B-135709, JUNE 27, 1958, 37 COMP. GEN. 857

B-135709: Jun 27, 1958

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

WITH WHICH THE BANK WAS PROCEEDING ACCORDING TO REGULATIONS. REQUESTS OUR DECISION AS TO WHETHER YOU ARE AUTHORIZED TO CERTIFY THE VOUCHER AND SCHEDULE OF PAYMENTS FORM ATTACHED THERETO. SINCE SHE WAS OVER 65 YEARS OF AGE AT THE TIME OF SIGNING THE NOTE. HARWOOD ADVISING HER THAT HER LOAN WAS NOT COVERED BY LIFE INSURANCE AND STATING THAT MR. "WISHES TO ASSUME THE RESPONSIBILITY OF THE PROPER AND CORRECT BALANCE OF THE LOAN SHOULD YOU DIE PRIOR TO THE TIME THE LOAN IS DUE TO BE PAID OFF.'. THIS WAS THE FIRST INFORMATION THE BANK HAD RECEIVED OF THE FACTS SET OUT IN THE PRECEDING PARAGRAPH. TO THE BANK'S LETTER TO THE ATTORNEY FOR THE ESTATE ADVISING THAT SHE HAD DIED AND THAT AS FAR AS SHE WAS CONCERNED.

B-135709, JUNE 27, 1958, 37 COMP. GEN. 857

HOUSING LOANS - GOVERNMENT-INSURED - DEFAULT - VALIDITY OF NOTE THE DENIAL OF A CLAIM AGAINST THE ESTATE OF A BORROWER FOR UNPAID BALANCE OF A LOAN EVIDENCED BY A NOTE WHICH HAD BEEN PURCHASED BY A BANK AND REPORTED FOR INSURANCE UNDER TITLE I OF THE NATIONAL HOUSING ACT DOES NOT AFFECT THE VALIDITY AND ENFORCEABILITY OF THE NOTE AND, THE FACT THAT THE NOTE BECAME INVALID BY REASON OF THE LAPSE OF TIME ALLOWED TO APPEAL THE CLAIM DENIAL, WITH WHICH THE BANK WAS PROCEEDING ACCORDING TO REGULATIONS, DOES NOT MAKE THE NOTE INELIGIBLE FOR INSURANCE, AND REIMBURSEMENT OF THE LOSS SUSTAINED BY THE BANK MAY BE MADE WITHOUT THE NECESSITY OF WAIVING THE REQUIREMENT OF 24 CFR 201.2 (A) THAT THE NOTE BE VALID AND ENFORCEABLE AGAINST THE BORROWERS.

TO LESTER H. THOMPSON, FEDERAL HOUSING ADMINISTRATION, JUNE 27, 1958:

YOUR LETTER OF MARCH 31, 1958, MC:JRB, REQUESTS OUR DECISION AS TO WHETHER YOU ARE AUTHORIZED TO CERTIFY THE VOUCHER AND SCHEDULE OF PAYMENTS FORM ATTACHED THERETO, IDENTIFIED AS BUREAU SCHEDULE NO. MC 10373 PAYABLE TO THE NATIONAL COMMERCIAL BANK AND TRUST COMPANY OF ALBANY, 60 STATE STREET, ALBANY, NEW YORK, IN THE AMOUNT OF $169.29. THE VOUCHER COVERS A CLAIM FOR REIMBURSEMENT OF THE LOSS SUSTAINED BY THE BANK ON ACCOUNT OF DEFAULT IN PAYMENT OF A NOTE SIGNED BY MRS. HENRY HARWOOD AS BORROWER AND HER SON, WILLIS G. ABBOTT, AS CO-MAKER, WHICH THE INSURED BANK PURCHASED FROM THE ELECTRA PROTECTION CO., INC., AND REPORTED FOR INSURANCE UNDER ITS CONTRACT WITH THE FEDERAL HOUSING ADMINISTRATION UNDER TITLE I OF THE NATIONAL HOUSING ACT, 12 U.S.C. 1702.

