IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND NORTHERN DIVISION

Transcription

1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND NORTHERN DIVISION JOSIE D. CARTER : 3 Highhaven Place, Apartment TD White Marsh, Maryland : GLORIA A. JOHNSON : 1 Highhaven Place, Apartment TA White Marsh, Maryland : DEBBIE R. MONTGOMERY : 1 Highhaven Place, Apartment TD White Marsh, Maryland : MARCIA A. PHELPS : 1 Highhaven Place, Apartment TC White Marsh, Maryland : Plaintiffs : v. : CIVIL ACTION NO. ANDREW M. CUOMO : in his official capacity as SECRETARY, UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT : 451 Seventh Street, S.W., Room Washington, DC : Defendant : COMPLAINT I. INTRODUCTION 1. Plaintiffs Josie Carter, Gloria Johnson, Debbie Montgomery, and Marcia Phelps bring this action against the United States Department of Housing and Urban Development (HUD) for declaratory and injunctive relief, judicial review of an agency action, and to enforce Plaintiffs= rights under federal fair housing and civil rights laws. Plaintiffs and their families live in Dunhaven II, Phase II (ADunhaven@), one of the few federally assisted low-income apartment

2 complexes in the White Marsh area of Baltimore County. Plaintiffs ask this Court to stop HUD from approving the foreclosure sale of their apartment complex to the defaulting owner on terms that would not only relieve the owner of his obligations under his government mortgage but also extinguish their subsidized leases with the owner and HUD. If this Court does not halt the foreclosure sale, HUD=s actions will deprive the Plaintiffs of their rights under the National Housing Act, 12 U.S.C. ' 1701, et seq.; the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. ' 1701z-11; the Fair Housing Act, 42 U.S.C. ' 3601 et seq.; and the Maryland Assisted Housing Preservation Act, Md. Ann. Code Art. 83B, ' et seq. II. JURISDICTION 2. Jurisdiction over the Plaintiffs= claims is conferred on this court by 28 U.S.C. ' 1331 (federal question jurisdiction) in that this action arises under the Constitution and laws of the United States; the Administrative Procedure Act, 5 U.S.C. ' 701 et seq.; 28 U.S.C. ' 1343(a)(4) because the Plaintiffs seek equitable and other relief under Acts of Congress providing for the protection of civil rights under Title VIII of the Civil Rights Act of 1968, 42 U.S.C. ' 3601 et seq.; and 42 U.S.C. ' 3613 for civil actions under Title VIII of the Civil Rights Act of 1968, 42 U.S.C. ' 3601 et seq. 3. Plaintiffs seek declaratory and injunctive relief against the Defendant pursuant to 28 U.S.C. '' 2201 and Venue is proper in this district pursuant to 28 U.S.C. ' 1391(b) because the Plaintiffs= claims arose in this district. 2

3 III. PARTIES 5. Josie Carter is a 25-year-old African-American citizen of Baltimore County, Maryland. She and her eight-year-old daughter Nicole lived in Baltimore City before moving to Dunhaven in August of 1996 to take advantage of greater job opportunities in the White Marsh area and better public schools. Ms. Carter works as an assistant at a chiropractor=s office near her home. She earns $7 an hour for hours of work each week. Ms. Carter pays 30 percent of her adjusted income for rent and utilities, which is $50 a month. HUD pays the owner of Dunhaven II, Phase II a monthly subsidy for the difference between the amount that she can afford to pay toward rent and the HUDapproved market rent for her apartment. 6. Gloria Johnson is a 34-year-old African-American citizen of Baltimore County, Maryland. She, her 17-year-old son Joseph, and her 12-year-old daughter Melanie lived in Baltimore City before moving to Dunhaven in October of 1997 to take advantage of greater job opportunities in the White Marsh area and better public schools. Ms. Johnson works the late shift as a secretary through a temporary agency at a company near her home. She earns $7.75 an hour for 40 hours a week. Ms. Johnson pays 30 percent of her adjusted income for rent and utilities, which is $344 a month. HUD pays the owner of Dunhaven II, Phase II a monthly subsidy for the difference between the amount that she can afford to pay toward rent and the HUD-approved market rent for her apartment. 7. Debbie Montgomery is a 30-year-old African-American citizen of Baltimore County, Maryland. She, her 10-year-old daughter Kelly, her 8-year-old daughter Natusha, 3

