Davis v. Vilsack
Filing
29
OPINION entered by Judge Richard Mills on 12/31/2013. SEE WRITTEN OPINION. The Motion of Petitioner Robyn Davis for Summary Judgment (d/e 23 ) is DENIED. The Decision and Order entered on July 5, 2011 is AFFIRMED. The Petitioner owes a valid debt to the United States Department of Agriculture. Any other pending Motions are Denied as Moot. This case is closed. (DM, ilcd)
E-FILED
Tuesday, 31 December, 2013 11:46:43 AM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
ROBYN DAVIS,
Petitioner,
v.
THOMAS J. VILSACK, Secretary of
the Department of Agriculture,
Respondent.
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NO. 11-3383
OPINION
RICHARD MILLS, U.S. District Judge:
This is a Petition for Review of a Decision and Order allowing the
United States Department of Agriculture’s issuance of an Administrative
Wage Garnishment against the Petitioner under 31 C.F.R. § 285.11.
Pending is the Motion of the Petitioner for Summary Judgment.
I. BACKGROUND
Petitioner Robyn Davis asks that the Decision and Order be held
unlawful and set aside.
In 2005, Petitioner Davis and her then-husband, Nicholas Edwards,
along with Draper & Kramer Mortgage Corp., executed the Request for
Single Family Housing Loan Guarantee, for RD 1980-21 (“the Guarantee
Request”). This Guarantee Request is an application for a loan guarantee
administered by the USDA Rural Development, Rural Housing Service’s
Single Family Housing Guaranteed Loan Program (“the Program”). The
Program is governed by 7 C.F.R. § 1980.
On March 15, 2005, in connection with their application for the
United States Department of Agriculture (USDA) guarantee of a single
family home, the Petitioner, together with her now ex-husband, entered
into an agreement with the USDA, under which the Petitioner agreed as
follows:
I (We) certify and acknowledge that if the Agency pays a loss
on the requested loan to the lender, I (We) will reimburse the
Agency for the amount. If I (We) do not, the Agency will use
all remedies available to it, including those under the Debt
Collection Improvement Act, to recover on the Federal debt
directly from me (us). The Agency’s right to collect is
independent of the lender’s right to collect under the
guaranteed note and will not be affected by any release by the
lender of my (our) obligation to repay the loan. Any Agency
collection under this paragraph will not be shared with the
lender.
See Administrative Record (A.R.), Ex. 5.
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The administrative record shows the USDA Rural Development paid
to the lender $31,341.50 after deducting a penalty of $1,844.34 for the
lender’s failure to market the title on a timely basis, pursuant to 7 C.F.R.
§ 1980.376. This payment is reported by the USDA Rural Development
as a loss claim resulting from foreclosure and liquidation of Petitioner
Davis’s and Mr. Edwards’s mortgage loan.
In March of 2011, Petitioner Davis and her husband, Jacob Davis,
experienced a Federal tax return offset in the amount of $1,948, of which
$17 was applied as a “Fee Amount” and $1,931 applied towards the
$31,341.50 being pursued by the USDA Rural Development against
Petitioner Davis.
II. DISCUSSION
The Petitioner asks the Court to set aside the Decision and Order,
dated July 5, 2011, wherein Administrative Law Judge (ALJ) Jill S. Clifton
determined that Petitioner owed a debt to the USDA because the
Guarantee established an independent financial obligation distinct from
that at issue in the partial release obtained by the Petitioner in the state
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court foreclosure proceeding. See A.R., Ex. 12.
(A)
The Administrative Procedure Act, 5 U.S.C. §§ 701, et seq. (APA),
governs judicial review of an action taken by an administrative agency. A
reviewing court will affirm the agency’s legal determinations as long as they
are not “arbitrary or capricious,” and are consistent with the law. See Israel
v. U.S. Dep’t of Agric., 282 F.3d 521, 526 (7th Cir. 2002). “The arbitrary
and capricious standard is highly deferential, and even if we disagree with
an agency’s action, we must uphold the action if the agency considered all
of the relevant factors and we can discern a rational basis for the agency’s
choice.” Id.