THE RECORD FORWARDED WITH YOUR LETTER INDICATES THAT THE BORROWER, MRS. HARWOOD, HAD BEEN ASSURED BY AN AGENT OF THE ELECTRA PROTECTION CO., INC., AT OR ABOUT THE TIME OF SIGNING THE NOTE, THAT THE LOAN FROM THE BANK WOULD BE COVERED BY LIFE INSURANCE SO THAT IN THE EVENT OF HER DEATH PRIOR TO PAYMENT OF THE LOAN IN FULL, BOTH HER ESTATE AND THE CO MAKER WOULD BE RELIEVED OF RESPONSIBILITY FOR THE REMAINING INSTALLMENTS. HOWEVER, SINCE SHE WAS OVER 65 YEARS OF AGE AT THE TIME OF SIGNING THE NOTE, THE BANK'S GROUP POLICY DID NOT COVER HER AND THE PAYMENT COUPON BOOK DELIVERED TO HER BY THE BANK IN MAY 1954 CLEARLY SO INDICATED. THEREUPON, ON JUNE 23, 1954, ELECTRA WROTE TO MRS. HARWOOD ADVISING HER THAT HER LOAN WAS NOT COVERED BY LIFE INSURANCE AND STATING THAT MR. LARRY LONGTIN, THEIR DISTRICT SUPERVISOR,"WISHES TO ASSUME THE RESPONSIBILITY OF THE PROPER AND CORRECT BALANCE OF THE LOAN SHOULD YOU DIE PRIOR TO THE TIME THE LOAN IS DUE TO BE PAID OFF.'

MRS. HARWOOD MADE THE MONTHLY PAYMENTS REGULARLY UNTIL HER DEATH ON OCTOBER 2, 1956. NOT BEING AWARE OF HER DEATH, THE BANK MAILED MRS. HARWOOD A PAST-DUE NOTICE ON NOVEMBER 2, 1956. IN RESPONSE THERETO, EMMA STANNARD, ADMINISTRATRIX OF MRS. HARWOOD'S ESTATE, ADVISED THE BANK BY LETTER DATED NOVEMBER 5, 1956, THAT MRS. HARWOOD HAD DIED; THAT MR. LONGTIN SHOULD PAY THE BALANCE OF THE NOTE; AND THAT FURTHER CORRESPONDENCE IN THE MATTER SHOULD BE ADDRESSED TO THE ATTORNEY FOR THE ESTATE. THIS WAS THE FIRST INFORMATION THE BANK HAD RECEIVED OF THE FACTS SET OUT IN THE PRECEDING PARAGRAPH. THEREUPON, THE BANK'S ATTORNEYS WROTE TO THE ATTORNEY FOR THE ESTATE ON DECEMBER 28, 1956, TO ELECTRA ON JANUARY 7, 1957, AND TO MR. LONGTIN ON JANUARY 23, 1957, IN CONNECTION WITH THE MATTER. MRS. STANNARD RESPONDED ON JANUARY 8, 1957, TO THE BANK'S LETTER TO THE ATTORNEY FOR THE ESTATE ADVISING THAT SHE HAD DIED AND THAT AS FAR AS SHE WAS CONCERNED, THE ESTATE OWED ABSOLUTELY NOTHING TO THE BANK. LETTER OF JANUARY 23, 1957, THE BANK'S ATTORNEYS ADVISED MRS. STANNARD THAT THE ESTATE WAS LIABLE TO THE BANK FOR THE BALANCE DUE ON THE NOTE, THE AGREEMENT WITH MR. LONGTIN BEING COLLATERAL AND BETWEEN HIM AND MRS. HARWOOD AND NOT THE BANK. MRS. STANNARD REPLIED ON JANUARY 24, 1957, THAT IN HER OPINION THE ESTATE OWED THE BANK NOTHING; THAT MR. LONGTIN WAS LIABLE; AND THAT IN ANY EVENT THE BANK'S CLAIM AGAINST THE ESTATE MUST BE PRESENTED TO THE COMMISSIONERS FOR THE ESTATE AND NOT TO HER. ALSO, ON JANUARY 24 THE BANK'S ATTORNEYS WROTE TO MR. ABBOTT, THE CO-MAKER, EXPLAINING HIS LIABILITY. NO REPLY APPEARS TO HAVE BEEN RECEIVED FROM MR. ABBOTT. THE ATTORNEY FOR MR. LONGTIN IN A LETTER TO THE BANK'S ATTORNEYS DATED JANUARY 25, 1957, DENIED MR. LONGTIN'S LIABILITY.