4 and her 4-year-old son Kendal lived in Baltimore City before moving Dunhaven in July of 1996 to take advantage of greater job opportunities in the White Marsh area and better public schools. Ms. Montgomery works as a housekeeper at a retirement home close to her home. She earns $ a week. Ms. Montgomery pays 30 percent of her adjusted income for rent and utilities, which is $186 a month. HUD pays the owner of Dunhaven II, Phase II a monthly subsidy for the difference between the amount that she can afford to pay toward rent and the HUD-approved market rent for her apartment. 8. Marcia Phelps is a 57-year-old Caucasian handicapped citizen of Baltimore County, Maryland. She has lived at Dunhaven for approximately 14 years. She was one of the first five tenants to move into her building. She has multiple sclerosis and has used a wheelchair since age 29. Her only income is $520 a month in Social Security Disability and Supplemental Security Income benefits. She pays 30 percent of her adjusted income for rent and utilities, which is $187 a month. HUD pays the owner of Dunhaven II, Phase II a monthly subsidy for the difference between the amount that she can afford to pay toward rent and the HUD-approved market rent for her apartment. 9. Defendant, Andrew M. Cuomo, is Secretary of the United States Department of Housing and Urban Development (HUD). HUD, under Secretary Cuomo=s directorship, operates and administers housing programs for low-income people. Defendant Cuomo is sued in his official capacity. IV. STATUTORY AND REGULATORY FRAMEWORK 10. The purpose of the National Housing Act, 12 U.S.C. ' 1701 et seq., is to assist 4

5 private industry in providing housing for low and moderate income families and displaced families. 12 U.S.C. ' 1715l(a). Section 221(d)(4) of the National Housing Act, 12 U.S.C. ' 1715(d)(4), provides for one of several types of project-based assistance under Section 8 of the United States Housing Act, 42 U.S.C. ' 1437f, and the National Housing Act, 12 U.S.C. ' 1701 et seq. Project-based assistance is rental assistance that is attached to the structure. 42 U.S.C. ' 1437f(f)(6). Usually, HUD provides a low interest federally-insured mortgage to a private owner of an apartment complex. In exchange, the private owner agrees to set aside usually 20 percent of the apartments for low income housing for at least 20 years. Tenants pay 30 percent of their income to the private landlord for rent. HUD then enters into a Housing Assistance Payments (AHAP@) contract with the private owner, which obligates HUD to pay the difference between the amount that the tenant can afford to pay toward rent and the HUDapproved market rent for each subsidized apartment. The owner also enters into a Regulatory Agreement with HUD, which compels the owner to operate the apartment complex in compliance with federal law. The owner enters into a standard HUD lease with each tenant, which requires the owner to renew tenant leases annually or monthly unless the tenant is in material noncompliance with the lease. Tenants in project-based Section 8 apartments, therefore, have a property right of entitlement to continued occupancy. 24 C.F.R. ' (b)(3). 11. Holders of tenant-based Section 8 vouchers under Section 8 of the United States Housing Act, 42 U.S.C. ' 1437f, have different, and more limited, rights and responsibilities from those of tenants who receive project-based assistance. For example, voucher holders do not enjoy a right of continued occupancy in their apartment or apartment 5

