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GENEVA LTD. v. KEMP

August 27, 1990

GENEVA LIMITED PARTNERS, a California Limited Partnership, and GENEVA TOWERS ASSOCIATES, a California Limited Partnership, Plaintiffs,
v.
JACK KEMP, Secretary of Housing and Urban Development, and JOSEPH M. HAMBIN, Defendants.



The opinion of the court was delivered by: D. LOWELL JENSEN

 On August 23, 1990, this Court heard plaintiffs' motion for a preliminary injunction to enjoin foreclosure of certain real property by the Secretary of the Department of Housing and Urban Development. Dean A. Morehouse of Thelen, Marrin, Johnson & Bridges appeared on behalf of Geneva Limited Partners. Kenneth M. Levy of Levy & Levy appeared for Geneva Towers Associates. Assistant United States Attorney Anne-Christine Massullo appeared for defendants. Having reviewed the briefs submitted on behalf of the parties, the oral argument of counsel, and the applicable legal standard, the Court denies plaintiffs' motion for a preliminary injunction. The Court also denies plaintiffs' motion for an injunction pending appeal to the Ninth Circuit under Rule 62(c) of the Federal Rules of Civil Procedure.

 I. BACKGROUND

 The Geneva Towers Apartments is a federally subsidized low-income housing project located in the City of San Francisco. The property consists of two large multi-unit apartment buildings, which house approximately 1750 individuals and is currently 87 percent occupied.

 In 1966, the Department of Housing and Urban Development (hereinafter "HUD") insured the property pursuant to Sections 221(d)(3) and (5) of the National Housing Act, 12 U.S.C. 17151(d)(3) and (5), for the purpose of subsidizing low-income, multi-family housing. HUD holds the beneficial interest in the property under a consolidated deed of trust assigned to the Secretary in 1972. Plaintiff Geneva Limited Partners ("GLP") purchased the property in 1983 from plaintiff Geneva Towers Associates ("GTA"). Under the terms of sale, however, GTA is liable as a mortgagor under the HUD deed of trust, and also remains the record owner of the property.

 In 1988 HUD became aware of several problems with the property which HUD contends created both monetary and non-monetary defaults on the property. On December 1, 1988, HUD, GTA, GLP and others entered into a Provisional Workout Agreement ("PWA") to remedy the problems. Soon thereafter, plaintiffs corrected the monetary default asserted in the PWA. Regarding the alleged non-monetary default, the PWA required plaintiffs to expeditiously correct the property's state of serious disrepair. Plaintiffs agreed to fund no less than one-third of the total cost of these repairs, with the remaining two-thirds to be paid by HUD. Plaintiffs' one-third share was to be available for use no later than September 1, 1989.

 Plaintiffs did not come forward with the money as required under the PWA because HUD failed to provide a solid commitment in September regarding its two-thirds share of the funding. Under plaintiffs' interpretation of the PWA, plaintiffs' obligation to make available funding for repairs was nullified by HUD's failure to produce its share of the funding. In contrast, HUD contends that plaintiff's share of the repair costs, amounting to $ 2.4 million, was due and payable the first of September, 1989, regardless of HUD's actions. HUD therefore initiated foreclosure proceedings against plaintiffs shortly after the September deadline. Moreover, HUD informed plaintiffs that the absence of a monetary default (the mortgage was and remains current) under the HUD deed of trust was "immaterial" to HUD's foreclosure decision. It is undisputed that HUD has the authority to foreclose based on a non-monetary default under the express terms of the deed of trust to the property, as well as under its own regulations for multi-family low-income housing. See 24 C.F.R. 207.255(a)(2). Nevertheless, all parties agree that HUD's intention to proceed with a foreclosure in this case based on a non-monetary default is unprecedented.

 The estimated total cost of the repairs required for the property has risen from roughly $ 3.5 million in December 1988, to the present figure of between $ 7 million and $ 8 million, although the parties disagree as to the exact amount. Plaintiffs assert that they are now prepared to make available $ 1 million to fund the cost of repairs.

 Plaintiff GLP received a Notice of Default from HUD by letter dated July 26, 1990. The Notice asserted the existence of both a monetary and non-monetary default, and scheduled a foreclosure sale for August 28, 1990. Plaintiffs now bring suit to block HUD from foreclosing on the property until there has been a complete adjudication of the merits of their dispute.

 II. DISCUSSION

 A preliminary injunction is an extraordinary remedy, to which a moving party is entitled only upon satisfaction of certain lofty and well-settled standards. The traditional test within the Ninth Circuit for issuing preliminary injunctions includes consideration of four factors:

 (1) The likelihood of the plaintiffs' success on the merits;

 (2) the threat of irreparable harm to the plaintiffs if the injunction is not imposed;

 (3) the relative balance of this harm to the plaintiffs and the harm to the defendants if the ...


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