Defendants, John M. Mikolaitis and Antoinette M. Mikolaitis, have moved to dismiss plaintiff's complaint for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Plaintiff, United States of America, filed this action on behalf of the Farmers Home Administration (FmHA) to foreclose on two mortgages FmHA has on the defendants' residence. Defendants contend that FmHA's failure to comply with two Pennsylvania laws, Act No. 1983-91, 35 P.S. § 1680.401c, et seq. (Act 91) and Act No. 1974-6, 41 P.S. § 101 et seq. (Act 6), both relating to pre-foreclosure notice requirements, divests us of jurisdiction to entertain the government's suit. *fn1"

 II. Background.

 The complaint alleges that defendants obtained two loans from FmHA and executed the two mortgages as security for them on July 27, 1979 and April 7, 1983, respectively, that defendants defaulted by failing to pay their monthly payments and real estate taxes, and that plaintiff has complied with the conditions precedent for bringing the action set forth in 7 CFR § 1951.313(b). The plaintiff also alleges that it complied with Act 6 by sending separate notices to each defendant, dated April 22, 1986, setting forth its intention to foreclose on the mortgages. These notices also advised defendants of certain rights they had under federal regulations before foreclosure could take place. Thus, defendants were informed foreclosure could take place. Thus, defendants were informed foreclosure would not take place for thirty days from the date of the notice and that during this time defendants could request a hearing if they believed that the government was in error in seeking foreclosure or that they had not been advised of their rights to seek interest credit assistance or a moratorium on payments. The notices also advised defendants that they could cure their default, and stop the foreclosure, in several ways; first, by paying the total amount of their delinquency plus certain costs; second, by transferring the mortgages to another person who would be responsible for curing the default or; third, by refinancing the mortgages by borrowing from another lender the entire amount needed to pay the debt in full. Default could also be cured by conveying clear title of the mortgaged property to the United States acting through FmHA.

 As referred to in the notices, the regulations authorize a moratorium on principal and interest payments. This information, along with other avenues of assistance, was allegedly imparted to the borrower at the time of the application for the loan. See 7 CFR § 1944.26(d). *fn2" Section 1951.313(a) provides that when, due to circumstances beyond a borrower's control, a borrower is unable to continue scheduled payments without unduly impairing his or her standard of living, the borrower can obtain a moratorium on payments. A moratorium on principal and interest payments can last for six months at a time with extensions up to three years. Id. at § 1951.313(b)(4), (5). A borrower can also obtain interest credit assistance. Id. at § 1951.312(b), 1944.34.

 In addition to the above regulations, dealing specifically with pre-foreclosure mortgage procedures, the following general regulation also applies. Captioned "Applicable law," 7 C.F.R. § 1900.102, provides, in pertinent part, as follows:

 
Loans made by FmHA are authorized and executed pursuant to Federal programs adopted by Congress to achieve national purposes of the U.S. Government.
 
(a) Instruments evidencing or securing a loan payable to or held by the Farmers Home Administration, such as promissory notes, bonds, guaranty agreements, mortgages, deeds of trust, financing statement, security agreements, and other evidences of debt or security shall be construed and enforced in accordance with applicable Federal law.
 
. . . .
 
(c) In order to implement and facilitate these Federal loan programs, the application of local procedures, especially for recordation and notification purposes, may be utilized to the fullest extent feasible and practicable. However, the use of local procedures shall not be deemed or construed to be any waiver by FmHA of Federal immunity from any loan control, penalty, or liability, or to subject FmHA to any State required acts or actions subsequent to the delivery by FmHA officials of the instrument to the appropriate local or State official.

 In the face of all of these provisions, defendants would have us require plaintiff comply with Pennsylvania law as well. We believe that plaintiff's notices did comply with the substantive provisions of Act 6. *fn3" We will therefore deal only with the requirements of Act 91.

 The provisions of Act 91 parallel the procedures set forth in the FmHA notices to a great extent. Before a foreclosure action can be initiated, Act 91 requires contact within thirty days of the notice, either with the lender or a credit counselor, to work out a repayment plan or otherwise settle the delinquency. 35 P.S. §§ 1680.402c(b), 1680.403c (Purdon Supp. 1987-88). If the borrower initiates such contact, no action can be taken for thirty days from the date of the meeting. If the default cannot be worked out within the next thirty days, the mortgagor may apply to the Homeowner's Emergency Mortgage Assistance Program, administered by the Pennsylvania Housing Finance Agency (PHFA). PHFA must make a determination of eligibility within sixty days of receipt of the application. During this time, foreclosure cannot occur. Id. at §§ 1680.402c(b), 1680.403c(b).

 A borrower is eligible for assistance under the program if, in part, he or she has been in default for at least sixty days, cannot correct the default due to circumstances beyond his or her control, and there is a reasonable prospect that the borrower can resume full mortgage payments within thirty-six months of beginning to receive assistance under the program. Id. at § 1680.404c. If a borrower is eligible, PHFA cures his or her default and, if appropriate, makes monthly mortgage payments directly to the mortgagee. The borrower must make certain ...


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