6 complex, and they may have to pay more than 30 percent of their income toward rent and utilities. Tenants with Section 8 vouchers can move but they must find an apartment or house renting within the voucher payment standard, and the landlord must agree to accept the voucher. Private owners can refuse to rent to a voucher holder and may refuse to renew a tenant=s lease or to continue participation in Section 8 without a reason, requiring the displaced tenant to seek housing elsewhere. 12. Before foreclosing on a property pursuant to the Multifamily Mortgage Foreclosure Act of 1981, 12 U.S.C. ' 3701 et seq., and the regulations promulgated thereunder at 24 C.F.R. Part 27, HUD must develop a disposition plan under the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. ' 1701z-11, and the regulations promulgated thereunder at 24 C.F.R. Part 290. HUD must craft the disposition plan to further the statutory goals of preserving and revitalizing residential neighborhoods; maintaining existing housing stock in a decent, safe, and sanitary condition; minimizing the involuntary displacement of tenants; maintaining housing for the purpose of providing rental housing, cooperative housing, and home ownership opportunities for low-income persons; supporting fair housing strategies; and disposing of such projects in a manner consistent with local housing conditions, as well as protecting the financial interests of the federal government. 12 U.S.C. ' 1701z-11(a). 13. In developing the disposition plan, HUD must obtain community and tenant input and facilitate, where feasible and appropriate, the sale of multifamily housing projects to existing tenant organizations, public or nonprofit entities representing or affiliated with tenants, or to other public or nonprofit entities. 12 U.S.C. ' 1701z-11(c)(2)(D). 6

7 U.S.C. ' 1715z-1b guarantees tenants a right to meaningful prior notice of HUD=s decision to foreclose on a project-based Section 8 property, access to relevant information, the right to comment on any proposed disposition of a multifamily housing project, and the right to have their comments considered by HUD. 15. To prevent hardship and displacement of tenants as a result of HUD=s decision to foreclose on a property where the owner is in default on its mortgage, the Act requires HUD to continue providing rental assistance to subsidized tenants living in the apartments affected by the foreclosure. 12 U.S.C. ' 1701z-11(e)(1)(D)(i). HUD may not substitute tenant-based vouchers for project-based assistance unless HUD has first conducted market studies and determined that there is available in the area or submarket (24 C.F.R. ' 290.3), an adequate supply of habitable, affordable housing for very low-income families and other low-income families using tenant-based assistance. 12 U.S.C. '' 1701z-11(e)(2)(A) and 1701z-11(e)(1); Commentary on Final Rule for 24 C.F.R. Part 290, 61 Federal Register 11684, paragraph 23 (a) (March 21, 1996). When HUD forecloses on a HUD-held mortgage in default, the purchaser usually must buy the property subject to an existing HAP contract for project-based Section 8 assistance, the existing leases with tenants, and an existing Regulatory Agreement with HUD. 24 C.F.R. ' (b). 16. Under Title VIII of the Civil Rights Act of 1968, 42 U.S.C. ' 3601 et seq., HUD has an affirmative duty to promote fair housing. 42 U.S.C. '' 3608(d) and 3608(e)(5). HUD must exercise its agency discretion within the framework of a national policy against discrimination in federally assisted housing and in favor of affirmatively promoting fair housing. 7

8 17. The Maryland Assisted Housing Preservation Act, Md. Ann. Code Art. 83B, ' et seq., guarantees tenants a 2-year lease extension when an owner terminates a HAP contract for project-based Section 8 assistance. It also provides additional opportunities for meaningful participation in decisions affecting the disposition of the property, including but not limited to the opportunity to take meaningful steps to purchase the property for the benefit of tenants. V. FACTS 18. In July of 1982, Walkint Limited Partnership (AWalkint@) and Harry D. Myerberg (AMyerberg@), its General Partner, received a low interest 40-year federally-insured mortgage from HUD for $2.7 million, pursuant to ' 221(d)(4) of the National Housing Act, 12 U.S.C. ' 1715(d)(4), and the Section 8 New Construction Program, 42 U.S.C. ' 1437f, to construct 72 apartments in Dunhaven located at 1 and 3 Dunhaven Place and 1,2,3, and 4 Highhaven Place in White Marsh, Maryland. Dunhaven is part of a community of 1,000 apartments collectively called Fox Hall Apartments. Myerberg manages all of the apartments, and different limited partnerships affiliated with Myerberg own the apartments. In exchange, Walkint and Myerberg agreed to set aside 20 percent or 14 of the 72 Dunhaven apartments for low income housing for at least 20 years. Walkint and Myerberg entered into a HAP contract under which HUD agreed to provide project-based subsidies to cover the difference between the rents the low-income tenants of the fourteen apartments could afford to pay and the HUD-approved market rent. According to HUD data, the HAP contract expires in 3-1/2 years in May of Walkint and Myerberg also entered into a Regulatory Agreement for the term of the mortgage. 8

