B-207336, MAY 31, 1983

B-207336, MAY 31, 1983

PRECIS-UNAVAILABLE

THE HONORABLE JAMES V. HANSEN, HOUSE OF REPRESENTATIVES:

THIS WILL REFER TO YOUR LETTER OF APRIL 26, 1982, ON BEHALF OF CONSTITUENTS OCCUPYING HOMES IN NORTHEAST PRICE, UTAH, FINANCED BY FEDERALLY-INSURED MORTGAGES, WHICH WERE STRUCTURALLY DAMAGED AS A RESULT OF UNSTABLE SOIL CONDITIONS. THESE HOMEOWNERS FAILED TO FILE CLAIMS FOR FEDERAL FINANCIAL ASSISTANCE WITHIN 4 YEARS OF THE ISSUANCE OF THE MORTGAGES AS REQUIRED BY THE NATIONAL HOUSING ACT. YOU ASKED US TO REVIEW THEIR CLAIMS TO CONSIDER WHETHER ANY FEDERAL RELIEF IS AVAILABLE DESPITE THE EXPIRATION OF THE 4-YEAR TIME LIMIT. WE REGRET THE DELAY IN RESPONDING TO YOUR LETTER WHICH WAS CAUSED IN PART BY OUR DIFFICULTY IN OBTAINING NECESSARY INFORMATION ON THE CASE FROM THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD).

WE HAVE REVIEWED THIS CASE AND DETERMINED THAT HUD ACTED IN A RESPONSIBLE MANNER AND PROVIDED ALL FEDERAL ASSISTANCE AUTHORIZED BY LAW. WE ARE AWARE OF NO OTHER FEDERAL RELIEF AVAILABLE TO HOMEOWNERS WHO DID NOT FILE TIMELY CLAIMS. ALTHOUGH YOUR LETTER SUMMARIZES THE FACTS LEADING TO THE REQUEST FOR RELIEF, IT MIGHT BE HELPFUL TO BRIEFLY DESCRIBE ADDITIONAL INFORMATION PROVIDED TO US BY HUD AND TO DESCRIBE THE LEGAL CONSEQUENCES OF THESE FACTS THAT LED TO OUR CONCLUSION.

(1) THIRTY-FIVE HOMES IN CEDAR HILLS SUBDIVISION (PLAT "A"; PHASE I), BUILT BY THE NOW-DEFUNCT SAGEWOOD CONSTRUCTION COMPANY, WERE FINANCED BY MORTGAGES INSURED BY HUD UNDER SECTION 203(B) OF THE NATIONAL HOUSING ACT (12 U.S.C. SEC. 1709). AS YOU KNOW, HUD INSURANCE PROTECTS THE LENDER IF THE BORROWER DEFAULTS ON HIS MORTGAGE, AND THEREFORE TYPICALLY RESULTS IN THE BORROWER RECEIVING MORE FAVORABLE DOWNPAYMENT AND REPAYMENT TERMS. THE PREMIUM FOR THIS INSURANCE IS PAYABLE BY THE LENDER (ALTHOUGH IT MAY BE PASSED ON TO THE BORROWER) FOR AS LONG AS THE MORTGAGE IS IN EFFECT AND THE LENDER'S PROTECTION AGAINST DEFAULT CONTINUES. THIS INSURANCE PRESUMABLY MADE IT POSSIBLE FOR THE LENDER TO OFFER THE BORROWER A MORTGAGE FOR WHICH HE OTHERWISE MIGHT HAVE BEEN INELIGIBLE, AND PERMITTED YOUR CONSTITUENTS TO BUY THEIR HOMES WITH LOWER DOWNPAYMENTS AND MONTHLY PAYMENTS THAN WOULD OTHERWISE BE THE CASE. HUD INSURANCE DOES NOT, HOWEVER, PROTECT A BUYER FROM UNSTABLE SOIL OR STRUCTURAL DEFECTS, ALTHOUGH IF THESE CONDITIONS HAD BEEN KNOWN THE INSURANCE PROBABLY WOULD NOT HAVE BEEN AVAILABLE.

(2) SECTION 518(A) OF THE NATIONAL HOUSING ACT (12 U.S.C. SEC. 1735BA)) AUTHORIZES THE SECRETARY OF HUD TO MAKE EXPENDITURES TO CORRECT STRUCTURAL DEFECTS FOUND IN NEWLY CONSTRUCTED FAMILY DWELLINGS FINANCED WITH THE AID OF FEDERAL INSURANCE, TO PAY THE PROPERTY OWNER'S CLAIMS ARISING FROM SUCH DEFECTS OR TO ACQUIRE TITLE TO THE PROPERTY. THE SECRETARY MAY MAKE THESE PAYMENTS ONLY

"IF THE OWNER HAS REQUESTED ASSISTANCE FROM THE SECRETARY NOT LATER THAN FOUR YEARS (OR SUCH SHORTER TIME AS THE SECRETARY MAY PRESCRIBE) AFTER INSURANCE OF THE MORTGAGE ***."

