A-67141, DECEMBER 3, 1935, 15 COMP. GEN. 471

A-67141: Dec 3, 1935

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WHERE SAID ADMINISTRATION HAS PAID THE DEFAULTED OBLIGATIONS OF PERSONS TO WHOM SUCH LOANS OR ADVANCES WERE MADE. IF IT IS DETERMINED THAT SUCH ACTION IS IN THE INTEREST OF THE UNITED STATES. WHICH HAS THE DUTY OF COLLECTING OBLIGATIONS WHICH ARE ASSIGNED TO THE ADMINISTRATION UPON THE PAYMENT OF LOANS INSURED UNDER TITLE I OF THE NATIONAL HOUSING ACT. EITHER BY REPOSSESSION ACTION OR BY VOLUNTARY DELIVERY OF POSSESSION WILL BE IN THE BEST INTERESTS OF THE GOVERNMENT. THIS IS PARTICULARLY TRUE IN CASES WHERE THE EQUIPMENT HAS BEEN ABANDONED AND THE PURCHASER CANNOT BE LOCATED. IN CASES WHERE THE DEBTOR IS OUT OF EMPLOYMENT. THERE IS LITTLE OR NO CHANCE OF COLLECTING FROM THE DEBTORS AND WE FEEL THAT THE EQUIPMENT SHOULD BE IMMEDIATELY TAKEN OVER BY THE ADMINISTRATOR AND REALIZED ON.

A-67141, DECEMBER 3, 1935, 15 COMP. GEN. 471

SALE OF ASSIGNED COLLATERAL - FEDERAL HOUSING ADMINISTRATION THE FEDERAL HOUSING ADMINISTRATION MAY REPOSSESS AND SELL THE MOVABLE FIXTURES CONSTITUTING COLLATERAL ASSIGNED TO IT BY BANKS, LENDING COMPANIES, ETC., INSURED, PURSUANT TO AUTHORITY CONTAINED IN THE NATIONAL HOUSING ACT, 48 STAT. 1246, AGAINST LOSSES RESULTING FROM LOANS OR ADVANCES OF CREDIT MADE BY THEM, WHERE SAID ADMINISTRATION HAS PAID THE DEFAULTED OBLIGATIONS OF PERSONS TO WHOM SUCH LOANS OR ADVANCES WERE MADE, IF IT IS DETERMINED THAT SUCH ACTION IS IN THE INTEREST OF THE UNITED STATES.

COMPTROLLER GENERAL MCCARL TO THE ADMINISTRATOR, FEDERAL HOUSING ADMINISTRATION, DECEMBER 3, 1935:

THERE HAS BEEN RECEIVED LETTER OF YOUR GENERAL COUNSEL, OCTOBER 30, 1935, AS FOLLOWS:

THE COLLECTION SECTION OF THE FEDERAL HOUSING ADMINISTRATION, WHICH HAS THE DUTY OF COLLECTING OBLIGATIONS WHICH ARE ASSIGNED TO THE ADMINISTRATION UPON THE PAYMENT OF LOANS INSURED UNDER TITLE I OF THE NATIONAL HOUSING ACT, HAS BEFORE IT AT THIS TIME A NUMBER OF CASES WHERE INVESTIGATION HAS SHOWN THAT PROMPT REPOSSESSION AND SALE OF EQUIPMENT, UNDER THE TITLE RETENTION INSTRUMENTS ASSIGNED WITH THE LOAN, EITHER BY REPOSSESSION ACTION OR BY VOLUNTARY DELIVERY OF POSSESSION WILL BE IN THE BEST INTERESTS OF THE GOVERNMENT. THIS IS PARTICULARLY TRUE IN CASES WHERE THE EQUIPMENT HAS BEEN ABANDONED AND THE PURCHASER CANNOT BE LOCATED, IN CASES OF DEATH OF THE DEBTOR, AND IN CASES WHERE THE DEBTOR IS OUT OF EMPLOYMENT, AND HAS NO PROSPECT OF PAYING THE DEBT. IN CASES OF THESE AND OF SIMILAR CHARACTER, THERE IS LITTLE OR NO CHANCE OF COLLECTING FROM THE DEBTORS AND WE FEEL THAT THE EQUIPMENT SHOULD BE IMMEDIATELY TAKEN OVER BY THE ADMINISTRATOR AND REALIZED ON.

IN A GREAT NUMBER OF THE STATES WE FIND THE LAW TO BE SUCH THAT IF WEDO REPOSSESS THE EQUIPMENT, WE LOSE OUR RIGHT OF ACTION AGAINST THE DEBTOR ON THE NOTE FOR A DEFICIENCY JUDGMENT. EVEN IN SUCH STATES WE FEEL THAT THE ADMINISTRATOR SHOULD BE GIVEN DISCRETION TO ADOPT THE MEANS WHICH SEEM TO HIM BEST TO PROTECT THE INTERESTS OF THE GOVERNMENT.