An agency’s factual findings are reviewed under a substantial evidence
standard. See 5 U.S.C. § 706(2)(E). This means the agency must “rely on
such relevant evidence as a reasonable mind might accept as adequate to
support the conclusion.” Roadway Exp., Inc. v. U.S. Dep’t of Labor, 612 F.3d
660, 664 (7th Cir. 2010) (internal quotation marks and citation omitted).
Because this is a deferential standard, an inference may not be set aside
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simply because the opposite conclusion is more reasonable.
In her Pro Se filing, the Petitioner argued the following before the
ALJ: (1) the release she obtained in the state court proceeding rendered the
debt unenforceable; (2) the lender conducted an illegal foreclosure,
nullifying the lender-guarantor agreement; and (3) the lender has engaged
in negligent servicing, which renders the lender-guarantor agreement
unenforceable under 7 C.F.R. § 1908.308. See A.R., Ex. 6, p. 3-5. In her
Supplemental Narrative provided by Counsel, the Petitioner alleged that
the USDA was without right to pursue collection against her without a
valid judgment. See A.R., Ex. 7, 9.
(B)
The Petitioner now contends the lender failed to fulfill the program
requirements that would allow a loss claim on the loan. Thus, any payment
made by the USDA Rural Development to the lender is not a loss claim
and, therefore, has not been promised for reimbursement by the Petitioner.
Therefore, the Petitioner contends the amount in dispute is not a liability
which the Petitioner is responsible to reimburse.
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However, a review of the record establishes this argument that she did
not agree to reimburse the USDA for payment made to the lender was not
previously raised by the Petitioner. Accordingly, the Petitioner waived this
argument because it was not presented to the agency. See Ester v. Principi,
250 F.3d 1068, 1072 (7th Cir. 2001); see also United States v. L.A. Tucker
Truck Lines, Inc., 344 U.S. 33, 37 (1952) (“[O]rderly procedure and good
administration require that objections to the proceedings of an
administrative agency be made while it has opportunity for correction in
order to raise issues reviewable by the courts.”).
Even if the argument had not been waived, the Court concludes it is
not persuasive. The Petitioner asserts that the administrative record does
not provide the statutorily required evidence that a Guarantee exists for the
Petitioner’s mortgage loan. She contends that the administrative record
relied on by the ALJ in determining the Petitioner’s liability does not
provide any proof that her Guarantee Request application was approved,
the statutory requirements of the Program had been met, or the official
Loan Note Guarantee was ever executed for the Petitioner’s mortgage loan.
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The Petitioner alleges there is no evidence of a Loan Note Guarantee in the
administrative record. For these reasons, the Petitioner alleges that her
Guarantee Request was not approved, an applicable Loan Guarantee does
not exist and any payment to the USDA Rural Development to the lender
was not in relation to a guarantee on the Petitioner’s mortgage loan.
The ALJ specifically found that Petitioner had an independent
financial obligation arising out of an agreement between the borrowers and
the USDA. See A.R. Ex. 12, ¶ 6. There is no dispute that Petitioner and
her ex-husband acquired the loan, the loan was foreclosed, and the USDA
paid the lender $31,341.50 following the foreclosure. The Petitioner agreed
that the borrowers would reimburse any loss claim paid by the USDA. See
A.R., Ex. 6. Accordingly, the ALJ’s finding that the borrowers’ agreement
with the USDA created an independent financial obligation is supported by
the evidence.
(C)
The ALJ determined that the release the Petitioner obtained in the
state court proceeding did not make the current debt unenforceable because
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of the “independent nature” of the agreement between the Petitioner and
the USDA. See A.R., Ex. 12, ¶ 11. The ALJ considered the Petitioner’s
argument regarding problems with effecting service on the foreclosure.
Upon considering 7 C.F.R. § 1980.308, the ALJ determined that negligent
servicing by the lender would not have rendered the guarantee
unenforceable in this case.
See A.R., Ex. 12, ¶ 12. The ALJ denied the
request of the Petitioner to find that the USDA paid an entity not the
holder of the note. See id.,¶ 13. The ALJ further found that the USDA
could administratively collect against the Petitioner, pursuant to the
agreement between the borrowers and the USDA, even without a judgment
or personal deficiency against the Petitioner–based on the Guarantee. See
id. at ¶ 15.