BY LETTERS OF JANUARY 25 AND FEBRUARY 1, 1957, THE BANK'S ATTORNEYS PRESENTED THE CLAIM TO THE COMMISSIONERS OF THE ESTATE (APPOINTED IN CONFORMITY WITH THE LAWS OF THE STATE OF VERMONT). ON MAY 9, 1957, THE COMMISSIONERS FOR THE ESTATE WROTE TO THE BANK AS FOLLOWS: " PLEASE TAKE NOTICE THAT YOUR CLAIM AGAINST THE ESTATE OF LAVINIA HARWOOD, DECEASED, IN THE AMOUNT OF $169.62 HAS BEEN DISALLOWED IN ITS ENTIRETY.' THE BANK'S ATTORNEYS ON MAY 22, 1957, REQUESTED THE COMMISSIONERS TO RECONSIDER THE CLAIM AND ADVISED THAT IF IT WAS NOT PAID BY JUNE 3, 1957, THE CLAIM WOULD BE ASSIGNED TO THE FEDERAL HOUSING ADMINISTRATION. NO REPLY WAS RECEIVED TO THIS REQUEST AND THE BANK PRESENTED THE CLAIM TO THE FEDERAL HOUSING ADMINISTRATION ON JUNE 4, 1957. UNDER DATE OF JULY 8, 1957, THE FEDERAL HOUSING ADMINISTRATION ADVISED THE BANK THAT THE DISALLOWANCE OF THEIR CLAIM AGAINST THE ESTATE BY THE COMMISSIONERS RAISED A QUESTION AS TO THE VALIDITY AND ENFORCEABILITY OF THE NOTE, WHICH COULD BE RESOLVED ONLY BY OBTAINING A JUDGMENT BY SUIT AGAINST THE ESTATE OF THE BORROWER AND THE CO -MAKER. THE BANK THEREUPON CONTACTED THE PROBATE COURT IN MANCHESTER, VERMONT, AND FOUND THAT THE TIME TO APPEAL THE DECISION OF THE VERMONT COMMISSIONERS HAD EXPIRED IN THE INTERIM. AFTER CONSIDERABLE CORRESPONDENCE BETWEEN THE BANK AND THE FEDERAL HOUSING ADMINISTRATION, THE FEDERAL HOUSING ADMINISTRATION, ACTING THROUGH THE COMPLIANCE COMMITTEE, DETERMINED THAT THE BANK HAD SUBSTANTIALLY COMPLIED WITH THE REGULATIONS IN GOOD FAITH, WAIVED THE REQUIREMENT THAT THE NOTE BE VALID AND ENFORCEABLE AGAINST THE BORROWER, AND AUTHORIZED PAYMENT OF THE CLAIM. THE MATTER WAS SUBMITTED TO US FOR A DECISION AS TO WHETHER THE FEDERAL HOUSING COMMISSIONER, UNDER THE AUTHORITY GRANTED HIM BY 12 U.S.C. 1703 (E) MAY WAIVE THE REQUIREMENT OF 24 CFR 201.2 (A), THAT THE NOTE MUST BE VALID AND ENFORCEABLE AGAINST THE BORROWER OR BORROWERS.

