But Dunlap holds that such a regulation, "enacted under a general enabling provision," does not "constitute the sort of explicit 'congressional directive' that will displace the application of state law as the federal rule of decision." Dunlap, supra, 800 F.2d at 1239. Accordingly, we must use the Kimbell analysis to determine if we should apply federal or state law. That analysis looks at the following factors: (1) the need for a nationally uniform body of law; (2) whether state law would frustrate specific objectives of the federal program; and (3) whether a federal rule would frustrate commercial relationships predicated upon state law.
There is no need for a nationally uniform body of law. FmHA already relies upon state foreclosure laws and can comply with other state laws bearing on foreclosure. The regulations specifically recognize the possibility of using state law. 7 C.F.R. § 1900.102(c). In fact, requiring FmHA to comply with Act 91 would have a minimal effect upon the FmHA pre-foreclosure practices. As shown above, FmHA already will meet with borrowers to explore other avenues of financing before foreclosing. Presumably, if it appears that alternative financing would be forthcoming, FmHA would forebear on foreclosing until that option is explored. Moreover, certain qualified borrowers are allowed a moratorium on principal and interest payments, possibly up to three years. FmHA could certainly, within this time frame, advise borrowers of the state emergency mortgage assistance program and permit them to seek assistance from the state. If such an application was made, it would, at most, add three to four months to the foreclosure process.
It follows from the above that state law would not frustrate specific objectives of the federal program. It could be argued as plaintiff did in the Royer case, that Act 91 would frustrate FmHA's ability to foreclose on its mortgages and jeopardize its ability to recover its funds. We recognize, of course, that protection of the public treasury is always a concern in government funding programs, see Black, supra, 622 F. Supp. at 673, but Act 91 does not frustrate that interest. Indeed, it protects it by giving the borrower an additional source of financing. When FmHA has expressed a willingness to put off payment of principal and interest for possibly three years, a state law which would possibly provide a source for those payments for the same period of time and, moreover, transfer the debt from FmHA to the state for those years, hardly qualifies as a conflicting state law which should not be enforced against the agency.
Finally, using the FmHA regulations would frustrate commercial relationships predicated upon state law. " Kimbell's holding and rationale rest on the underlying premise that Congress 'did not intend to confer special privileges on agencies that enter the commercial field.'" Dunlap, supra, 800 F.2d at 1238 (quoting Kimbell, 440 U.S. at 737, 99 S. Ct. at 1463, 59 L. Ed. 2d at 730)). Defendants may therefore justifiably expect to see state law enforced.
We therefore conclude that Kimbell, in light of Dunlap, requires the application of state law to this mortgage foreclosure action. Accordingly, plaintiff must comply with Act 91.
B. Shimer and de la Cuesta Analysis.
We note here an alternative approach to defendants' motion which reaches the same result. Unlike the above analysis, it does not rely upon the absence of an explicit congressional directive to preempt state law in requiring compliance with state law.
In United States v. Shimer, 367 U.S. 374, 81 S. Ct. 1554, 6 L. Ed. 2d 908 (1961), the Veterans' Administration brought an action against Shimer, a veteran, to recover on its partial guaranty of a loan made by a loan association to the veteran for the total purchase price of a residence. Shimer had defaulted on the loan, secured by a mortgage on the residence, and the loan association had foreclosed on the mortgage under Pennsylvania law. The association purchased the house at a sheriff's sale for a minimal amount of money and the agency paid it the entire amount of the guaranty. The association, however, had failed, as further required by Pennsylvania law, to seek a judicial determination of the fair market value of the property within six months of the sale. Accordingly, it could not have obtained a deficiency judgment against the borrower. The agency's claim was based upon a right of indemnity for having paid Shimer's obligation to the association. This theory was rejected in the court of appeals because Shimer's obligation to the association had been extinguished by the latter's failure to obtain a deficiency judgment against him in accordance with state law. Since, under Pennsylvania law, a guarantor, the agency, could not recover sums paid on behalf of a principal, the borrower, that the principal was not legally obligated to pay, the agency's claim was rejected.