WILL YOU PLEASE ADVISE US WHETHER WE ARE PERMITTED TO PROCEED ALONG THE LINES ABOVE MENTIONED.

SECTION 2 OF TITLE I OF THE NATIONAL HOUSING ACT, 48 STAT. 1246, PROVIDES:

THE ADMINISTRATOR IS AUTHORIZED AND EMPOWERED, UPON SUCH TERMS AND CONDITIONS AS HE MAY PRESCRIBE, TO INSURE BANKS, TRUST COMPANIES, PERSONAL FINANCE COMPANIES, MORTGAGE COMPANIES, BUILDING AND LOAN ASSOCIATIONS, INSTALLMENT LENDING COMPANIES, AND OTHER SUCH FINANCIAL INSTITUTIONS, WHICH ARE APPROVED BY HIM AS ELIGIBLE FOR CREDIT INSURANCE, AGAINST LOSSES WHICH THEY MAY SUSTAIN AS A RESULT OF LOANS AND ADVANCES OF CREDIT, AND PURCHASES OF OBLIGATIONS REPRESENTING LOANS AND ADVANCES OF CREDIT, MADE BY THEM SUBSEQUENT TO THE DATE OF ENACTMENT OF THIS ACT AND PRIOR TO JANUARY 1, 1936, OR SUCH EARLIER DATE AS THE PRESIDENT MAY FIX BY PROCLAMATION, FOR THE PURPOSE OF FINANCING ALTERATIONS, REPAIRS, AND IMPROVEMENTS UPON REAL PROPERTY. IN NO CASE SHALL THE INSURANCE GRANTED BY THE ADMINISTRATOR UNDER THIS SECTION TO ANY SUCH FINANCIAL INSTITUTION EXCEED 20 PERCENTUM OF THE TOTAL AMOUNT OF THE LOANS, ADVANCES OF CREDIT, AND PURCHASES MADE BY SUCH FINANCIAL INSTITUTION FOR SUCH PURPOSE; AND THE TOTAL LIABILITY INCURRED BY THE ADMINISTRATOR FOR SUCH INSURANCE SHALL IN NO CASE EXCEED IN THE AGGREGATE $200,000,000. NO INSURANCE SHALL BE GRANTED UNDER THIS SECTION TO ANY SUCH FINANCIAL INSTITUTION WITH RESPECT TO ANY OBLIGATION REPRESENTING ANY SUCH LOAN, ADVANCE OF CREDIT, OR PURCHASE BY IT THE FACE AMOUNT OF WHICH EXCEEDS $2,000; NOR UNLESS THE OBLIGATION BEARS SUCH INTEREST, HAS SUCH MATURITY, AND CONTAINS SUCH OTHER TERMS, CONDITIONS, AND RESTRICTIONS, AS THE ADMINISTRATOR SHALL PRESCRIBE.

THE NATIONAL HOUSING ACT WAS AMENDED BY THE ACT OF MAY 28, 1935, 49 STAT. 293, OF WHICH SECTION 28 PROVIDES:

SEC. 28. (A) THE FIRST SENTENCE OF SECTION 2 OF THE NATIONAL HOUSING ACT IS AMENDED (1) BY STRIKING OUT "JANUARY" AND INSERTING IN LIEU THEREOF "APRIL," AND (2) BY INSERTING BEFORE THE PERIOD AT THE END THEREOF A COMMA AND THE FOLLOWING: "INCLUDING THE INSTALLATION OF EQUIPMENT AND MACHINERY.'

(B) THE LAST SENTENCE OF SECTION 2 OF THE NATIONAL HOUSING ACT IS AMENDED TO READ AS FOLLOWS: "NO INSURANCE SHALL BE GRANTED UNDER THIS SECTION TO ANY SUCH FINANCIAL INSTITUTION WITH RESPECT TO ANY OBLIGATION REPRESENTING ANY SUCH LOAN, ADVANCE OF CREDIT, OR PURCHASE BY IT (1) UNLESS THE OBLIGATION BEARS SUCH INTEREST, HAS SUCH MATURITY, AND CONTAINS SUCH OTHER TERMS, CONDITIONS, AND RESTRICTIONS, AS THE ADMINISTRATOR SHALL PRESCRIBE; AND (2) UNLESS THE AMOUNT OF SUCH LOAN, ADVANCE OF CREDIT, OR PURCHASE IS NOT IN EXCESS OF $2,000, EXCEPT THAT IN THE CASE OF ANY SUCH LOAN, ADVANCE OF CREDIT, OR PURCHASE MADE FOR THE PURPOSE OF SUCH FINANCING WITH RESPECT TO REAL PROPERTY IMPROVED BY OR TO BE CONVERTED INTO APARTMENT OR MULTIPLE FAMILY HOUSES, HOTELS, OFFICE, BUSINESS OR OTHER COMMERCIAL BUILDINGS, HOSPITALS, ORPHANAGES, COLLEGES, SCHOOLS, OR MANUFACTURING OR INDUSTRIAL PLANTS, SUCH INSURANCE MAY BE GRANTED IF THE AMOUNT OF THE LOAN, ADVANCE OF CREDIT, OR PURCHASE IS NOT IN EXCESS OF $50,000.'