THEREFORE, HUD IS BARRED FROM ASSISTING PROPERTY OWNERS WHO MAKE CLAIMS BEYOND THIS 4-YEAR PERIOD AND IS AUTHORIZED TO SET AN EVEN SHORTER PERIOD FOR NOTICE.

(3) HUD HAS INFORMED US THAT IT BECAME AWARE OF DEFECTS IN SOME OF THE HOUSES IN THE CEDAR HILLS DEVELOPMENT APPROXIMATELY 3 YEARS AFTER THE HOUSES WERE CONSTRUCTED, ALTHOUGH THE CAUSE OF THE PROBLEM HAD NOT BEEN DETERMINED. EVEN THOUGH NOT REQUIRED TO DO SO BY LAW, AT A NEIGHBORHOOD MEETING HUD ADVISED HOMEOWNERS OF THE AVAILABILITY OF FEDERAL ASSISTANCE, AND PROVIDED COPIES OF CLAIM FORMS WHICH WERE DISTRIBUTED THROUGHOUT THE NEIGHBORHOOD. ACCORDING TO YOUR LETTER, THE HUD REPRESENTATIVES WARNED RESIDENTS THAT HUD WAS NOT OBLIGATED TO MAKE REPAIRS IF CLAIMS WERE NOT FILED WITHIN 4 YEARS OF PURCHASE. TWELVE HOMEOWNERS FILED CLAIMS WITHIN THAT PERIOD AND HAVE RECEIVED ASSISTANCE, BUT APPROXIMATELY SIX OTHERS HAVE BEEN DENIED RELIEF BECAUSE OF LATE FILING. AS NOTED ABOVE, HUD HAS DISCERTION ONLY TO SHORTEN THE PERIOD IN WHICH CLAIMS MUST BE FILED AND CANNOT LENGTHEN IT BEYOND THE 4-YEAR PERIOD.

(4) EVEN THOUGH THE CAUSE OF THE DWELLING PROBLEMS WAS NOT IDENTIFIED UNTIL NEARLY 6 YEARS AFTER CONSTRUCTION, HUD PROVIDED FUNDS FOR RECONSTRUCTION TO ALL PROPERTY OWNERS WHO HAD FILED BEFORE THE DEADLINE. HUD HAS INFORMED US THAT THE PROBLEM WAS CAUSED BY NATURAL DEPOSITS OF HYDROCOMPACTIVE SILTS DEEPLY UNDERLYING SOME OF THE SUBDIVISION SITES, BUT IT WAS "AN UNCOMMON CONDITION THAT IS NOT GENERAL THROUGHOUT THE SUBDIVISION." HUD DOES NOT EXPECT THAT ADDITIONAL CEDAR HILLS HOMES WILL EXPERIENCE DAMAGE FROM THIS PROBLEM. HUD REPRESENTATIVES INVITED ALL RESIDENTS TO A NEIGHBORHOOD MEETING AFTER THE CAUSE OF THE DAMAGE WAS DETERMINED, SHARED THIS INFORMATION WITH THEM, AND INDICATED THAT CORRECTIONS WOULD BE MADE FOR THOSE WHO HAD COMPLIED WITH THE FILING REQUIREMENTS.

IT APPEARS THAT HUD MET, AND IN SOME CASES EXCEEDED, ITS RESPONSIBILITIES UNDER THE LAW. ALTHOUGH THERE IS NO REQUIREMENT THAT PROPERTY OWNERS BE INFORMED OF PROPERTY-THREATENING CONDITIONS IN THEIR AREA, HUD DISTRIBUTED FORMS AND PROVIDED WARNINGS AT A MEETING PRIOR TO THE EXPIRATION OF THE 4- YEAR PERIOD EVEN BEFORE THE CAUSE OF THE PROBLEM WAS KNOWN. SINCE THE UNSTABLE SOIL WAS NOT A GENERAL PROBLEM, THE AGENCY HAD NO WAY OF KNOWING ADDITIONAL HOMES THAT MIGHT BE AFFECTED. IT APPEARS THAT HUD ACTED REASONABLY AND COULD NOT BE EXPECTED TO BE RESPONSIBLE FOR ASSISTING THOSE WHO DID NOT MEET FILING REQUIREMENTS.

WHILE THERE ARE NO OTHER FEDERAL REMEDIES AVAILABLE AND ACTION AGAINST THE NOW DEFUNCT BUILDER APPEARS IMPOSSIBLE, YOUR CONSTITUENTS COULD SEEK PRIVATE COUNSEL TO DETERMINE IF RELIEF MIGHT BE AVAILABLE FROM POSSIBLE SUCCESSORS TO THE BUILDER'S BUSINESS.