On appeal, the Supreme Court concluded that state law was not applicable. It first decided that the detailed regulations promulgated by the Veterans' Administration dealing with the agency's obligation as a guarantor, although intended to remedy the same abuses, were intended to displace state law and were inconsistent with it. The Court then concluded that the Servicemen's Readjustment Act of 1944, the enabling legislation, authorized the agency head to promulgate the regulations at issue. It cited section 504 of the legislation which read, in pertinent part, as follows: "The Administrator is authorized to promulgate such rules and regulations not inconsistent with this title, as amended, as are necessary and appropriate for carrying out the provisions of this title . . . ." Id. at 382, n.9, 81 S. Ct. at 1560 n.9, 6 L. Ed. 2d at 914 n.9. The Court then stated:
It would, of course, have been possible for the Administrator to have promulgated regulations consistent with much of the present scheme which would have, in addition, accepted the benefits of local law which tended further to reduce a guarantor's risk of loss from sale of the mortgaged property at an inadequate price . . . . However, the Veterans' Administrator has chosen not to take advantage of laws like that of Pennsylvania. If this choice represents a reasonable accommodation of conflicting policies that were committed to the agency's care by the statute, we should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned.
Id. at 382-83, 81 S. Ct. at 1560, 6 L. Ed. 2d at 914-15.
The choice did represent a reasonable accommodation of two conflicting policies committed to the agency's care: (1) making a federal guaranty the substantial equivalent of a down payment and (2) protecting the agency and the veteran from unnecessary loss on a foreclosure sale. Further, nothing in the statute or legislative history was antagonistic to this choice. Finally, the Court noted that applying Pennsylvania on top of the federal regulations would have imposed additional costs and risks on a mortgagee which would not have been inclined under those circumstances to provide a guaranteed 100% loan in place of a down payment.
It would therefore appear that, in the instant case, the absence of a specific congressional directive is immaterial to applying federal law since in Shimer the Supreme Court looked to agency regulations promulgated only by virtue of a general enabling provision.
Shimer could be distinguished because the Court also found that there were "ample indications both in the Act and in its legislative history that Congress intended the guaranty provisions to operate as the substantial equivalent of a down payment . . . ." Id. at 383, 81 S. Ct. at 1561, 6 L. Ed. 2d at 915. This could supply the requisite congressional directive. But such a finding was not important to the Court in Fidelity Federal Savings And Loan Ass'n v. de la Cuesta, 458 U.S. 141, 102 S. Ct. 3014, 73 L. Ed. 2d 664 (1982), involving a challenge to a regulation of the Federal Home Loan Bank Board (Board) permitting federal savings and loan associations to enforce due-on-sale clauses in their mortgages.
In that case, a federal savings and loan association had deeds of trust containing such a clause on properties in California where the use of a due-on-sale clause was prohibited. Purchasers of the properties sought to enjoin non-judicial foreclosure proceedings brought by the association when the purchasers resisted attempts to raise the mortgage rates. After prevailing in the state trial court, the savings association lost in the state court of appeals which found, in part, that the federal regulation, despite containing explicit language concerning the Board's intention to preempt state law, did not do so because the court "refused to 'equate the Board's expression of intent with the requisite congressional intent.'" Id. at 150, 102 S. Ct. at 3020-21, 73 L. Ed. 2d at 673 (quoting 121 Cal. App.3d 328, 339, 175 Cal. Rptr. 467, 474 (1981)) (state court emphasis). Rejecting this argument, the Court stated:
A pre-emptive regulation's force does not depend on express congressional authorization to displace state law; moreover, whether the administrator failed to exercise an option to promulgate regulations which did not disturb state law is not dispositive. See United States v. Shimer, 367 US, at 381-383, 6 L Ed 2d 908, 81 S Ct 1554. Thus, the Court of Appeal's narrow focus on Congress' intent to supersede state law was misdirected. Rather, the questions upon which resolution of this case rests are whether the Board meant to preempt California's due-on-sale law, and, if so, whether that action is within the scope of the Board's delegated authority.