The Petitioner’s current argument that there was no guarantee
agreement between the lender and the USDA is inconsistent with the
argument made before the ALJ. The Petitioner’s narrative provided, “The
lender was Draper & Kramer Mortgage and the loan was guaranteed by the
USDA Rural Development.” See A.R., Ex. 6, at 2. The Petitioner further
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argued that the lender’s actions in connection with the foreclosure resulted
in the breach of the lender-guarantor agreement, pursuant to 7 C.F.R. §
1980.308, meaning that USDA’s guarantee
to the lender was
unenforceable. See id., at 4. Based on the foregoing, the Petitioner has
waived any argument regarding the existence of a guarantee agreement
between the lender and the USDA.
To the extent that Petitioner argues any guarantee that may exist
between the Petitioner and the USDA is unenforceable, the grounds
asserted are not meritorious.
As the ALJ determined, the release she
obtained in the state court proceeding as to a deficiency judgment against
the co-borrower did not render the current debt unenforceable. The USDA
is not attempting to collect on that deficiency judgment. Rather, it is
attempting to collect on a separate obligation which, as the ALJ found, was
unrelated to the lender’s action to obtain a personal deficiency.
The ALJ considered the Petitioner’s financial circumstances and, in
order to prevent hardship, held that no garnishment was authorized
through August 2013, and the ALJ directed a review of the Petitioner’s
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financial circumstances before any garnishment was authorized. See id. at
¶ 16, 17, 22, 23. The ALJ stated that the ruling as to financial hardship did
not prevent the collection of the debt through the offset of the Petitioner’s
income tax refunds or other federal monies. See id. ¶ 24.
Pursuant to 31 C.F.R. § 285.11 and 31 U.S.C. § 3720D, a federal
agency is authorized to collect money from a debtor’s disposable pay by
means of an administrative wage garnishment to satisfy a delinquent debt
owed to the United States. Upon reviewing the record, the Court concludes
that the ALJ’s determination that a valid debt exists is not arbitrary or
capricious, is supported by substantial evidence and is in accordance with
all applicable law.
(D)
The Petitioner claims that when the applicable regulations are
considered, there is no basis for liability of the debt at issue because the
USDA Rural Development has not enforced the laws that apply to its
program.
The Petitioner claims the lender did not notify her of the action by
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service of summons. Moreover, the Petitioner claims the lender failed to
notify her that the account had become delinquent, which precluded her
from bringing the account current prior to the foreclosure. The Petitioner
contends that because the USDA failed to abide by its own regulations, she
is not liable.
The Petitioner also asserts the lender committed fraud and the claim
should be denied under 7 C.F.R. § 1980.376(b)(1). Moreover, because she
alleges the lender was negligent in loan servicing in failing to effect service
on the Petitioner at the time of the foreclosure proceedings, the Petitioner
contends the guarantee is unenforceable as to her and the claim should be
denied under 7 C.F.R. § 1980.376(b)(6). The Petitioner further contends
the USDA Rural Development Program is not entitled to recover any
payments because the payment would not be pursuant to the regulations
of the Guarantee Program.
In the Guarantee Request, the Petitioner agreed to reimburse the
USDA Rural Development for a loss claim, specifically, if paid by the
USDA Rural Development to the lender. The Petitioner notes the term
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“loss claim” is defined by the USDA Rural Development as “[t]he method
by which the Agency provides reimbursement to a lender/servicer who has
fulfilled all program requirements but who has incurred a loss on a
guaranteed loan.” Moreover, it defines “program requirements” as “[a]ny
requirements set forth in any pertinent loan document, guarantee
agreement, statute, regulation, handbook, or administrative notice.”
The Petitioner claims the lender violated Illinois law and a number of
federal regulations, including the statutory loan servicing requirement that
includes “taking actions to offset the effects of liens . . . and other legal
actions.” See 7 C.F.R. § 1980.370(b). The lender must assure that “[t]he
borrower is not released of liability for the loan except as provided in
Agency regulations.” 7 C.F.R. § 1980.370(b)(3).