THE TITLE I REGULATION HERE INVOLVED, 24 CFR 201.2 (A), WHICH WAS PROMULGATED BY THE FEDERAL HOUSING COMMISSIONER UNDER THE AUTHORITY GRANTED BY 12 U.S.C. 1703 (G), PROVIDES IN PERTINENT PART, AS FOLLOWS:

THE NOTE SHALL BEAR THE GENUINE SIGNATURE OF THE BORROWER AS MAKER, SHALL BE VALID AND ENFORCEABLE AGAINST THE BORROWER OR BORROWERS AS DEFINED IN SECTION 201.1 (I) AND SHALL BE COMPLETE AND REGULAR ON ITS FACE. * * *

IN SECTION 201.1 (I) A BORROWER IS DEFINED AS "ONE WHO APPLIES FOR AND RECEIVES A LOAN" AND WHO HAS AN INTEREST IN THE PROPERTY AS SET OUT IN THE REGULATION.

THE RECORD INDICATES THAT THE NOTE WAS VALID AND ENFORCEABLE AGAINST THE BORROWER AT THE TIME IT WAS PURCHASED BY THE BANK AND REPORTED FOR INSURANCE. NO QUESTION HAS BEEN RAISED AS TO THE AUTHENTICITY OF THE BORROWER'S SIGNATURE AND THE NOTE IS COMPLETE AND REGULAR ON ITS FACE. THERE IS NOTHING IN THE RECORD TO INDICATE THE EXISTENCE OF ANY REAL DEFENSE AGAINST THE NOTE. THE ONLY QUESTION WHICH CAN BE RAISED AGAINST THE NOTE IS THE SO-CALLED PROMISE MADE BY MR. LONGTIN TO MRS. HARWOOD. HOWEVER, THIS PROMISE, EVEN IF BINDING, IS MERELY PERSONAL BETWEEN MR. LONGTIN AND MRS. HARWOOD AND HAS NO EFFECT UPON THE VALIDITY OF THE NOTE OR THE LIABILITY OF MRS. HARWOOD OR HER ESTATE TO THE BANK. THAT MRS. HARWOOD CONSIDERED THE NOTE A VALID AND ENFORCEABLE OBLIGATION IS EVIDENCED BY THE FACT THAT SHE MADE ALL PAYMENTS THEREON TO THE DATE OF HER DEATH WITHOUT QUESTION.

THUS, THE NOTE WAS VALID AND ENFORCEABLE AGAINST THE BORROWER AT THE TIME IT WAS PURCHASED BY THE BANK AND REMAINED SO UNTIL THE DENIAL OF THE BANK'S CLAIM AGAINST THE ESTATE BY THE VERMONT COMMISSIONERS BECAME FINAL BY REASON OF THE LAPSING OF THE TIME FOR AN APPEAL. IT SHOULD BE NOTED THAT THE COMMISSIONERS FOR THE ESTATE DID NOT DECLARE THE NOTE INVALID OR UNENFORCEABLE BUT MERELY REFUSED TO RECOGNIZE THE CLAIM AGAINST THE ESTATE. WHILE THE COMMISSIONERS GAVE NO REASON FOR THEIR REFUSAL, A LETTER DATED NOVEMBER 13, 1957, FROM THE BANK'S ATTORNEYS TO THE FEDERAL HOUSING ADMINISTRATION INDICATES THAT UPON BEING REQUESTED BY TELEPHONE TO FURNISH THE GROUNDS FOR SUCH REFUSAL ONE OF THE TWO COMMISSIONERS "MADE SOME REFERENCE TO THE LETTER OF GUARANTY SIGNED BY MR. LARRY LONGTIN, BUT COULD GIVE NO FURTHER EXPLANATION OR REASON FOR THEIR DECISION.' SINCE MR. LONGTIN'S GUARANTY, AS INDICATED ABOVE, HAD NO EFFECT ON MRS. HARWOOD'S LIABILITY TO THE BANK, IT IS REASONABLE TO ASSUME THAT THE COMMISSIONER'S DECISION WOULD HAVE BEEN REVERSED BY THE PROBATE COURT IF AN APPEAL HAD BEEN TIMELY FILED. HENCE, THE NOTE WAS AND IS VALID AND AT LEAST TECHNICALLY ENFORCEABLE, BUT HAS BECOME UNENFORCEABLE IN FACT SOLELY BY REASON OF THE LAPSE OF TIME ALLOWED BY VERMONT LAW TO APPEAL THE CLEARLY ERRONEOUS DECISION OF THE COMMISSIONERS.

FURTHERMORE, IT DOES NOT APPEAR THAT FAULT CAN BE IMPUTED TO THE BANK FOR FAILURE TO APPEAL IN TIME. THE RECORD SHOWS THAT THE BANK MADE DILIGENT EFFORTS TO COLLECT FROM THE ADMINISTRATRIX, THE CO-MAKER, MR. LONGTIN, AND THE COMMISSIONERS OF THE ESTATE, AS REQUIRED BY 24 CFR 201.5 (G). WHILE THE BANK DID NOT INSTITUTE SUIT AGAINST ANY OF THESE PARTIES, IT IS NOT REQUIRED BY THE REGULATIONS TO DO SO. 24 CFR 201.11 (B) PROVIDES THAT " CLAIM MAY BE MADE AFTER DEFAULT PROVIDED DEMAND HAS BEEN MADE UPON THE DEBTOR FOR THE FULL UNPAID BALANCE OF THE NOTE.' CLEARLY, THE BANK HAD COMPLIED WITH THIS REGULATION WHEN IT FILED ITS CLAIM WITH THE FEDERAL HOUSING ADMINISTRATION N JUNE 4, 1957. SINCE THE BANK WAS NOT REQUIRED BY THE REGULATIONS TO PURSUE THE MATTER FURTHER, THE FACT THAT THE TIME FOR APPEAL HAD EXPIRED WHEN THE FEDERAL HOUSING ADMINISTRATION INDICATED BY ITS LETTER OF JULY 8, 1957, THAT THE MATTER SHOULD BE BROUGHT TO JUDGMENT CANNOT BE ATTRIBUTED TO FAULT BY THE BANK. THE FEDERAL HOUSING ADMINISTRATION SUGGESTED THAT THE MATTER BE BROUGHT TO JUDGMENT SOLELY BECAUSE IT BELIEVED THE DENIAL OF THE CLAIM AGAINST THE ESTATE BY THE COMMISSIONERS RAISED A QUESTION AS TO THE VALIDITY AND ENFORCEABILITY OF THE NOTE.

SINCE THE NOTE IN THIS INSTANCE WAS VALID AND ENFORCEABLE WHEN IT WAS PURCHASED BY THE BANK AND REPORTED FOR INSURANCE, AND BECAME UNENFORCEABLE IN FACT, WITHOUT BEING LEGALLY RULED INVALID AND UNENFORCEABLE, SOLELY BECAUSE OF THE PASSAGE OF TIME WHILE THE BANK WAS PROCEEDING DILIGENTLY IN ACCORDANCE WITH THE REGULATIONS, IT WOULD APPEAR PROPER IN THIS CASE TO HOLD THAT THE NOTE IS ELIGIBLE FOR INSURANCE. THEREFORE, THERE IS NO NECESSITY FOR THE FEDERAL HOUSING COMMISSIONER TO EXERCISE HIS WAIVER AUTHORITY UNDER 12 U.S.C. 1703 (E). CF. B-127167, DECEMBER 5, 1957. THE VOUCHER AND SCHEDULE OF PAYMENTS FORM, WHICH IS RETURNED HEREWITH TOGETHER WITH YOUR CLAIM FILE, MAY BE CERTIFIED FOR PAYMENT, IF OTHERWISE CORRECT.