9 The Plaintiffs live in four of the fourteen subsidized apartments. 19. Walkint and Myerberg defaulted on their mortgage payments in June of In March of 1995, the original lender assigned the mortgage to HUD and, pursuant to the mortgage insurance, HUD paid the lender=s claim. The Plaintiffs and the other subsidized tenants continued to pay their share of the rent to Walkint and Myerberg. HUD continued to pay Walkint and Myerberg the difference between the rents the Plaintiffs and other tenants could afford to pay and the market rent. 20. Four years later on April 9, 1998, HUD mailed a notice to all 72 tenants informing them that it was beginning foreclosure action. HUD enclosed a Resident Income Survey for tenants to complete and return within ten days for HUD to determine the tenants= eligibility for a two-year rent protection. The notice indicated that HUD had already decided to sell the project at foreclosure to the highest bidder and that tenants currently receiving projectbased assistance would receive either project-based Section 8 or a Section 8 voucher. The notice offered an opportunity for input by calling a long distance telephone number in Philadelphia. Eleven of the 14 subsidized tenants and four unsubsidized tenants responded. One month later in May of 1998, HUD developed a bid package for the foreclosure sale providing rent caps for 15 tenants and tenant-based Section 8 vouchers for 14 tenants for two years. The bid package indicated that HUD was providing rent caps to four unsubsidized tenants for two years but did not address whether the three subsidized tenants who did not respond to the survey would receive rent caps too. The bid packet also required the prospective buyer to execute a Regulatory Agreement for only two years. HUD did not continue the project-based Section 8 assistance to the fourteen subsidized tenants for the 3-9

10 1/2 years remaining on the HAP contract and did not continue the Regulatory Agreement for the remaining term on the original mortgage. 21. Upon information and belief, the White Marsh area is a designated growth area in northeast Baltimore County with a strong market, high rents, a low four percent poverty rate, and more job opportunities and better public schools than in the rest of the east side of Baltimore County. 22. Upon information and belief, HUD never developed a disposition plan as required by the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. ' 1701z-11, and the regulations promulgated thereunder at 24 C.F.R. Part 290. Upon information and belief, HUD relied, at most, on a summary prepared by the Maryland State HUD Office, which considered the entire east side of the Baltimore metropolitan area as the relevant market area for determining whether there was affordable housing near White Marsh. In Baltimore County, however, low-income and minority citizens are concentrated on the east side of the metropolitan area in Dundalk and Essex and on the west side in Randallstown. 23. Plaintiffs= apartment complex, Dunhaven II, Phase II, has 14 assisted apartments and Dunhaven II, Phase I, another Section 8 New Construction project in Fox Hall Apartments, has 15 assisted apartments. These 29 apartments are the only assisted apartments in the census tract covering Fox Hall Apartments. In these 29 apartments, 43 percent of the tenants are minorities. In contrast, according to HUD data, the census tract as a whole is 90 percent white. 24. Low-income people face significant landlord resistance to the use of vouchers in the census tract covering Fox Hall Apartments. According to HUD data, only five voucher 10