The Court is unable to conclude the ALJ unreasonably rejected the
Petitioner’s argument that she was prejudiced by flaws in the state court
foreclosure proceeding. She claims that had she received proper notice the
foreclosure would have been avoided. The ALJ recognized this was a
possibility. See A.R., Ex. 12 ¶ 9. However, it is not certain that this would
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have occurred. Additionally, once the Petitioner became aware of the
foreclosure, she obtained counsel and sought to have the default judgment
entered against her set aside. See id., Ex. 1, at 8-10. Although her motion
was denied, the Petitioner was released from personal liability on the
deficiency judgment that had been entered. See id., Ex. 1, at 6-7. The
record establishes that the Petitioner chose her remedy in the foreclosure
proceeding. The USDA was not a party to that proceeding, which did not
really relate to the agreement between the USDA and the Petitioner. There
is nothing in the record tending to show that problems with the state
foreclosure proceeding increased the amount of the loss claim that serves
as the underlying basis of the collection efforts.
The Court is unable to conclude that the ALJ erred in rejecting the
Petitioner’s argument that alleged negligent servicing by the lender rendered
the lender-guarantor agreement unenforceable under 7 C.F.R. § 1980.308.
The regulation provides that a guarantee by the USDA of a loan constitutes
an obligation supported by the full faith and credit of the United States.
See 7 C.F.R. § 1980.308(a). The loan note guarantee will be unenforceable
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to the extent any loss is occasioned by “negligent servicing,” which is
defined in relevant part as “the failure to perform those services which a
reasonably prudent lender would perform in servicing its own loan portfolio
of loans that are not guaranteed.” Id. The regulation further provides,
“The term includes not only the concept of a failure to act, but also not
acting in a timely manner or acting contrary to the manner in which a
reasonably prudent lender would act up to the time of loan maturity or
until a final loss is paid.” Id.
The Petitioner maintains that the entire amount of loss is attributable
to negligent servicing, in that the foreclosure could have been avoided had
proper notice been provided. As the Court earlier noted, however, that is
speculative on the part of the Petitioner. Additionally, negligent servicing
does not render a USDA guarantee completely unenforceable. Rather, it
mitigates a claim, making the claim unenforceable “to the extent” any part
of the loss is caused by negligent servicing. See 7 C.F.R. § 1908.308(a).
The record establishes that the USDA paid the loss amount of $31,341.50
to the lender on February 12, 2010. See A.R., Ex. 5. There is nothing in
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the record tending to show that the USDA was aware of any negligent
servicing at that time.
(E)
Pursuant to 31 C.F.R. § 285.11, a valid judgment was not necessary
for the USDA to pursue a collection action against the Petitioner. An
administrative wage garnishment requires only a “debt” to the United
States, not a judgment. Moreover, the use of administrative offset also
applies to a “past due, legally enforceable nontax debt [to a federal agency]
that is over 180 days delinquent.” 31 U.S.C. § 3716(c)(6). Therefore, the
ALJ’s
determination
that
administrative
wage
garnishment
and
administrative offset are appropriate remedies is consistent with applicable
law.
III. CONCLUSION
Based on the foregoing, the Court concludes that the ALJ’s decision
was not arbitrary or capricious. Upon finding that a valid debt existed, the
ALJ examined the Petitioner’s financial situation and determined that
although administrative wage garnishment was an available remedy, the
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USDA would not be permitted to garnish the Petitioner’s wages before
September 2013 because it would result in undue hardship to the
Petitioner. The ALJ further determined that the USDA could not begin any
garnishment until a review of the Petitioner’s financial circumstances to
determine an appropriate amount based on her finances. See A.R., Ex. 12
¶ 23.
Because the ALJ’s decision is consistent with the law and is supported
by the record, the decision of the agency will be affirmed.
Ergo, the Motion of Petitioner Robyn Davis for Summary Judgment
[d/e 23] is DENIED.
The Decision and Order entered on July 5, 2011 is AFFIRMED. The
Petitioner owes a valid debt to the United States Department of
Agriculture.
Any other pending Motions are Denied as Moot.
This case is closed.
ENTER: December 31, 2013
FOR THE COURT:
s/Richard Mills
Richard Mills
United States District Judge
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