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AYERS v. PHILADELPHIA HOUS. AUTH.

June 27, 1989

MICHELLE and CARLTON AYERS, et al.
v.
PHILADELPHIA HOUSING AUTHORITY, et al.



The opinion of the court was delivered by: DUBOIS

 JAN E. DUBOIS, UNITED STATES DISTRICT JUDGE

 Presently before the Court are the Motion of the plaintiffs, Michelle Ayers, Carlton Ayers and Sadie Noland, for a Preliminary Injunction, and the Motion of the Defendants, Philadelphia Housing Authority, Mary Echols and Gregory A. Kern (hereinafter "PHA"), to Dismiss the Complaint. This action was instituted by the plaintiffs under 42 U.S.C. § 1983 as a proposed class action on behalf of all Turnkey III homebuyers in the City of Philadelphia. The plaintiffs allege that PHA violates the procedural due process rights of Turnkey III homebuyers by failing to provide notice required by Pennsylvania Act 6 (41 P.S. § 101 et seq.) and Pennsylvania Act 91 (35 P.S. § 1680.401c et seq.) and by proceeding against Turnkey III homebuyers in eviction actions commenced in Philadelphia Municipal Court.

 Plaintiffs' Motion for a Preliminary Injunction will be denied. PHA's Motion to Dismiss will be granted and the Complaint will be dismissed without prejudice.

 The facts may be summarized as follows:

 The Turnkey III program is designed to provide homeownership opportunities for low income families. The program is funded by the United States Department of Housing and Urban Development (hereinafter "HUD") and is federally regulated; the regulations appear in the Federal Code at 24 C.F.R. § 904.101 et seq. The program is executed by a local housing authority ("LHA") which acquires or develops a low rent housing development with the financial assistance from HUD, owns the homes until title is transferred to the homebuyer, and is responsible for the management of the program.

 The LHA administrating the Philadelphia Turnkey III developments is PHA. To be eligible for the program, low income families must meet certain income guidelines. These guidelines are established by the LHA and approved by HUD, and provide maximum and minimum income levels. Once the LHA determines that a family is income eligible, the family is placed on a waiting list. The priority the family receives is determined by the LHA in accordance with 24 C.F.R. § 904.104(c). After a family is accepted, but before the family may occupy a Turnkey III residence, the family must execute a Homeownership Opportunity Agreement ("HOA"). *fn1"

 The HOA is a contract between the occupant family (hereinafter "homebuyer") and the LHA. The HOA specifies the obligations of the homebuyer and many of the obligations of the LHA. Essentially, the homebuyer is required to make monthly payments to the LHA based on the homebuyer's income. These payments are first credited to the Earned Home Payments Account ("EHPA"). The EHPA is generated by the homebuyer's monthly payments for the purpose of purchasing the home. If the HOA is terminated, or if the homebuyer vacates the home, the homebuyer is entitled to receive the amount of the EHPA less any money owed to the LHA by the homebuyer.

 If the monthly payment by the homebuyer exceeds the required EHPA contribution, the balance is credited to the homebuyer's Nonroutine Maintenance Reserve Account ("NRMR"). *fn2" The purpose of the NRMR is to provide funds for the nonroutine maintenance of the home. This account covers infrequent and costly items of maintenance and replacement such as major heating and plumbing repairs, replacement of roof, repair or replacement of major appliances and the like. If the HOA is terminated, or if the homebuyer vacates the home, the homebuyer does not receive any balance in the NRMR, nor is the homebuyer required to pay any deficiency in that account. If the homebuyer purchases the home, the balance of the NRMR is paid to the homebuyer at settlement. Any deficit in the NRMR account must be paid by the homebuyer at settlement.

 The HOA also requires the homebuyer to be responsible for all routine maintenance of the home. Maintenance of common areas and nonroutine maintenance are not the responsibility of the homebuyer. There is a very limited right of survivorship specified at 24 C.F.R. § 904.107(1).

 The Turnkey III program has been referred to as "the greatest innovation in public housing." See Catz, Historical and Political Background of Federal Public Housing Programs, 50 N.D.L. Rev. 25, 39 (1973). The unique characteristic of the program which earns it that title is that homebuyers in the program may actually purchase the home and become homeowners. The regulations provide two methods by which a homebuyer may purchase the home: First, the homebuyer may purchase the home when the EHPA and a portion of the NRMR designated by the homebuyer equals the purchase price and incidental costs as calculated by the LHA under the regulations. 24 C.F.R. § 904.113(c)(1). Second, the homebuyer may purchase the home if the EHPA and the designated portion of the NRMR are less than the purchase price and the incidental costs by obtaining financing or otherwise paying the difference. 24 C.F.R. § 904.113(c)(2).

 PHA owns, operates and manages two Turnkey III developments in the City of Philadelphia, Brown Street Village and Whitman Park. These two developments have a total of 196 units. PHA has operated the Brown Street Village Turnkey III development since 1981 and the Whitman Park Turnkey III development since 1982. Families have resided in these developments since the PHA began managing them.

 The present dispute arises out of PHA's procedure for terminating HOAs when homebuyers have not complied with their contractual obligations. In such cases, where homebuyers have breached the HOA, PHA has commenced eviction actions against those homebuyers in the Philadelphia Municipal Court. Philadelphia Municipal Court has jurisdiction over landlord/tenant actions pursuant to 42 Pa. C.S.A. § 1123(a)(3). PHA has commenced at least twelve such eviction actions against Turnkey III homebuyers in 1988, and it has stipulated that it will continue commencing eviction actions against homebuyers who breach the HOA.

 Plaintiffs argue that PHA wrongfully considers Turnkey III homebuyers to be tenants. Rather, plaintiffs contend, the HOA establishes an installment land sale contract, and, as such, PHA may not commence eviction actions against homebuyers in the Philadelphia Municipal Court, but must eject homebuyers in an action to quiet title in the Court of Common Pleas. *fn3" In addition to arguing that PHA must proceed against Turnkey III homebuyers in the Court of Common Pleas, plaintiffs also ...


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