11 holders in Baltimore County have succeeded in finding a place to live in this census tract. Allowing HUD to eliminate half of the assisted apartments in the census tract covering Fox Hall Apartments will cause a disparate racial impact because a significantly lower number of minorities will remain in the census tract afterwards. 25. On April 29, 1999, the Foreclosure Commissioner appointed by HUD filed a Notice of Default and Foreclosure Sale in land records in Baltimore County Circuit Court. On June 11, 1999, he filed a Corrected Notice of Default and Foreclosure Sale. The sale was scheduled for June 24, 1999, at 11 a.m. at the Baltimore County Circuit Courthouse in Towson. 26. On June 23, 1999, the day before the foreclosure sale, Myerberg incorporated Jarhml Limited Liability Corporation (AJarhml@), of which he is the sole stockholder. 27. At the foreclosure sale on June 24, 1999, Jarhml bid $1.75 million and was the highest bidder. Aspen Square Management, Inc. of West Springfield, Massachusetts (AAspen@) bid $1.735 million and was the second highest bidder. 28. On or about July 26, 1999, HUD disqualified Jarhml and Myerberg on the grounds that they were an affiliate of the defaulting owner. HUD indicated that the property would be offered to Aspen. 29. On July 30, 1999, Jarhml and Myerberg filed in this Court an action against HUD and motion for a temporary restraining order and preliminary injunction to prevent the sale to Aspen, the second highest bidder. Jarhml, L.L.C. and Harry D. Myerberg v. Andrew Cuomo and William H. Melvin, United States District Court for the District of Maryland, Civil Action No

12 30. On July 30, 1999, The Honorable J. Frederick Motz granted a temporary restraining order enjoining HUD from ratifying the foreclosure sale to Aspen and ordering HUD to review the eligibility of Jarhml and Myerberg pursuant to HUD regulations regarding disqualifying an affiliate of the defaulting owner. 31. On August 17, 1999, this Court approved a Consent Order. HUD agreed to stay ratification of the foreclosure sale to Aspen, review the eligibility of Jarhml and Myerberg pursuant to HUD regulations, and offer Jarhml and Myerberg an administrative hearing if HUD again disqualifies Jarhml and Myerberg. 32. Upon information and belief, HUD is in the process of approving Jarhml and Myerberg and ratification of the foreclosure sale is imminent. VI. FIRST CAUSE OF ACTION VIOLATION OF NATIONAL HOUSING ACT, 12 U.S.C. ' 1701, et seq., AND MULTIFAMILY HOUSING PROPERTY DISPOSITION REFORM ACT OF 1994, 12 U.S.C. ' 1701z-11, et seq. 33. Plaintiffs reallege and incorporate by reference the allegations in Paragraphs 1 through 32, inclusive, of this Complaint. 34. HUD violated the Plaintiffs= statutory rights under the National Housing Act, 12 U.S.C. ' 1701, et seq., the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. ' 1701z-11, and regulations promulgated thereunder at 24 C.F.R. Part 290, by deciding to terminate the Plaintiffs= project-based Section 8 assistance and leases without developing a disposition plan, failing to consider all relevant factors under the statute including 12

13 promoting fair housing, and not providing the Plaintiffs meaningful involvement in the disposition plan process as required by law. 35. As a direct and proximate result of HUD=s violations of the law, Plaintiffs will suffer irreparable harm when HUD deprives the Plaintiffs of 3-1/2 years of project-based assistance and an additional 2 years of project-based assistance to which they are entitled under the Maryland Assisted Housing Preservation Act, Md. Ann. Code Art. 83B, ' et seq. VII. SECOND CAUSE OF ACTION ADMINISTRATIVE PROCEDURE ACT, 5 U.S.C. ' 701 et seq. 36. Plaintiffs reallege and incorporate by reference the allegations in Paragraphs 1 through 35, inclusive, of this Complaint. 37. HUD abused its discretion under the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. ' 1701z-11, by deciding to terminate the Plaintiffs= projectbased Section 8 assistance and leases without developing a disposition plan, failing to consider all relevant factors under the statute including promoting fair housing, and not providing the Plaintiffs meaningful involvement in the disposition plan process as required by law. 38. As a direct and proximate result of HUD=s abuse of its discretion, Plaintiffs will suffer irreparable harm when HUD deprives the Plaintiffs of 3-1/2 years of project-based assistance and an additional 2 years of project-based assistance under the Maryland Assisted Housing Preservation Act, Md. Ann. Code Art. 83B, ' et seq. 13