IT IS UNDERSTOOD THAT PURSUANT TO AUTHORITY GRANTED BY TITLE I OF THE NATIONAL HOUSING ACT AND UNDER REGULATIONS PRESCRIBED BY YOU, CERTAIN BANKS, LOAN ASSOCIATIONS, LENDING COMPANIES, FINANCE COMPANIES, AND OTHER FINANCIAL INSTITUTIONS, HAVE BEEN INSURED AGAINST LOSSES WHICH THEY MAY SUSTAIN AS A RESULT OF LOANS AND ADVANCES OF CREDIT, AND PURCHASES OF OBLIGATIONS REPRESENTING LOANS AND ADVANCES OF CREDIT, MADE SUBSEQUENT TO JUNE 27, 1934, THAT CERTAIN DEBTORS TO SUCH INSURED FINANCIAL INSTITUTIONS HAVE DEFAULTED AND PURSUANT TO THE TERMS OF INSURANCE AND REGULATIONS PRESCRIBED, YOU HAVE PAID THE DEFAULTED OBLIGATIONS OF SUCH DEBTORS AND ACCEPTED ASSIGNMENT OF THE COLLATERAL HELD BY THE INSURED. IN SOME CASES WHERE SUCH COLLATERAL IS THE RESERVED TITLE TO OR A CHATTEL MORTGAGE ON MOVABLE FIXTURES, YOU DESIRE TO REPOSSESS AND SELL SUCH EQUIPMENT AND APPLY THE PROCEEDS IN LIQUIDATION OF THE DEFAULTED DEBT EVEN THOUGH IN SOME STATES SUCH ACTION WILL BAR FURTHER PERSONAL ACTION AGAINST SUCH DEBTORS.

THE NATIONAL HOUSING ACT DOES NOT SPECIFICALLY PROVIDE THE PROCEDURE FOR COLLECTION OF OBLIGATIONS ARISING IN FAVOR OF THE UNITED STATES IN CONNECTION WITH INSURANCE AGREEMENTS EXTENDED PURSUANT TO AUTHORITY GRANTED IN TITLE I THEREOF. TITLE II OF THE ACT COVERS REAL-ESTATE MORTGAGE INSURANCE AND PROVIDES FOR COLLECTION OF DEFAULTED OBLIGATIONS. THE ADMINISTRATOR IS AUTHORIZED TO ACQUIRE TITLE TO REAL ESTATE, RENT, MODERNIZE, AND SELL FOR CASH OR CREDIT, IN HIS DISCRETION, IN ORDER TO EFFECT COLLECTION. THIS MAY BE ACCEPTED AS AN EXPRESSION BY THE CONGRESS OF A GENERAL POLICY FOR APPLICATION IN SUCH CASES.

AUTHORITY TO EXTEND CREDIT, OR INSURE EVIDENCES OF CREDIT AND AS A RESULT THEREOF BECOME A CREDITOR, IMPLIES AUTHORITY TO MAKE COLLECTIONS THEREON. IN THE ABSENCE OF EXPRESSED STATUTORY PROCEDURE THEREFOR, IT WOULD SEEM PROPER TO RESORT TO THE METHODS ORDINARILY FOLLOWED AND IN CASES WHERE AFTER INVESTIGATION IT HAS BEEN DETERMINED THAT PROMPT REPOSSESSION AND SALE OF EQUIPMENT, MACHINERY, OR OTHER MOVABLE FIXTURES, WILL BEST SERVE THE INTEREST OF THE UNITED STATES, THIS OFFICE IS NOT REQUIRED TO OBJECT TO SUCH PROCEDURE. THIS OFFICE HAS NO OBJECTION TO SUGGEST WHERE, IN YOUR DISCRETION, SUCH ACTION IS TAKEN IN STATES WHERE REPOSSESSION OF THE PROPERTY WILL CONSTITUTE A BAR TO FURTHER PROCEEDINGS AGAINST DEBTORS.