Authority To Cancel the Debt Owed by the Valley Homes Mutual Housing Corporation

B-194628: Jul 3, 1979

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This responds to Congressional inquiry about authority to cancel the debt owed to the United States by the financially troubled Valley Homes Mutual Housing Corporation. Valley Homes is a non-profit, tenant-owned, cooperative housing project consisting of 53 multi-family housing units constructed during World War II in Lincoln Heights, Ohio. The Government National Mortgage Association (GNMA) is the mortgagee and note holder on the loan which financed the tenants' purchase of the project. The note has run for 25 years and is due and payable on August 1, 1979. Total arrearages of principal and interest on the note amount to over $400,000. Congress has requested GNMA to cancel the debt on the basis that the Government originally sold the project to Valley Homes at an inflated price which was inconsistent with the law governing the sale, and that the cost of collection may well exceed the amount that could be recovered. However, GNMA has advised Congress that, with the exception of the Federal Claims Collection Act, 31 U.S.C. 951, et seq., it has no statutory authority to cancel indebtedness to the Government. Accordingly, Congress has requested this Office review GNMA's statutory authority and determine whether its understanding of the law is correct regarding cancellation of indebtedness to the Government.

From our analysis, we believe that GNMA has broad authority to settle claims arising out of its activities. Specifically, it has the power to sue and be sued, to dispose of property in such manner as it deems necessary or appropriate and to do all things as are necessary or incidental to the power management of its affairs and the proper conduct of its business. We have held that Government corporations with similar statutory authority had the power to waive an indebtedness to the Government. Thus we believe that GNMA may in proper circumstances forego collection of an indebtedness to the Government under the authority contained in 12 U.S.C. 1723.