B-168912, JUL. 30, 1970

B-168912: Jul 30, 1970

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HOWEVER IF THE REGULATIONS ARE AMENDED TO PROVIDE PAYMENT OF SECTION 608 CERTIFICATE IN CASES WHERE FHA HAS RECOVERED ITS ENTIRE INVESTMENT PLUS AN ADDITIONAL AMOUNT TO PAY THE CERTIFICATE AND INTEREST THEN PAYMENT OF THE CLAIM MAY BE MADE. THE CERTIFICATE WAS ISSUED UPON THE DEFAULT OF AN INSURED MORTGAGE HELD BY THE COMPANY ON A RENTAL HOUSING PROJECT KNOWN AS "SEVEN OAKS" IN NEWPORT NEWS. THE SECTION AS ENACTED AUTHORIZED THE INSURANCE OF MORTGAGES ON MULTIFAMILY PROPERTIES FOR RESIDENTIAL USE BY WAR WORKERS AND WAS SUBSEQUENTLY AMENDED. TITLE AND POSSESSION OF THE MORTGAGED PROPERTY WAS CONVEYED TO THE FEDERAL HOUSING COMMISSIONER. THE COMPANY WAS ISSUED DEBENTURES PLUS AN INCIDENTAL CASH ADJUSTMENT TOTALLING $897.

B-168912, JUL. 30, 1970

HOUSING LOANS -- CERTIFICATE OF CLAIM HOLDERS DECISION TO CERTIFYING OFFICER OF FEDERAL HOUSING ADMIN. CONCLUDING THAT VOUCHER FOR PAYMENT OF A CERTIFICATE OF CLAIM INCIDENT TO INSURED MORTGAGE HELD BY HOME BENEFICIAL LIFE INSURANCE COMPANY IN EXCHANGE FOR TITLE TO MULTI-FAMILY HOUSING PROJECT KNOWN AS "SEVEN OAKS" MAY NOT BE CERTIFIED FOR PAYMENT. THE RIGHT OF A HOLDER OF A CERTIFICATE EXCHANGED FOR A MULTIFAMILY INSURED HOUSING PROJECT TO THE EXCESS REALIZED ON THE SALE MUST UNDER FHA REGULATIONS WAIT UNTIL TOTAL LIQUIDATION. HOWEVER IF THE REGULATIONS ARE AMENDED TO PROVIDE PAYMENT OF SECTION 608 CERTIFICATE IN CASES WHERE FHA HAS RECOVERED ITS ENTIRE INVESTMENT PLUS AN ADDITIONAL AMOUNT TO PAY THE CERTIFICATE AND INTEREST THEN PAYMENT OF THE CLAIM MAY BE MADE.

TO MR. LESTER H. THOMPSON:

YOUR LETTER OF JANUARY 28, 1970, REFERENCE FCM, REQUESTS OUR OPINION WHETHER IN THE SITUATION INVOLVED YOU MAY CERTIFY FOR PAYMENT, UNDER SECTION 604(F) OF TITLE VI (WAR HOUSING INSURANCE) OF THE NATIONAL HOUSING ACT, AS AMENDED, 12 U.S.C. 1739(F), THE CERTIFICATE OF CLAIM ISSUED JULY 1, 1946, TO THE HOME BENEFICIAL LIFE INSURANCE COMPANY, RICHMOND, VIRGINIA. THE CERTIFICATE WAS ISSUED UPON THE DEFAULT OF AN INSURED MORTGAGE HELD BY THE COMPANY ON A RENTAL HOUSING PROJECT KNOWN AS "SEVEN OAKS" IN NEWPORT NEWS, VIRGINIA.

ON AUGUST 24, 1943, THE FEDERAL HOUSING COMMISSIONER INSURED THE MORTGAGE HELD BY THE HOME BENEFICIAL LIFE INSURANCE COMPANY ON THE "SEVEN OAKS" PROJECT UNDER SECTION 608, ADDED TO TITLE VI OF THE NATIONAL HOUSING ACT IN 1942 (12 U.S.C. 1743). THE SECTION AS ENACTED AUTHORIZED THE INSURANCE OF MORTGAGES ON MULTIFAMILY PROPERTIES FOR RESIDENTIAL USE BY WAR WORKERS AND WAS SUBSEQUENTLY AMENDED, IN 1946, TO COVER MULTIFAMILY PROPERTIES FOR USE BY WORLD WAR II VETERANS AND THEIR FAMILIES. THE MORTGAGE HELD BY THE COMPANY WENT INTO DEFAULT DECEMBER 1, 1945.

ON JULY 1, 1946, TITLE AND POSSESSION OF THE MORTGAGED PROPERTY WAS CONVEYED TO THE FEDERAL HOUSING COMMISSIONER. IN ACCORDANCE WITH SECTION 608 AND THE PROVISIONS OF SECTION 604 INCORPORATED BY REFERENCE, THE COMPANY WAS ISSUED DEBENTURES PLUS AN INCIDENTAL CASH ADJUSTMENT TOTALLING $897,592.21, AND THE CERTIFICATE OF CLAIM HERE INVOLVED IN THE FACE AMOUNT OF $13,053.59.

THE DEBENTURES, PROVIDING FOR THE PAYMENT OF INTEREST SEMIANNUALLY AT THE RATE OF 2-1/2% PER ANNUM AND MATURATION TEN YEARS FROM THE DATE OF DEFAULT OF THE INSURED MORTGAGE, HAVE BEEN PAID AND RETIRED. PAYMENT OF THE CERTIFICATE OF CLAIM ON THE OTHER HAND, WHICH PROVIDES FOR AN INCREMENT OF 3% PER ANNUM OF THE FACE AMOUNT, IS PREDICATED ON THE CONTINGENCY OF RECOVERY OF LOSS AND HAS NOT BEEN PAID.

THE FEDERAL HOUSING ADMINISTRATION BY VIRTUE OF ITS OPERATION AND SUBSEQUENT SALE OF THE PROPERTY IN MAY OF 1954 HAS PRESENTLY RECOVERED AN AMOUNT IN EXCESS OF ITS ACQUISITION COSTS AND EXPENSES, A SUM SUFFICIENT TO PAY THE FACE AMOUNT OF THE CERTIFICATE PLUS ITS INCREMENT. BUT AS THE SALE OF THE PROPERTY AT THE PRICE OF $1,150,600 INVOLVED THE RECEIPT OF $150,600 IN CASH AND THE TAKING BACK OF A PURCHASE MONEY MORTGAGE OF $1,000,000 MATURING IN 1993, DOUBT EXISTS WHETHER PAYMENT OF THE CERTIFICATE OF CLAIM MAY BE ADMINISTRATIVELY MADE PRIOR TO LIQUIDATION OF THE COMMISSIONER'S TOTAL INTEREST IN THE PROPERTY AS MORTGAGEE. THE DOUBT ARISES FROM THE TRADITIONAL ADMINISTRATIVE INTERPRETATION OF SECTION 604(F)(1) UPON WHICH THE COMPANY'S CLAIM FOR PAYMENT OF THE CERTIFICATE OF CLAIM IS PREDICATED.

SECTION 604(F)(1), APPLICABLE TO HOME MORTGAGES INSURED UNDER SECTION 603, IS FOR CONSIDERATION HEREIN, ALTHOUGH INVOLVING A LARGE RENTAL HOUSING PROJECT MORTGAGE, BY VIRTUE OF SECTION 608(D) WHICH STATES THAT THE CERTIFICATE OF CLAIM ISSUED IN CONNECTION WITH THE INSURANCE OF MORTGAGES UNDER SECTION 608 "SHALL BE FOR AN AMOUNT DETERMINED IN ACCORDANCE WITH SUBSECTIONS (E) AND (F) OF SECTION 604 OF THIS TITLE, EXCEPT THAT ANY AMOUNT REMAINING AFTER THE PAYMENT OF THE FULL AMOUNT UNDER THE CERTIFICATE OF CLAIM SHALL BE RETAINED BY THE SECRETARY AND CREDITED TO THE GENERAL INSURANCE FUND." SUBSECTION (E) IS DETERMINATIVE OF THE FACE AMOUNT OF THE CERTIFICATE ISSUED AND SUBSECTION (F) OF THE AMOUNT ULTIMATELY PAYABLE. THE LATTER STATES, IF THE "NET AMOUNT REALIZED" FROM THE PROPERTY CONVEYED TO THE SECRETARY (COMMISSIONER) EXCEEDS) THE FACE VALUE OF THE DEBENTURES ISSUED AND THE CASH PAID IN EXCHANGE FOR SUCH PROPERTY PLUS ALL INTEREST PAID ON SUCH DEBENTURES," THE EXCESS SHALL BE PAID TO THE HOLDER OF THE CERTIFICATE OF CLAIM TO THE EXTENT OF THE TOTAL AMOUNT PAYABLE THEREUNDER.

THE PHRASE "NET AMOUNT REALIZED" IN THE CONTEXT OF SUBSECTION 604(F)(1) HAS CONSISTENTLY BEEN VIEWED BY THE FEDERAL HOUSING ADMINISTRATION AS CONTEMPLATING THE FINAL NET AMOUNT, FOR DETERMINATION WHEN THE INTEREST OF THE COMMISSIONER IN THE ACQUIRED PROPERTY HAS BEEN TOTALLY LIQUIDATED. THUS THE CERTIFICATE OF CLAIM ISSUED TO THE HOME BENEFICIAL LIFE INSURANCE COMPANY STATES: "THE AMOUNT, IF ANY, TO WHICH THE HOLDER OF THIS CERTIFICATE OF CLAIM SHALL BE ENTITLED SHALL BE CONTINGENT AND DEPENDENT UPON THE NET AMOUNT REALIZED FROM THE PROPERTY HEREINBEFORE MENTIONED AND THE CLAIMS ASSIGNED THEREWITH AND SHALL BE DETERMINED BY THE COMMISSIONER UPON THE FULL LIQUIDATION OF THE SAID PROPERTY AND CLAIM." TO THE SAME EFFECT WERE THE THEN CURRENT ADMINISTRATIVE REGULATIONS. " *** THE COMMISSIONER SHALL DELIVER TO THE MORTGAGEE-- *** A CERTIFICATE OF CLAIM IN ACCORDANCE WITH SECTION 608(D) OF THE ACT WHICH SHALL BECOME PAYABLE, IF AT ALL, UPON THE SALE AND FINAL LIQUIDATION OF THE INTEREST OF THE COMMISSIONER IN SUCH PROPERTY." ADMINISTRATIVE REGULATIONS OF THE FEDERAL HOUSING COMMISSIONER UNDER SECTION 608 OF TITLE VI OF THE NATIONAL HOUSING ACT, ARTICLE V, SEC. 2(B).

THE ESTABLISHED ADMINISTRATIVE INTERPRETATION OF SECTION 604(F)(1) INVOLVES THE CONCEPT: WHETHER A NET AMOUNT IS TO BE REALIZED, FOR THE PURPOSE OF PAYING A CERTIFICATE OF CLAIM, MUST NECESSARILY AWAIT THE TOTAL LIQUIDATION OF THE MORTGAGE HELD BY THE COMMISSIONER. IN OUR OPINION, HOWEVER, SECTION 604(F)(1) OF THE NATIONAL HOUSING ACT, AS AMENDED, 12 U.S.C. 1739(F)(1)--AS ORIGINALLY ENACTED OR IN ITS PRESENT FORM--IS NOT REQUIRED TO BE CONSTRUED SO AS TO PRECLUDE PAYMENT OF A SECTION 608 CERTIFICATE OF CLAIM WHERE FHA HAS--AS IN THE INSTANT CASE- RECOVERED ITS ENTIRE INVESTMENT IN THE PROPERTY INVOLVED AND IN ADDITION AN AMOUNT OVER AND ABOVE SUCH INVESTMENT SUFFICIENT TO PAY THE CERTIFICATE OF CLAIM PLUS THE INTEREST THEREON.

BUT, AS INDICATED IN YOUR LETTER, THE FHA REGULATIONS APPLICABLE TO MORTGAGES INSURED UNDER SECTION 608, AS PRESENTLY WORDED, WOULD PRECLUDE PAYMENT OF THE CERTIFICATE OF CLAIM INVOLVED HERE. HOWEVER, IF THE GOVERNING FHA REGULATIONS ARE APPROPRIATELY AMENDED BY AN AMENDMENT OF GENERAL APPLICATION TO PROVIDE FOR PAYMENT OF SECTION 608 CERTIFICATES OF CLAIM IN CASES WHERE FHA HAS RECOVERED ITS ENTIRE INVESTMENT IN THE PROPERTY INVOLVED PLUS AN ADDITIONAL AMOUNT SUFFICIENT TO PAY THE CERTIFICATE OF CLAIM AND THE INTEREST THEREON, WE WOULD PERCEIVE NO OBJECTION TO PAYING THE INSTANT CLAIM. CF. 36 COMP. GEN. 507 (1957). ABSENT AMENDING THE REGULATIONS TO SO PROVIDE, IT IS OUR VIEW THAT THE INSTANT CLAIM MAY NOT BE CERTIFIED FOR PAYMENT.

THE VOUCHER COVERING THE CLAIM IS RETURNED HEREWITH.