14 VIII. THIRD CAUSE OF ACTION VIOLATION OF PROCEDURAL DUE PROCESS 39. Plaintiffs reallege and incorporate by reference the allegations in Paragraphs 1 through 38, inclusive, of this Complaint. 40. HUD=s decision to terminate the Plaintiffs= project-based Section 8 assistance and leases without developing a disposition plan, failing to consider all relevant factors under the statute including promoting fair housing, and not providing the Plaintiffs meaningful involvement in the disposition plan process as required by law violated the Due Process Clause of the Fifth Amendment to the United States Constitution as well as the Plaintiffs= statutory right to due process under 12 U.S.C. ' 1715z-1b and 12 U.S.C. ' 1701z-11(c)(2)(D). 41. As a direct and proximate result of HUD=s violation of the Plaintiffs= constitutional and statutory rights to procedural due process, Plaintiffs will suffer irreparable harm when HUD deprives the Plaintiffs of 3-1/2 years of project-based assistance and an additional 2 years of project-based assistance under the Maryland Assisted Housing Preservation Act, Md. Ann. Code Art. 83B, ' et seq. IX. FOURTH CAUSE OF ACTION FAIR HOUSING ACT, 42 U.S.C. ' 3601 et seq. 42. Plaintiffs reallege and incorporate by reference the allegations in Paragraphs 1 through 41, inclusive, of this Complaint. 43. HUD violated Title VIII of the Civil Rights Act of 1968, 42 U.S.C. ' 3601 et seq., 14

15 by discriminating against the Plaintiffs on account of their race or disability. 44. HUD violated Title VIII of the Civil Rights Act of 1968, 42 U.S.C. ' 3601 et seq., by failing to act affirmatively and take reasonable and available steps, including those specifically required by law, to promote fair housing. 42 U.S.C. '' 3608(d) and 3608(e)(5). 45. As a direct and proximate result of HUD=s violations of the Fair Housing Act, Plaintiffs will suffer irreparable harm when HUD deprives the Plaintiffs of 3-1/2 years of projectbased assistance and an additional 2 years of project-based assistance under the Maryland Assisted Housing Preservation Act, Md. Ann. Code Art. 83B, ' et seq. WHEREFORE, the Plaintiffs pray that this Honorable Court: a. Assume jurisdiction over this action; b. Declare that the acts and practices of HUD violated Plaintiffs= statutory rights under the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. ' 1701z-11, regulations promulgated thereunder at 24 C.F.R. Part 290, the National Housing Act, 12 U.S.C. ' 1701, et seq., and 12 U.S.C. ' 1715z-1b, as well as the Due Process Clause of the Fifth Amendment to the United States Constitution; c. Declare that HUD abused its discretion under the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. ' 1701z-11, pursuant to Administrative Procedure Act, 5 U.S.C. ' 706(2); d. Issue a temporary restraining order, preliminary injunction, and permanent injunction enjoining HUD from ratifying the foreclosure sale; e. Set aside the foreclosure sale; f. Grant the Plaintiffs such other and further relief as the nature of their 15

16 causes may require. 16

17 Respectfully Submitted, David M. Podell Federal Bar No Legal Aid Bureau, Inc. 29 West Susquehanna Avenue Suite 305 Towson, Maryland Telephone: Emily Miller Rody Federal Bar No Legal Aid Bureau, Inc. 29 West Susquehanna Avenue Suite 305 Towson, Maryland Telephone: