Appendix — New West, L.P. v. City of Joliet

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APPENDIX A - OPINION OF THE UNITED

STATES COURT OF APPEALS FOR THE

SEVENTH CIRCUIT FILED APRIL 9, 2009

IN THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Nos. 08-3032 & 08-3033

CITY OF JOLIET, ILLINOIS,

Plaintiff-Appellee,

NEW WEST, L.P., and NEW BLUFF, L.P.,

Defendants-Appellants,

UNITED STATES DEPARTMENT OF HOUSING

AND URBAN DEVELOPMENT and EVERGREEN

TERRACE TENANTS,

Intervening Defendants-Appellants.

Appeals from the United States District Court for

the Northern District of Illinois, Eastern Division.

No. 05 C 6746—Charles R. Norgle, Sr., Judge

Before EASTERBROOK, Chief Judge, and

WILLIAMS and SYKES, Circuit Judges.

EASTERBROOK, Chief Judge.

For several years the City of Joliet, [linois,

has been trying to acquire the Evergreen Terrace

apartment complex, which the City believes is so

run-down that it constitutes a public nuisance. After

the City commenced eminent domain proceedings in

state court, New West, a partnership that owns the

complex, removed the proceeding to federal court

and filed a suit under 42 U.S.C. § 1983 seeking an

injunction and damages. The district court put the

condemnation on ice and dismissed the § 1983

action-erroneously, we held in New West, L.P. v.

Joliet, 491 F.3d 717 (7th Cir.2007). We directed the

district court to take up the condemnation

proceeding first, as its disposition could resolve some

or all of the issues in the § 1983 suit.

One of New West’s arguments in the § 1983

suit was that, because it has accepted a federal

subsidy under § 8 of the Housing Act of 1937, 42

U.S.C. § 1437f, federal law preempts the City’s

proceeding. Our opinion had this to say:

New West contends that § 8 and the

Fair Housing Act [42 U.S.C. §§ 3601-

19] prevent condemnation of

Evergreen Terrace, but it does not

rely on any particular provision of

that statute. Section 8 is a subsidy

program, a carrot rather than a stick.

HUD’s regulations implementing the

§ 8 program contemplate the

possibility of the parcel’s

condemnation; they do not purport to

forbid condemnations. See 24 C.F.R.

§§ 245.405, 248.101. For its part, the

Fair Housing Act forbids

discrimination in housing programs

without providing that any given

housing development has a right to

continued existence. Just as with § 8,

federal regulations implementing the

FHA cover the demolition of housing

projects. 24 C.F.R. Part 970, and

exempt condemned buildings from

these rules, see 24 C.F.R. § 970.3. If

Joliet thinks that a given parcel of

land should be put to a public use,

such as a park, and is willing to foot

the bill, it is hard to see any obstacle

in federal law.

491 F.3d at 721. In the district court the Department

of Housing and Urban Development intervened and

contended that § 221 of the National Housing Act of

1954 (as amended in 1961 and 1966), 12 U.S.C. §

1715/1, and the Multifamily Assisted Housing Reform

and Affordability Act of 1997, 42 U.S.C. § 1437f note,

block condemnation. The district court rejected that

contention in reliance on our opinion, but, after

concluding that HUD was making new arguments

that we had not addressed, certified the case for

interlocutory appeal ender 28 U.S.C. § 1292(b). We

accepted the appeal, because we thought that HUD

was relying on particular language said to preempt

state and local condemnation laws. Now that the

appeal has been fully briefed and argued, however,

HUD and the other parties acknowledge that neither

of these statutes has any clause preempting state

law. At this point we could stop and affirm, relying

on the law of the case. But because HUD was not a

party to the first appeal, and has invoked two

statutes that New West did not mention, we think it

best to give the Department a full hearing and

plenary decision.

First, however, a word on _ subject-matter

jurisdiction. Joliet contends that there is none,

because when the case was removed HUD was

neither a party to the suit nor even a lender to New

West. The eminent domain proceeding arises under

state and local law. Although New West raised

preemption as a federal defense, it has long been

understood that a federal defense does not support

removal. See, e.g., Metropolitan Life Insurance Co. v.

Taylor, 481 U.S. 58 (1987); Gully v. First National

Bank, 299 U.S. 109 (1936); Bennett v. Southwest

Airlines Co., 484 F.8d 907, rehearing denied, 493

F.3d 762 (7th Cir. 2007). (The exception for

“complete preemption,” see Franchise Tax Board of

California v. Construction Laborers Vacation Trust,

463 U.S. 1 (1983), does not apply; no one argues that

federal law occupies the fields of housing or

municipal powers.)

Still, the presence of the national government

as a party with a security interest in the real estate

supplies jurisdiction. 28 U.S.C. §§ 1444, 2410. It

would be pointless to order this suit remanded, only

to have HUD re-remove it in a trice. The Supreme

Court has held that, when a suit is removed

prematurely, the district court may proceed if it has

subject-matter jurisdiction at the time it enters

judgment. American Fire & Casualty Co. v. Finn,

341 U.S. 6 702 (1951); Grubbs v. General Electric

Credit Corp., 405 U.S. 699 (1972); Caterpillar Inc. v.

Lewis, 519 U.S. 61 (1996). This rule, coupled with

the presence of HUD (and its desire to have the suit

resolved in federal court), means that remand is

unnecessary.

Three federal statutes are involved in this

proceeding, and HUD contends that two of them

preempt state and local law. The first statute, § 8 of

the Housing Act, 42 U.S.C. § 1437f, provides federal

rent subsidies for low-income tenants; as we

observed in 2007, this statute does not preempt any

state or local law. HUD concurs. The second is § 221

of the National Housing Act, 12 U.S.C. § 17151. This

statute creates a program under which the federal

government insures mortgages on privately owned,

multifamily properties, some tenants of which

receive rent subsidies under § 8. HUD has

established criteria that owners must meet before a

loan is insured. HUD also is authorized to pay off the

private lenders and become a direct lender. For

descriptions of this program, see Cienega Gardens v.

United States, 194 F.3d 1231 (Fed. Cir. 1998), and

Geneva Towers Tenants Organization v. Federated

Mortgage Investors, 504 F.2d 483 (9th Cir. 1974).

The final statute, the Multifamily Assisted Housing

Reform and Affordability Act of 1997, 42 U.S.C. §

1437f note, allows HUD to renegotiate mortgages

insured or assumed under § 221 of the National

Housing Act. High mortgage payments make it hard

(sometimes impossible) for owners to offer below-

market rents to their tenants; renegotiated

mortgages with lower monthly payments cut the

rents to the beneficiaries of the § 8 program. Owners

who seek lower mortgage payments under the 1997

Act must promise to keep their rental properties

available to low-income tenants for 30 years.

Evergreen Terrace, which has 356

apartments, has participated in the § 8 and § 221

programs since the 1960s. By the late 1970s the

owner was in default on its mortgage loans. HUD

paid off the lenders, became the mortgage holder,

foreclosed, and took title to the complex. New West

purchased part of the complex from HUD in 1980 for

$1, and the rest in 1982 for another $1. New West

took out large mortgage loans, which HUD insured

under § 221. New West promised both the lenders

and HUD that it “will not permit or suffer the use of

any of the property for any purpose other than the

use for which the same was intended at the time this

Mortgage was executed.”

In 2001 New West asked HUD to restructure

the mortgages under the 1997 Act, reducing the

monthly payments. Both the [Illinois Housing

Development Authority and Heskin Signet Partners

reported to HUD that the approximately 600

residents of Evergreen Terrace lack other available

options for low-income housing. Relying on these

reports, HUD approved the restructuring in 2006,

paid off the original lenders, and became the lender

(and mortgage holder) itself. As part of the

transaction, New West promised that, for the next

30 years, the property “shall be used solely as rental

housing with no reduction in the number of

residential units unless approved in writing by

HUD”. New West simultaneously entered into new

20-year agreements with HUD for § 8 subsidies to

low-income tenants. These agreements undertake

not to transfer, assign, or encumber the property

without HUD’s approval.

When we agreed to hear this interlocutory

appeal, we understood HUD to argue that the

contracts that New West had signed in 2006

themselves preempted any state and local powers of

condemnation, and we directed the parties to

address the question how New West could give away

a governmental power that it never possessed.

(Neither the City of Joliet nor the State of Illinois

has made any promise to HUD about the

maintenance of Evergreen Terrace.) HUD’s appellate

brief responded to our inquiry by disclaiming this

theory of preemption. The contracts do not affect

state or local powers, HUD recognizes. Owners such

as New West must comply with all state and local

laws-indeed, 24 C.F.R. § 883.310(b)(6) specifies that

recipients of federal assistance are bound by all

“(a]pplicable State and local laws, codes, ordinances,

and regulations.”

Why isn’t eminent domain among these

applicable state and local laws? HUD’s answer is

that condemnation would interfere with the

purposes of § 221 and the 1997 Act. Both statutes

are designed to enlarge, or at least preserve, the

stock of housing available for low-income tenants.

The “findings” in § 511 of the 1997 Act make this

explicit. If Joliet can condemn Evergreen Terrace,

356 apartments for low-income tenants will

disappear, and these tenants do not have ready

alternatives. (That’s what the Illinois Housing

Development Authority and Heskin Signet Partners

concluded.) Removing 356 units from the housing

stock could undermine achievement of the national

purpose and so is preempted, the argument

concludes. This line of argument implies that local

government cannot condemn any housing, whether

or not the owner has secured federal financing-for

demolition of unsubsidized units diminishes the

supply, and drives up the price of remaining units,

as surely as the demolition of units that already

enjoy federal subsidies. Yet none of the litigants

ventures an argument that bold.

The question at hand is whether a state or

local law can be preempted by the “findings” and

“purposes” clauses of a federal statute, even though

the state or local law does not conflict with any rule

of law established in the federal statute. Recently

the Supreme Court emphasized that preemption

inferred from a clash of goals and objectives should

not be used expansively, unless the agency has

issued a preemptive regulation with the force of law,

and that an agency’s view that application of local

law would interfere with the national objective is no

substitute for such a regulation. Wyeth v. Levine, No.

06-1249 (U.S. Mar. 4, 2009), slip op. 17-25. Justice

Breyer filed a concurring opinion to stress the

importance of a preempting regulation, and Justice

Thomas, concurring in the judgment, expressed

doubt about this entire category of implied

preemption.

HUD does not contend that any federal

regulation prevents state and local governments

from using eminent domain or otherwise exercises

the federal power of preemption under the

Supremacy Clause. One federal regulation issued

under the statutes at issue does preempt state and

local law, but HUD understandably does not rely on

(or even mention) it. This regulation, 24 C.F.R. §

248.183, says that no state or local law may prevent

any borrower under the federal programs from

prepaying the loan, and that no state or local law

may set a cap on the rate of return that owners

participating in the federal programs may realize.

Subsection (c) of this regulation says that other state

and local laws, such as zoning and building

standards, are not preempted. So federal regulations

not only do not contain the sort of clause that the

Justices thought important in Wyeth but also state

that most state property regulations survive. True,

this savings clause does not mention eminent

domain, but the main point is that no federal

regulation even tries to displace local governments’

power to take ownership of property by paying just

compensation.

The approach of Wyeth to one side, it is hard

to see any conflict between federal and state goals,

because (a) none of the three statutes at issue makes

participation compulsory; it is not a violation of

federal law for a given owner to remain outside the

program, so it cannot be said that federal law

demands that a particular apartment unit remain

standing; and (b) the agreements by which private

owners enter the program do not diminish state and

local powers (as HUD concedes).

Private owners are entitled to withdraw their

properties from the program at any time despite

their 20-year and 30-year promises. All they have to

do is pay off the federally insured loan. 24 C.F.R.

10a

Part 248. The conditions last only as long as the

loans. If private owners can withdraw (and then

demolish) their properties without violating any rule

of federal law, why can’t state or local governments

acquire the properties through eminent domain and

then withdraw and demolish them? The regulations

treat condemnation as one legitimate source of

proceeds used to prepay and retire the loans, and

thus to escape the conditions. 24 C.F.R. § 248.101.

Indeed, the regulatory approval needed to prepay

the loans and withdraw from the program

voluntarily is not required when proceeds of

condemnation are the source of funds used to pay off

the loans. Ibid. By treating condemnation as a

special case, one that removes the property from an

otherwise-required approval, the agency has shown

that condemnation is possible. What’s the point of a

special rule for applying the proceeds of

condemnation if, as HUD argues, condemnation is

always preempted?

Another regulation provides that HUD’s

approval for changing a propertys use is not

required when the change results from eminent

domain. 24 C.F.R. § 245.405, § 970.3. And that’s not

all. The documents that New West signed

contemplate the possibility of condemnation.

Paragraphs 6 and 8 of the loans and mortgages

provide that the proceeds of condemnation must be

paid first to the lenders (including HUD) until the

loans have been satisfied; that’s a strange proviso if

condemnation is always forbidden by federal law.

HUD dismisses all of these clauses, and its own

regulations, as irrelevant because they are not

issued under the 1997 Act, but the fact remains that

lla

there is no affirmative declaration of preemption in

any statute or rule, no concrete conflict between

condemnation and any part of the 1997 Act, and no

good reason to think that the 1997 Act contravenes

HUD’s own regulations under § 8 and § 221.

All that can be said is that, when housing is

withdrawn by prepayment (including prepayment

made possible by just compensation paid for a

taking), the statutory goal of increasing (or at least

preserving) the stock of low-income housing is

undercut. Yet HUD does not point to any decision of

the Supreme Court holding a state or local law

preempted by broad goals (such as that more

housing is better than less, low prices better than

high prices) or by a general declaration such as

“there exists throughout the Nation a need for

decent, safe, and affordable housing”, § 511(a)(1) of

the 1997 Act. Nor has HUD cited any decision of any

federal court holding that § 221 or the 1997 Act-or

for that matter any other subsidy system, such as

farm price supports or loan guarantees for veterans

or small business owners, all of which include

“findings” sections comparable to § 511-preempts

any state or loca! authority to take ownership

through eminent domain.

That silence is telling. We do not deal here

with a city or state as regulator of private conduct.

Eminent domain is a governmental power. Many

decisions of the Supreme Court hold that only a clear

statement in a national statute can supersede a

governmental body’s own operations. See, e.g., Cook

County Solid Waste Agency v. Corps of Engineers,

531 U.S. 159, 171 (2001); Gregory v. Ashcroft, 501

12a

U.S. 452, 460-61 (1991). HUD does not contend that

any language in § 221 or the 1997 Act supplies a

“clear statement” of a national decision to displace

eminent domain. As we have mentioned, there is no

statement to that effect, clear or otherwise. There is

only HUD’s contention that condemnation will

interfere with national goals. That stripe of

argument was mate in Solid Waste Agency and

Gregory, where it did not prevail. Congress may well

have the power to prevent state or local governments

from condemning lew-income housing, but it has not

declared that it has exercised that power; there has

been no debate, no opportunity for the states to

make their positions known to Congress, no

proposed regulation with preemptive effect, and no

focused decision by the Legislative and Executive

Branches of the national government.

Quite apart from the Supreme Court’s plain-

statement canon for federalism cases, there is the

principle that general statements of national policy

do not preempt concrete laws. “Findings” and

“purpose” clauses are common in federal statutes.

Like the clauses in § 511 of the 1997 Act, they are

usually sweeping in scope and declare an urgent

need to solve a problem. But in legislation details

matter. How far will the legislature go, and what

costs will it bear, to achieve its ends? “[N]o

legislation pursues its purposes at all costs. Deciding

what competing values will or will not be sacrificed

to the achievement of a particular objective is the

very essence of legislative choice-and it frustrates

rather than effectuates legislative intent

simplistically to assume that whatever furthers the

statute’s primary objective must be the law.”

13a

Rodriguez v. United States, 480 U.S. 522, 525-26

(1987) (emphasis in original). When courts rely on

purpose clauses, rather than the concrete rules that

the political branches have selected to achieve the

stated ends, judges become effective lawmakers,

bypassing the give-and-take of the legislative

process. It is therefore no surprise that the Supreme

Court does not think that declarations of purpose,

however sweeping, preempt state or local laws. See

Hawaii v. Office of Hawaiian Affairs, No. 07-1372

(U.S. Mar. 31, 2009), slip op. 10-11 (37 “whereas”

clauses setting out congressional findings and

reasons for adopting a joint resolution do not have

any effect independent of the resolution’s two

operative clauses).

Consider Puerto Rico Dep't of Consumer

Affairs v. Isla Petroleum Corp., 485 U.S. 495 (1988).

A federal statute ended most federal price controls

for petroleum and natural gas. The statute’s purpose

clause (and the accompanying committee reports)

declared that it is bad policy to interfere with the

market’s pricing mechanism, in the absence of

monopoly or equivalent concerns. Puerto Rico

continued to enforce its own price controls for these

products, and the producers contended that the

Commonwealth’s legislation was preempted by the

combination of the purpose clause, the end of federal

regulation, and the legislative history showing the

intent behind these provisions. A court of appeals

agreed and held the law preempted-but the Supreme

Court reversed.

14a

The Court explained: “While we have

frequently said that pre-emption analysis requires

ascertaining congressional intent .... we have never

meant that to signify congressional intent in a

vacuum, unrelated to the giving of meaning to an

enacted statutory text.... Respondents have brought

to our attention statements that may reflect general

congressional approval of a free market in petroleum

products, or general congressional belief that such a

market would result from enactment of the [statute],

or even general congressional desire that it result.

But unenacted approvals, beliefs, and desires are not

laws. Without a text that can, in light of those

statements, plausibly be interpreted as prescribing

federal pre-emption it is impossible to find that a

free market was mandated by federal law.” 485 U.S.

at 501 (emphasis in original). In other words, it

takes a federal command to preempt a state or local

law; a conflict between a local law and legislative

aspirations does not displace another jurisdiction’s

law. Wyeth reiterated that point. Cf. American

Hospital Ass’n v. NLRB, 499 U.S. 606 (1991); Lincoln

v. Vigil, 508 U.S. 182 (1993). Similarly, Congress

desired (and hoped) that § 211 and the 1997 Act

would increase the stock of low-income housing, but

a text that preempts state or local legislation is not

among the steps that Congress took toward that

objective.

This is not to say that federal law leaves local

powers unaffected. A state or local government is not

free to use its powers in order to discriminate

against persons of a particular race, for example.

And federal law limits the use of condemnation

powers (as well as zoning or building codes) to turn a

15a

jurisdiction into an all-white, upper-income enclave.

See Arlington Heights v. Metropolitan Housing

Development Corp., 429 U.S. 252 (1977). Cf.

Wisconsin Community Services, Inc. v. Milwaukee,

465 F.3d 737 (7th Cir.2006) (en banc). But HUD does

not contend that Joliet has invoked the power of

eminent domain with an intent, or an effect,

forbidden by the Constitution or a federal statute;

HUD maintains that the City does not have a power

to condemn federally subsidized housing, no matter

how run-down the building, no matter how large the

remaining supply of housing for low-income tenants,

and no matter the use to which the city will put the

land. On HUD’s view, a city is forbidden to acquire

and raze a decrepit and dangerous building, near a

brand new apartment block with unused low-income

units, in order to replace the old building with a new

park or city hall-and this is so even if the federal

appropriation can be redirected to another property

to maintain the aggregate supply of low-income

housing. (HUD does not contend that condemnation

of Evergreen Terrace would leave it unable to spend

its full appropriation.) Such a _ sweeping

displacement of governmental authority cannot be

imputed to § 221 or the 1997 Act. It might be

sensible to enact a system under which HUD could

certify a lack of affordable housing in a given locale

and thus block any steps to diminish the existing

stock. But no federal statute gives HUD this

authority, let alone one that can be exercised

without notice to the cities whose powers will be

diminished.

l6a

Although HUD concedes that no court has

attributed any preemptive effect to § 221 or the 1997

Act, it urges us to draw guidance from Public Utility

District No. 1 of Pend Oreille County v. United

States, 417 F.2d 200 (9th Cir. 1969), and Morgan

City v. South Louisiana Electric Cooperative Ass’n,

31 F.3d 319 (5th Cir.1994), amended and rehearing

en banc denied (over dissent), 49 F.3d 1074 (5th Cir.

1995). These decisions held that federal law

preempts state or local efforts to condemn rural

electric utilities that enjoyed federal financing under

the Rural Electrification Act, 7 U.S.C. § 901 et seq.

(At least one court of appeals has reached a contrary

conclusion. See Stilwell v. Ozarks Rural Electric

Cooperative Corp., 79 F.3d 1038 (10th Cir. 1996).) As

HUD sees things, the decisions of the fifth and ninth

circuits show that local condemnation powers are

incompatible with federally subsidized financing

designed to achieve a federal goal (whether

providing electricity to farms or housing to low-

income renters).

Neither the fifth circuit nor the ninth

discussed the clear-statement rule for preemption of

core governmental powers, or the need (which the

Court stressed in ISLA Petroleum) to find a conflict

with a concrete statutory text. Perhaps those

principles were not argued in those cases. To the

extent these courts think that federal financing

routinely displaces state laws, their decisions cannot

be reconciled with Arkansas Electric Cooperative

Corp. v. Arkansas Public Service Comm'n, 461 U.S.

375 (1983), and Wabash Valley Power Ass’n v. Rural

Electrification Administration, 903 F.2d 445 (7th

Cir. 1990). What is more, both the fifth and the

17a

ninth circuits stressed that the federal interest was

not principally related to financing. The problem

with local condemnation is that electricity is

distributed by a network. Pull out one generating

station or set of transmission lines, and the rest of

the network can be adversely affected. “This is not

an ordinary case because what is sought to be taken

here is part of a system and [if one part is

condemned] a question remains as to the capacity of

the remaining portions of the system to function.”

Pend Oreille, 417 F.2d at 201. One jurisdiction’s

condemnation thus could affect consumers in other

jurisdictions; that justified a federal role. There is no

comparable network externality when one city

condemns an apartment block.

New West, and a tenants’ association at the

apartment complex, advance additional arguments,

none of which HUD supports. They contend, for

example, that condemnation of Evergreen Terrace

violates the Contract Clause (Art. I § 10 cl. 1)

because it will affect the contracts that New West

has with other entities. But “the Contract Clause

has never been thought to protect against the

exercise of eminent domain.” Hawaii Housing

Authority v. Midkiff, 467 U.S. 229, 243 n. 6 (1984). A

state cannot displace a contract by fiat, but it may

take interests in contracts, as in other property. New

West and the tenants’ association contend that, if

this is so, then Joliet must be trying to take HUD’s

mortgage interests in Evergreen Terrace, and as no

state may acquire federal property against the

wishes of the national government, see Armstrong v.

United States, 364 U.S. 40 (1960), it follows that the

City’s resort to eminent domain violates the Property

18a

Clause (Art. IV § 3.cl. 2) or principles of

intergovernmental immunity. Yet the national

government does not own Evergreen Terrace, which

Joliet proposes to acquire. HUD’s interest is as a

secured creditor of New West. No case of which we

are aware holds that the Property Clause (or any

other part of the Constitution) treats a federal loan

as immunizing the borrower from state regulation

(including eminent domain) on the theory that the

state is “really” regulating the federal interest as a

lender. One might as well say that if New West owed

taxes, and the IRS had placed a lien on Evergreen

Terrace, that step would prevent the City from using

eminent domain (or a bankruptcy court from selling

the building to satisfy New West’s other creditors).

This eminent domain proceeding has been

stalled since its institution more than three years

ago. We trust that the district court will now bring it

to a speedy conclusion.

AFFIRMED.

19a

APPENDIX B - OPINION AND ORDER OF THE

UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF ILLINOIS,

EASTERN DIVISION, DATED AND FILED

MARCH 27, 2008

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Case No. 05 C 6746

CITY OF JOLIET, an Illinois municipal corporation,

Plaintiff,

Vv.

MID-CITY NATIONAL BANK OF CHICAGO, as

Successor Trustee to United of America Bank, et al.,

Defendants.

OPINION AND ORDER

CHARLES R. NORGLE, District Judge.

Before the court are two Motions for Summary

Judgment, one filed by Defendant United States

Department of Housing and Urban Development

(“HUD”) and the other filed jointly by the remaining

Defendants. For the following reasons, the Motions

are denied.

20a

I. BACKGROUND

A. Facts

Plaintiff City of Joliet, Illinois (“Joliet” or the

“City”) is authorized under the Illinois Municipal

Code to exercise the right of eminent domain to

acquire real property, inter alia, (1) for the public

welfare, (2) where acquisition of such property is

necessary for the rehabilitation or redevelopment of

any blighted or slum area, or (3) where acquisition of

such property is necessary for the establishment of

public parks, other public grounds, or recreational

facilities. Joliet has determined that the apartment

complex known as Evergreen Terrace I and

Evergreen Terrace II (together, “Evergreen Terrace”

or the “Property”) is, inter alia, (1) extremely

dilapidated, unsafe, substandard, unsanitary, crime-

infested, a substantial threat to the health, welfare

and safety of its residents, (2) a “blighted or slum

area” under the [Illinois Municipal Code, (3)

interfering with the lawful use of nearby properties,

and (4) diverting important public resources such as

police and fire protection from nearby properties. It

is undisputed that Evergreen Terrace is federally

subsidized low-income housing, owned by private

parties. The parties dispute, however, the extent to

which various mortgage and regulatory agreements

give HUD an interest in the Properties.

Joliet entered into good faith negotiation with

the owners of Evergreen Terrace for the purpose of

acquiring it, and authorizing the use of the city’s

eminent domain powers to eliminate the blighted

conditions existing there. Joliet and the owners of

2la

Evergreen Terrace, however, have been unable to

reach an agreement on the price to be paid for the

Property. Joliet therefore approved and adopted local

Ordinance No. 15298 in order to begin eminent

domain proceedings to acquire Evergreen Terrace.

The City proposes to redevelop the Property to

include a public park, a recreational area, and

affordable housing.

B. Procedural History

On October 7, 2005, Joliet filed its Complaint

for Condemnation in the Circuit Court of Will

County, IUlinois. Joliet purportedly filed this

Complaint against all persons and entities having an

interest in Evergreen Terrace. One of those

Defendants was the Government National Mortgage

Association (“GNMA”). GNMA is an agency of the

United States government. On November 29, 2005,

-the United States Attorney for the Northern District

of Illinois removed this case to the Northern District

of Illinois. On February 27, 2006, the court granted

Joliet’s Motion to Voluntarily Dismiss GNMA, but

denied Joliet’s Motion to Remand, finding that HUD

had a reversionary interest in the Property. The

court granted Defendants’ Rule 19(a) Motion to Join

HUD as a Necessary Party on March 9, 2006.

On July 5, 2007, the Seventh Circuit entered

an Opinion in a related case, New West, L.P. v. City

of Joliet, 491 F.3d 717 (7th Cir.2007). In this related

case, the owners of Evergreen Terrace sued Joliet,

alleging that the Supremacy Clause prohibits the

condemnation of the Property, that the City’s

activities related to the condemnation violate 42

22a

U.S.C §§ 1982 and 1983, and that Joliet has violated

the Fair Housing Act, 42 U.S.C. §§ 3601-19, by

discouraging prospective minority tenants from

living in Evergreen Terrace. Jd. at 719. This court

dismissed the case, but the Seventh Circuit reversed

and remanded. In so doing, the Seventh Circuit

indicated that this court must first resolve the

condemnation suit before proceeding on the related

case. Jd. at 721. Writing for the Seventh Circuit,

Chief Judge Easterbrook indicated that there was no

federal impediment to Joliet’s exercise of eminent

domain in this case. He stressed that “[ijf Joliet

thinks that a given parcel of land should be put to a

public use, such as a park, and is willing to foot the

bill, it is hard to see any obstacle in federal law.” Id.

Following the Seventh Circuit’s Opinion in the

New West case, this court issued a Minute Order in

the instant condemnation case in which it granted

Defendants leave to refile their Motion for Summary

Judgment. Defendants have since timely filed

separate Motions for Summary Judgment, These

Motions are fully briefed and before the court. !

II. DISCUSSION

A. Standard of Decision

1 On August 3, 2007, the court issued an Opinion and Order

granting Joliet’s Motion for Judgment on the Pleadings with

Respect to the Supremacy Clause Defense. Defendants’

Summary Judgment arguments regarding the Supremacy

Clause are therefore moot.

23a

Summary judgment is permissible when

“there is no genuine issue as to any material fact and

... the moving party is entitled to judgment as a

matter of law.” FED. R. CIv. P. 56(c). The nonmoving

party cannot rest on the pleadings alone, but must

identify specific facts, see Cornfield v. Consolidated

High Sch. Dist. No. 230, 991 F.2d 1316, 1320 (7th

Cir.1993), that raise more than a mere scintilla of

evidence to show a genuine triable issue of material

fact. See Murphy v. ITT Technical Services, Inc., 176

F.3d 934, 936 (7th Cir. 1999).

In deciding a motion for summary judgment,

the court can only consider evidence that would be

admissible at trial under the Federal Rules of

Evidence. See Bombard v. Fort Wayne Newspapers,

Inc., 92 F.3d 560, 562 (7th Cir. 1996). The court

views the record and all reasonable inferences drawn

therefrom in the light most favorable to the non-

moving party, FED. R. CIv, P. 56(c); see also Perdomo

v. Browner, 67 F.3d 140, 144 (7th Cir. 1995). “In the

light most favorable” simply means that summary

judgment is not appropriate if the court must make

“a choice of inferences.” See United States v. Diebold,

Inc., 369 U.S. 654, 655; see also First Natl Bank of

Ariz. v. Cities Service Co., 391 U.S. 253, 280 (1968);

Wolf v. Buss (America) Inc., 77 F.3d 914, 922 (7th

Cir. 1996). The choice between reasonable inferences

from facts is a jury function. See Anderson v. Liberty

Lobby, Inc., 477 U.S., 242, 255 (1986).

When the defendant moves for summary

judgment, the court must view the record and all

inferences in a light most favorable to the plaintiff.

Ameritech Benefit Plan Comm. v. Communication

24a

Workers of Am., 220 F.3d 814, 821 (7th Cir. 2000).

However, the inferences construed in the plaintiffs

favor must be drawn from specific facts identified in

the record that support the plaintiffs position.

Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 922-23

(7th Cir. 1994). Under this standard, “[c]onclusory

allegations alone cannot defeat a motion for

summary judgment.” Thomas v. Christ Hospital and

Medical Center, 32S F.3d, 890, 892-93 (7th Cir. 2003)

(citing Lujan v. Natl Wildlife Federation, 497 U.S.

871, 888-89 (1990)).

B. Defendants’ Motions for Summary

Judgment

In support of their Motions for Summary

Judgment, Defendants collectively make the

following assertions. Certain portions of the United

States Constitution bar Joliet’s condemnation of

Evergreen Terrace: the Supremacy Clause, the

Property Clause, and the Contracts Clause. The

doctrine of intergovernmental immunity bars Joliet’s

condemnation of Evergreen Terrace. Joliet is

equitably estopped from condemning Evergreen

Terrace. The Complaint in this case is insufficient.

The court has already determined that the

Supremacy Clause does not preempt Joliet’s attempt

to condemn Evergreen Terrace. See Opinion and

Order of August 3, 2007.

1. The Property Clause

The Property Clause of the United States

Constitution provides, “Ihe Congress shall have

Power to dispose of and make all needful Rules and

25a

Regulations respecting the Territory or other

Property belonging to the United States.” U/S.

CONST., art. IV, § 3, cl. 2. By its express terms, the

Property Clause applies only to property owned by

the United States. In this case, there is no question

that Evergreen Terrace is privately owned, although

the parties dispute the extent to which HUD has

various contractual and reversionary interests in the

Property.

Even if Evergreen Terrace were somehow

owned by the United States, however, the Property

Clause has never been interpreted as an impediment

to the application of state law or regulations such as

this condemnation action. “The Property Clause

itself does not automatically conflict with all State

regulation of federal land.” California Coastal

Comm., v. Granite Rock Co., 480 U.S. 572, 580

(1987). “[F]Jederal ownership of lands within a State

does not withdraw those lands from the jurisdiction

of the State.” Kleppe v. New Mexico, 426 U.S. 529,

544 (1976) (citing Wilson v. Cook, 327 U.S. 474, 487-

88 (1946) and Surplus Trading Co. v. Cook, 281 U.S.

647, 650 (1930)). The Property Clause therefore has

no bearing on this case.

2. The Contracts Clause

The Contracts Clause of the United States

Constitution provides, “No State shall ... pass any ...

Law impairing the Obligation of Contracts.” U.S.

CONST., art. I, § 10, cl. 1. Courts do not interpret the

Contracts Clause literally. Chrysler Corp. v. Kolosso

Auto Sales, Inc., 148 F.3d 892, 894 (7th Cir. 1998).

“Even big, totally unpredictable impairments of the

26a

obligation of contracts can survive challenges under

the contracts clause if they are responsive to

economic emergencies ... and even to considerably

less exigent needs.” Jd. at 896 (internal citations

omitted). If the state law at issue “serve[s] a

legitimate public purpose such as remedying a

general social or economic problem,” and “the means

chosen to accomplish this purpose are reasonable

and necessary,” the law does not run afoul of the

Contracts Clause. Buffalo Teachers Federation v.

Tobe, 464 F.3d 362, 368 (2nd Cir. 2006) (citing

Energy Reserves Group. Inc. v. Kansas Power &

Light Co., 459 U.S. 400, 411-13 (1983)).

At the summary judgment stage of this

litigation, the court cannot say as a matter of law

that Joliet’s proposed condemnation of Evergreen

Terrace serves no legitimate public purpose, and is

not a reasonable means of remedying what Joliet

perceives to be a “general social or economic

problem.” See id. The undisputed facts establish that

Joliet plans to redevelop the Property to include

various public benefits. Defendants’ Contracts

Clause assertions in support of their Motions for

Summary Judgment therefore fail.

3. Intergovernmental Immunity

The concept of intergovernmental immunity

has its roots on the Supremacy Clause of the United

States Constitution.

[T]he States have no power, by

taxation or otherwise, to retard,

impede, burden, or in any manner

27a

control, the operations of the

constitutional laws. enacted by

Congress to carry into execution the

powers vested in the _ general

government. This is, we think, the

unavoidable consequence of that

supremacy which the constitution has

declared.

McCulloch v. Maryland, 17 U.S. 316, 435 (1819). The

court has already determined that the Supremacy

Clause is no bar to Joliet’s attempt to condemn

Evergreen Terrace. See Opinion and Order of August

3, 2007. Moreover, intergovernmental immunity has

never been extended to private parties. It is clear

that the Supremacy Clause forbids States from

directly taxing or regulating the United States,

United States v. New Mexico, 455 U.S. 720, 733

(1982), or “federally established instrumentalit[ies],”

First Agricultural Bank v. State Tax Commission,

392 U.S. 339, 350 (1968). However, where State

taxation or regulation merely “has an effect on the

United States,” intergovernmental immunity does

not apply.” New Mexico, 455 U.S. at 734. As the

court has repeatedly explained, Evergreen Terrace is

privately owned property. It is clearly not a

“federally established instrumentality.” The court

therefore cannot find, as a matter of law, that the

doctrine of intergovernmental immunity prevents

Joliet from proceeding with its condemnation action.

28a

4. Equitable Estoppel

HUD asserts that Joliet is equitably estopped

from finding that one of the Evergreen Terrace

buildings is blighted. In making this assertion, HUD

relies exclusively on language in a contract it has

with Joliet which provides that Joliet is to inspect

the building in question annually in order to assure

that it is safe and clean. This argument is meritless.

The power to condemn due to blight is not limited to

specific buildings found to be in disrepair. “[T]he fact

that there may be some sound buildings in the slum

and blighted area is no defense to the proceedings.

Property may be taken which, standing by itself, is

unoffending, for the test is based on the condition of

the area as a whole,” City of Chicago v. Barnes, 195

N.E.2d 629, 631 (Ill. 1964) (citing Berman v. Parker,

348 U.S. 26, 34-35 (1954)). In this case, Joliet has

determined that the Evergreen Terrace area as a

whole is blighted. Whether the specific building in

question is or is not blighted in not relevant.

5. Insufficiency of the Complaint

Finally, Defendants assert that the Complaint

in this case is insufficient because Joliet has not

named the tenants of Evergreen Terrace as

Defendants, and because Joliet has not adequately

described the interests it seeks to condemn. It is not

clear to the court why these issues were not brought

in a motion to dismiss. In any event, these assertions

are unavailing.

On January 31, 2008, the court granted the

Evergreen Tenants’ unopposed Motion to Intervene.

29a

The tenants of Evergreen Terrace are now

Defendants in this case. Rule 71.1 of the Federal

Rules of Civil Procedure (former Rule 71A) provides

that, in a condemnation action, the Complaint must

plainly state the “interests to be acquired.” FED R.

Civ. P. 71.1(c)(2)(D). Paragraph 27 of Joliet’s

Amended Complaint states that it “seeks to acquire

the full fee simple title to the Subject Property.” It is

difficult to discern how Joliet could have more

adequately described the interests it seeks in

Evergreen Terrace.

Il, CONCLUSION

For the foregoing reasons, Defendants’

Motions for Summary Judgment are denied.

IT IS SO ORDERED.

ENTER:

s/ Charles R. Norgle

CHARLES RONALD NORGLE, Judge

United States District Court

Dated: March 27, 2008

30a

APPENDIX C —- OPINION AND ORDER OF THE

UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF ILLINOIS,

EASTERN DIVISION, DATED AND FILED

AUGUST 3, 2007

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Case No. 05 C 6746

CITY OF JOLIET, an Illinois municipal corporation,

Plaintiff,

Vv.

MID-CITY NATIONAL BANK OF CHICAGO, as

Successor Trustee to United of America Bank, et al.,

Defendants.

OPINION AND ORDER

CHARLES R. NORGLE, District Judge.

Before the court is Plaintiff City of Joliet’s

Motion for Judgment on the Pleadings with Respect

to the Supremacy Clause Defense. For the following

reasons, the Motion is granted.

3la

I. BACKGROUND

A. Facts

Plaintiff City of Joliet, Illinois (“Joliet” or the

“City”) alleges the following facts in its Amended

Complaint for Condemnation. Joliet is authorized

under the [llinois Municipal Code to exercise the

right of eminent domain to acquire real property,

inter alia, (1) for the public welfare, (2) where

acquisition of such property is necessary for the

rehabilitation or redevelopment of any blighted or

slum area, or (3) where acquisition of such property

is necessary for the establishment of public parks,

other public grounds, or recreational facilities. Joliet

has determined that the apartment complex known

as Evergreen Terrace I and Evergreen Terrace II

(together, “Evergreen Terrace” or the “Property”) is,

inter alia, (1) extremely dilapidated, unsafe,

substandard, unsanitary, crime-infested, a

substantial threat to the health, welfare and safety

of its residents, (2) a “blighted or slum area” under

the Iliinois Municipal Code, (3) interfering with the

lawful use of nearby properties, and (4) diverting

important public resources such as police and fire

protection from nearby properties.

Joliet therefore entered into good faith

negotiation with the owners of Evergreen Terrace for

the purpose of acquiring it, and authorizing the use

of the city’s eminent domain powers to eliminate the

blighted conditions existing there. Joliet and the

owners of Evergreen Terrace, however, have been

unable to reach an agreement on the price to be paid

for the Property. Joliet therefore approved and

32a

adopted local Ordinance No. 15298 in order to begin

eminent domain proceedings to acquire Evergreen

Terrace. The City proposes to redevelop the Property

to include a public park, a recreational area, and

affordable housing.

B. Procedural History

On October 7, 2005, Joliet filed its Complaint

for Condemnation in the Circuit Court of Will

County, Illinois. Joliet purportedly filed this

Complaint against all persons and entities having an

interest in Evergreen Terrace. One of those

Defendants was the Government National Mortgage

Association (“GNMA”). GNMA is an agency of the

United States government. On November 29, 2005,

the United States Attorney for the Northern District

of Illinois removed this case to the Northern District

of Illinois. On February 27, 2006, the court granted

Joliet’s Motion to Voluntarily Dismiss GNMA, but

denied Joliet’s Motion to Remand, finding that the

United States Department of Housing and Urban

Development (“HUD”) had a reversionary interest in

the Property. The court granted Defendants’ Rule

19(a) Motion to Join HUD as a Necessary Party on

March 9, 2006.

On July 5, 2007, the Seventh Circuit entered

an Opinion in a related case, New West. L.P. v. City

of Joliet, --- F.3d ---, 06-3665 (7th Circuit July 5,

2007). In this related case, the owners of Evergreen

Terrace sued Joliet, alleging that the Supremacy

Clause prohibits the condemnation of the Property,

that the City’s activities related to the condemnation

violate 42 U.S.C. §§ 1982 and 1983, and that Joliet

33a

has violated the Fair Housing Act, 42 U.S.C. §§

3601-19, by discouraging prospective minority

tenants from living in Evergreen Terrace. Id., slip.

op. at 2. This court dismissed the case, but the

Seventh Circuit reversed and remanded. In so doing,

the Seventh Circuit indicated that this court must

first resolve the condemnation suit before proceeding

on the related case. Jd., slip. op. at 3.

Writing for the Seventh Circuit, Chief Judge

Easterbrook indicated that there was no federal

impediment to Joliet’s exercise of eminent domain in

this case. “If Joliet thinks that a given parcel of land

should be put to a public use, such as a park, and is

willing to foot the bill, it is hard to see any obstacle

in federal law.” Id., slip. op. at 6.

Following the Seventh Circuit’s Opinion in the

New West case, this court issued a Minute Order in

the instant condemnation case in which it granted

Joliet leave to refile its Motion for Summary

Judgment. This Motion will become fully briefed on

approximately September 10, 2007.

In the meantime, Joliet has filed the instant

Motion for Judgment on the Pleadings with Respect

to the Supremacy Clause Defense. Joliet has filed

this Motion in response to HUD’s third affirmative

defense in this case, which asserts that “[t]he

Supremacy Clause of the United States Constitution

prohibits the City of Joliet from exercising eminent

domain over or condemning the defendant Evergreen

Terrace properties.” In its Motion for Judgment on

the Pleadings, Joliet argues that federal law does not

preempt the Illinois Municipal Code, or the City’s

34a

local ordinance, regarding the eminent domain

action against Evergreen Terrace. This Motion is

fully briefed and before the court.

II. DISCUSSION

A. Standard of Decision

Federal Rule of Civil Procedure 12(h)(2)

provides that “an objection of failure to state a legal

defense to a claim may be made ... by a motion for

judgment on the pleadings.” Federal Rule of Civil

Procedure 12(c) states that “[a]fter the pleadings are

closed but within such time as not to delay the trial,

any party may move for judgment on the pleadings.”

Plaintiffs Motion for Judgment on the Pleadings

with Respect to the Supremacy Clause Defense is

appropriately and timely presented to the court.

1. Preemption

The Supremacy Clause of the United States

Constitution provides, “This Constitution, and the

Laws of the United States which shall be made in

Pursuance thereof ... shall be the Supreme Law of

the Land.” U.S. CONnsT., art. VI, cl.2. This Clause

does not create any federal rights; instead, it “

‘secures federal rights by according them priority

whenever they come in conflict with state law.’ ”

Golden State Transit Corp. v. Los Angeles, 493 U.S.

103, 107 (1989) (quoting Chapman v. Houston

Welfare Rights Org., 441 U.S. 600, 613 (1979)). The

Supremacy Clause therefore “support(s] three ways

in which federal law can preempt state and local

law: express preemption, conflict (or implied)

35a

preemption, and field (or complete) preemption.”

Hoagland v. Town of Clear Lake, 415 F.3d 693, 696

(7th Cir. 2005). The only type of preemption at issue

in this case, conflict preemption, occurs where “it

would be impossible for a party to comply with both

local and federal requirements or where local law

‘stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of

Congress.’” Jd. (quoting Freightliner Corp. v. Myrick,

514 U.S. 280, 287 (1995)).

Courts are to presume that “ ‘Congress does

not intend to supplant state law,’ This is particularly

true where a party claims that federal law bars state

action in areas of traditional state regulation ....”

Frank Bros., Inc. v. Wis. DOT, 409 F.3d 880, 885 (7th

Cir. 2005) (quoting N.Y. State Conf. of Blue Cross &

Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,

654 (1995)); City of Columbus v. Ours Garage &

Wrecker Serv., 536 U.S. 424, 432 (2002) (“we start

with the assumption that the historic police powers

of the States were not to be superceded by [a]

Federal Act unless that was the clear and manifest

purpose of Congress.”) (internal quotation marks and

citation omitted). The burden therefore falls on the

party asserting preemption to demonstrate that

Congress clearly intended to override whatever state

law is at issue. See In re Ocwen Federal Bank FSB

Mortgage Servicing Litgation, MDL No. 1604, Lead

Case No. 04 C 2714, 2006 U .S. Dist. LEXIS 21715

(N.D. Ill. March 22, 2006).

36a

2. Eminent Domain

It is well-established law that municipalities

may use eminent domain procedures to condemn and

take private property for a legitimate public purpose.

Kelo v. City of New London, 545 U.S. 469 (2005)

(holding that a_ city’s carefully considered

redevelopment plan was not unconstitutional, even

where property would be taken from private parties

and given to other private parties); Hawaii Housing

Authority v. Midkiff, 467 U.S. 229 (1984) (holding

that a Hawaii statute under which property was

taken from private landowners and transferred to

lessees, in order to eliminate the “social and

economic evils of land oligopoly” met the standards

of a valid public use); Berman v. Parker, 348 U.S. 26

(1954) (upholding a redevelopment plan targeting a

blighted area of Washington, D.C.). It is also well-

established that when municipalities exercise the

power of eminent domain, “the government must pay

the owner just compensation, which is determined to

be the property’s fair market value.” Shaikh v. City

of Chicago, 341 F.3d 627, 632 (7th Cir. 2003) (citing

United States v. Miller, 317 U.S. 369, 373-74 (1943);

United States v. 58.16 Acres of Land, 478 F.2d 1055,

1058 (7th Cir. 1973)).

In adjudicating takings cases, the Supreme

Court has long deferred to the judgment of local

legislatures as to whether a particular taking serves

a “public purpose.” Kelo, 545 U.S. at 480.

We do not sit to determine whether a

particular housing project is or is not

desirable. The concept of the public

37a

welfare is broad and inclusive ... The

values it represents are spiritua! as

well as physical, aesthetic as well as

monetary. It is within the power of the

legislature to determine that the

community should be beautiful as well

as healthy, spacious as well as clean,

well-balanced as well as_ carefully

patrolled ... If those who govern the

District of Columbia decide that the

Nation’s Capital should be beautiful as

well as sanitary, there is nothing in the

Fifth Amendment that stands in the

way.

Berman, 348 U.S. at 33. The Kelo court reaffirmed

Berman’s “deferential approach to legislative

judgments in the field,” and noted that the Supreme

Court’s “earliest cases in particular embodied a

strong sense of federalism, emphasizing the great

respect that we owe to state legislatures and state

courts in discerning local public needs.” Kelo, 545

U.S. at 482 (citing Hairston v. Danville & Western R.

Co., 208 U.S. 598, 606-07 (1908)); see also National

Ass'n of Regulatory Utility v. F.E.R.C., 475 F.3d

1277, 1287 (D.C. Cir. 2007) (“Courts have long

recognized that eminent domain is at the very core of

state sovereignty.”). The court will therefore adopt a

“deferential approach” to the decisions of the local

legislature as it analyzes the issues specific to the

instant motion, as well as issues relevant to this

entire case.

38a

B. Plaintiffs Motion for Partial Judgment on

the Pleadings

Defendants, with the exception of HUD, have

filed a joint brief in opposition to Plaintiffs Motion.

HUD, represented by the United States Attorney’s

office, has filed a separate brief in opposition to this

Motion. Defendants Mid-City National Bank of

Chicago, et al., argue that the Supremacy Clause

prohibits Joliet from condemning Evergreen Terrace

because the federal government has a substantial

interest in the Property, and the State laws and the

local ordinance permitting the condemnation are

preempted by HUD regulations, Section 8 of the

United States Housing Act, and the Multifamily

Assisted Housing Reform and Affordability Act

(“MAHRA”). HUD asserts that Joliet’s eminent

domain action, carried out pursuant to state law, is

preempted by HUD regulations, MAHRA, as well as

the Property Clause and the Contract Clause of the

United States Constitution. 1Defendants also argue

that Judge LEasterbrook’s statement, “[ijf Joliet

thinks that a given parcel of land should be put to a

public use, such as a park, and is willing to foot the

bill, it is hard to see any obstacle in federal law,”

New West, slip. op. at 6, is mere dictum, and should

therefore have no bearing on this’ court’s

adjudication of the instant motion.

1 The court notes that the instant Motion references only the

Supremacy Clause and related preemption issues. Issues

regarding the Property and Contract Clauses are not properly

before the court at this point.

39a

Defendants first argument, that the federal

government's interest in Evergreen’ Terrace

prohibits Joliet from exercising eminent domain over

the Property, stems from HUD’s mortgage and

reversionary interests in Evergreen Terrace. In

HUD’s answer to the Amended Complaint, HUD

explains that

[iJn addition to HUD being a mortgage

holder on Evergreen Terrace I and II,

the incorporated regulatory agreements

provide that in the event of a HUD-non-

authorized transfer of the defendant

properties, such as_ the _— subject

condemnation action, the HUD

Secretary would have the right to take

possession of the properties, as well as

foreclose on the mortgages.

It is undisputed, however, that at present,

Evergreen Terrace is privately owned property. Its

owners have a voluntary contractual relationship

‘with HUD which gives HUD the above described

interests in the Property. HUD, however, does not

own Evergreen Terrace. HUD’s reliance on Shaikh,

in which the Seventh Circuit observed that the City

of Chicago could not pursue condemnation

proceedings against HUD-owned property, is

therefore misplaced. The owners of Evergreen

Terrace are private parties. In Shaikh, the Seventh

Circuit warned that a private party “ ‘who acquires

or occupies land does so at the risk of being evicted

by the exercise of the superior right of the

government or its delegate to acquire his interest

upon payment of just compensation.’” 341 F.3d at

40a

631 (quoting United States v. 16.92 Acres of Land,

670 F.2d 1369, 1371 (7th Cir. 1982)). Moreover,

“HUD’s regulations implementing the § 8 program

contemplate the possibility of the parcel’s

condemnation; they do not purport to forbid

condemnations.” New West, slip. op. at 6. HUD’s

mortgage and reversionary interest in Evergreen

Terrace is thus not an impediment to Joliet’s plan to

exercise its power of eminent domain over the

Property.

Defendants’ arguments that federal statutes

preempt Joliet’s attempt to exercise its power of

eminent domain over Evergreen Terrace are also

unavailing. “New West contends that § 8 and the

Fair Housing Act prevent condemnation of

Evergreen Terrace, but it does not rely on any

particular provision of that statute. Section 8 is a

subsidy program, a carrot rather than a stick.” Jd. In

other words, the § 8 program was designed to

encourage private property owners to provide low-

income housing-there is simply no basis on which to

conclude that Congress intended for this program to

also preempt local governments’ use of their powers

of eminent domain. See Baker v. Property Investors

of Conn., 338 F.Supp.2d 321, 323 (D. Conn. 2004)

(“Section 8 of the Housing Act ‘aids low-income

families in obtaining a decent place to live and ...

promotes economically mixed housing’... by

providing federal subsidies to private building

owners who are willing to rent to low-income

families.”) (internal citation omitted). In enacting

MAHRA, Congress intended to, inter alia, “preserve

low-income _ rental housing affordability and

availability ... streamline and improve federally

4la

insured and assisted multifamily housing project

oversight ... [and] to resolve the problems affecting

financially and physically troubled federally insured

and assisted multifamily housing projects +

MAHRA § &11(b); see also Neighborhood Research

Inst, v. Campus Ptnrs. for Cmty. Urban Dev., 212

F.R.D. 364, 366-67 (S.D. Ohio 2002). Once again,

there is simply no basis on which to conclude that

MAHRA was intended to _ preempt local

municipalities’ ability to exercise their powers of

eminent domain.

Finally, it is arguable that Judge

Easterbrook’s observation that “it is hard to see any

obstacle in federal law” to Joliet’s condemnation of

Evergreen Terrace is indeed dictum proprium: “[a]

personal or individual [statement] that is given by

the judge who delivers an opinion but that is not

necessarily concurred in by the whole court and is

not essential to the disposition.” BLACK’S LAW

DICTIONARY 485 (8th ed. 2004). However, the court

cannot presume that a statement by the Chief Judge

of the Seventh Circuit Court of Appeals carries no

weight simply because it may be dictum. To the

contrary, in our hierarchical judicial system, a

federal district court must take the observations of

its appellate court very seriously, regardless of

whether these observations are contained in the

higher court’s holdings, or are indeed simply dicta.

“[A] federal district court is required to give great

weight to the pronouncements of its Court of

Appeals, even though those pronouncements appear

by way of dictum ... [W]e cannot presume that our

Court of Appeals writes merely for intellectual

exercise.” Pickett v. Prince, 52 F. Supp. 2d 893, 904

42a

(N.D. Ill. 1999) (internal quotation marks and

citation omitted). The court has_ thoroughly

considered the observations of Chief Judge

Easterbrook and has independently reached the

conclusion that they are correct. Moreover, it is not

unusual for the Seventh Circuit to offer guidance to

district courts or parties. Even where such guidance

is not “essential to the disposition” of the case, a

district court or party overlooks it at its peril. See

Blue Cross Blue Shield of Illinois v. Cruz, No. 03-

4170, slip op. at 8 (7th Cir. July 27, 2007). The court

therefore declines Defendants’ invitation to ignore

Judge Easterbrook’s observation regarding the lack

of any federal impediment to Joliet’s condemnation

of Evergreen Terrace.

Ill. CONCLUSION

As the court has noted, it is Defendants’

burden to demonstrate to the court that federal law

preempts Joliet’s attempt to condemn and redevelop

Evergreen Terrace. Defendants have failed to meet

this burden. Plaintiff City of Joliet’s Motion for

Judgment on the Pleadings with Respect to the

Supremacy Clause Defense is therefore granted.

IT IS SO ORDERED.

ENTER:

s/ Charles R. Norgle

CHARLES RONALD NORGLE, Judge

United States District Court

Dated: August 3, 2007

43a

APPENDIX D - ORDER OF THE UNITED

STATES COURT OF APPEALS FOR THE

SEVENTH CIRCUIT FILED JULY 14, 2009,

DENYING REHEARING

IN THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Nos. 08-3032 & 08-3033

CITY OF JOLIET, ILLINOIS,

Plaintiff-Appellee,

Vv.

NEW WEST, L.P., and NEW BLUFF, L.P.,

Defendants-Appellants,

UNITED STATES DEPARTMENT OF HOUSING

AND URBAN DEVELOPMENT and EVERGREEN

TERRACE TENANTS,

Intervening Defendants-Appellants.

Appeals from the United States District Court

for the Northern District of Illinois, Eastern

Division.

No. 05 C 6746—Charles R. Norgle, Sr., Judge

Before EASTERBROOK, Chief Judge, and

WILLIAMS and SYKES, Circuit Judges.

44a

ORDER

Defendants-Appellants and _ Intervening

Defendants-Appellants filed three separate petitions

for rehearing and rehearing en banc on May 26,

2009. No judge in regular active service has

requested a vote on the petitions for rehearing en

banc,* and all of the judges on the panel have voted

to deny rehearing. The petitions for rehearing are

therefore DENIED.

* Judge Flaum did not participate in the consideration of these petitions.

45a

APPENDIX E — UNITED STATES

CONSTITUTION ARTICLE IV,

SECTION 3, CLAUSE 2

U.S. CONST., art. IV, § 3, cl. 2

The Congress shall have Power to dispose of

and make all needful Rules and Regulations

respecting the Territory or Property belonging to the

United States....

46a

APPENDIX F - UNITED STATES

CONSTITUTION, ARTICLE VI, CLAUSE 2

U.S. CONST., art. VI, cl. 2

This Constitution, and the Laws of the United

States which shall be made in Pursuance thereof...

shall be the supreme Law of the Land; and the

Judges in every State shall be bound thereby, any

Thing in the Constitution or Laws of any State to the

Contrary notwithstanding.

47a

APPENDIX G - 12 U.S.C. § 1701z-11.

§ 1701z-11. Management and disposition of

multifamily housing projects

(a) Goals

The Secretary of Housing and Urban Development

shall manage or dispose of multifamily housing

projects that are owned by the Secretary or that are

subject to a mortgage held by the Secretary in a

manner that—

(1) is consistent with the National Housing Act [12

U.S.C.A. § 1701 et seq.] and this section;

(2) will protect the financial interests of the

Federal Government; and

(3) will, in the least costly fashion among

reasonable available alternatives, address the

goals of—

(A) preserving certain housing so that it can

remain available to and affordable by low-income

persons;

(B) preserving and revitalizing residential

neighborhoods;

decent, safe, and sanitary condition;

(D) minimizing the involuntary displacement of

tenants;

48a

(E) maintaining housing for the purpose of

providing rental housing, cooperative housing,

and homeownership opportunities for low-income

persons;

(F) minimizing the need to demolish multifamily

housing projects;

(G) supporting fair housing strategies; and

(H) disposing of such projects in a manner

consistent with local housing market conditions.

In determining the manner in which a project is to

be managed or disposed of, the Secretary may

balance’ competing goals relating to individual

projects in a manner that will further the purposes

of this section.

(b) Definitions

For purposes of this section:

(1) Multifamily housing project

The term “multifamily housing project” means any

multifamily rental housing project which is, or

prior to acquisition by the Secretary was, assisted

or insured under the National Housing Act [12

U.S.C.A. § 1701 et seq.], or was subject to a loan

under section 1701q of this title.

(2) Subsidized project

The term “subsidized project” means a multifamily

49a

housing project that, immediately prior to the

assignment of the mortgage on such project to, or

the acquisition of such mortgage by, the Secretary,

was receiving any of the following types of

assistance:

(A) Below market interest rate mortgage

insurance under the proviso of section 221(d)(5) of

the National Housing Act [12 U.S.C.A. §

17151(d)(5)}.

(B) Interest reduction payments made in

connection with mortgages insured under section

236 of the National Housing Act [12 U.S.C.A.

1715z-1].

title.

(D) Assistance in the form of—

(i) rent supplement payments under section 101

of the Housing and Urban Development Act of

1965 [12 U.S.C.A. § 1701s],

(ii) additional assistance payments under

section 236(f)(2) of the National Housing Act [12

U.S.C.A. § 1715z-1(f)(2)],

(iii) housing assistance payments made under

section 23 of the United States Housing Act of

1937 (as in effect before January 1, 1975) [42

U.S.C.A. § 1421b], or

(iv) housing assistance payments made under

50a

section 8 of the United States Housing Act of

1937 [42 U.S.C.A. § 1437f] (excluding payments

made for tenant-based assistance under section

8 [42 U.S.C.A. § 1437f]),

if (except for purposes of section 183(c) of the

Housing and Community Development Act of

1987) such assistance payments are made to

more than 50 percent of the units in the project.

(3) Formerly subsidized project

The term “formerly subsidized project” means a

multifamily housing project owned by _ the

Secretary that was a_ subsidized project

immediately prior to its acquisition by the

Secretary.

(4) Unsubsidized project

The term “unsubsidized project” means a

multifamily housing project owned by the

Secretary that is not a subsidized project or a

formerly subsidized project.

(5) Affordable

A unit shall be considered affordable if-—

(A) for units occupied—

(i) by very low-income families, the rent does

not exceed 30 percent of 50 percent of the area

median income, as determined by the Secretary,

with adjustments for smaller and larger

families; and

(ii) by low-income families other than very low-

income families, the rent does not exceed 30

percent of 80 percent of the area median

income, as determined by the Secretary, with

adjustments for smaller and larger families; or

(B) the unit, or the family residing in the unit, is

receiving assistance under section 8 of the United

States Housing Act of 1937 [42 U.S.C.A. § 1437f].

(6) Low-income families and very low-income

families

The terms “low-income families” and “very low-

income families” shall have the meanings given the

terms in section 3(b) of the United States Housing

Act of 1937 [42 U.S.C.A. § 1437a(b)].

(7) Preexisting tenant

The term “preexisting tenant” means, with respect

to a multifamily housing project acquired pursuant

to this section by a purchaser other than the

Secretary at foreclosure or after sale by the

Secretary, a family that resides in a unit in the

project immediately before the acquisition of the

project by the purchaser.

(8) Market area

The term “market area” means a market area

determined by the Secretary.

52a

(9) Secretary

The term “Secretary” means the Secretary of

Housing and Urban Development.

(1) Disposition to purchasers

In carrying out this section, the Secretary may

dispose of a multifamily housing project owned by

the Secretary on a negotiated, competitive bid, or

other basis, on such terms as the Secretary deems

appropriate considering the low-income character

of the project and consistent with the goals in

subsection (a) of this section, only to a purchaser

determined by the Secretary to be capable of—

(A) satisfying the conditions of the disposition

plan developed under paragraph (2) for the

project;

(B) implementing a sound financial and physical

management program that is designed to enabie

the project to meet anticipated operating and

repair expenses to ensure that the project will

remain in decent, safe, and sanitary condition

and in compliance with any standards under

applicable State or local laws, rules, ordinances,

or regulations relating to the physical condition of

the housing and any such standards established

by the Secretary;

working cooperatively with tenant organizations;

53a

(D) providing adequate organizational, staff, and

financial resources to the project; and

(E) meeting such other requirements as the

Secretary may determine.

(2) Disposition plan

(A) In general

Prior to the sale of a multifamily housing project

that is owned by the Secretary, the Secretary

shall develop an initial disposition plan for the

project that specifies the minimum terms and

conditions of the Secretary for disposition of the

project, the initial sales price that is acceptable to

the Secretary, and the assistance that the

Secretary plans to make available to a

prospective purchaser in accordance with this

section.

(B) Market-wide plans

In developing the initial disposition plan under

this subsection for a multifamily housing project

located in a market area in which at least 1 other

multifamily housing project owned by the

Secretary is located, the Secretary may

coordinate the disposition of all such multifamily

housing projects located within the same market

area to the extent and in such manner as the

Secretary determines appropriate to carry out the

goals under subsection (a) of this section.

54a

The initial sales price shall be reasonably related

to the intended use of the project after sale, any

rehabilitation requirements for the project, the

rents for units in the project that can be

supported by the market, the amount of rental

assistance available for the project under section

8 of the United States Housing Act of 1937 [42

U.S.C.A. § 14387f], the occupancy profile of the

project (including family size and income levels

for tenant families), and any other factors that

the Secretary considers appropriate.

(D) Community and tenant input

In carrying out this section, the Secretary shall

develop procedures—

(i) to obtain appropriate and timely input into

disposition plans from officials of the unit of

general local government affected, the

community in which the project is situated, and

the tenants of the project; and

(ii) to facilitate, where feasible and appropriate,

the sale of multifamily housing projects to

existing tenant organizations with

demonstrated capacity, to public or nonprofit

entities that represent or are affiliated with

existing tenant organizations, or to other public

or nonprofit entities.

(E) Technical assistance

To carry out the procedures developed under

subparagraph (D), the Secretary may provide

55a

technical assistance, directly or indirectly, and

may use amounts available for technical

assistance under the Emergency Low Income

Housing Preservation Act of 1987 [12 U.S.C.A. §

4101 et seq.], subtitle C of the Low-Income

Housing Preservation and Resident

Homeownership Act of 1990, subtitle B of title [IV

of the Cranston-Gonzalez National Affordable

Housing Act [42 U.S.C.A. § 12871 et seq.], or this

section, for the provision of technical assistance

under this paragraph. Recipients of technical

assistance funding under the provisions referred

to in this subparagraph shall be permitted to

provide technical assistance to the extent of such

funding under any of such provisions or under

this subparagraph, notwithstanding the source of

the funding.

(3) Foreclosure sale

In carrying out this section, the Secretary shall—

(A) prior to foreclosing on any mortgage held by

the Secretary on any multifamily housing project,

notify both the unit of general local government

in which the property is located and the tenants

of the property of the proposed foreclosure sale;

and

(B) dispose of a multifamily housing project

through a foreclosure sale only to a purchaser

that the Secretary determines is capable of

implementing a sound financial and physical

management program that is designed to enable

the project to meet anticipated operating and

repair expenses to ensure that the project will

56a

remain in decent, safe, and sanitary condition

and in compliance with any standards under

applicable State or local laws, rules, ordinances,

or regulations relating to the physical condition of

the housing and any such standards established

by the Secretary.

(d) Management and maintenance of properties

(1) Contracting for management services

In carrying out this section, the Secretary may—

(A) contract for management services for a

multifamily housing project that is owned by the

Secretary (or for which the Secretary is

mortgagee in possession) with for-profit and

nonprofit entities and public agencies (including

public housing authorities) on a negotiated,

competitive bid, or other basis at a price

determined by the Secretary to be reasonable,

with a manager the Secretary has determined is

capable of—

(i) implementing a sound financial and physical

management program that is designed to

enable the project to meet anticipated operating

and maintenance expenses to ensure that the

project will remain in decent, safe, and sanitary

condition and in compliance with any standards

under applicable State or local laws, rules,

ordinances, or regulations relating to the

physical condition of the project and any such

standards established by the Secretary;

57a

(ii) responding to the needs of the tenants and

working cooperatively with tenant

organizations;

(iii) providing adequate organizational, staff,

and financial resources to the project; and

(iv) meeting such other requirements as the

Secretary may determine; and

(B) require the owner of a multifamily housing

project that is subject to a mortgage held by the

Secretary to contract for management services for

the project in the manner described in

subparagraph (A).

(2) Maintenance of projects owned by Secretary

In the case of multifamily housing projects that are

owned by the Secretary (or for which the Secretary

is mortgagee in possession), the Secretary shall—

(A) to the greatest extent possible, maintain all

such occupied projects in a decent, safe, and

sanitary condition and in compliance with any

standards under applicable State or local laws,

rules, ordinances, or regulations relating to the

physical condition of the housing and any such

standards established by the Secretary;

(B) to the greatest extent possible, maintain full

occupancy in all such projects; and

providing rental or cooperative housing.

58a

(3) Projects subject to a mortgage held by Secretary

In the case of any multifamily housing project that

is subject to a mortgage held by the Secretary, the

Secretary shall require the owner of the project to

carry out the requirements of paragraph (2).

(e) Required assistance

In disposing of multifamily housing property under

this section, consistent with the goal of subsection

(a)(8)(A) of this section, the Secretary shall take,

separately or in combination with other actions

under this subsection or subsection (f) of this section,

one or more of the following actions:

(1) Contract with owner for project-based

assistance

In the case of multifamily housing projects that are

acquired by a purchaser other than the Secretary

at foreclosure or after sale by the Secretary, the

Secretary may enter into contracts under section 8

of the United States Housing Act of 1937 [42

U.S.C.A. § 1437f] (to the extent budget authority is

available) with owners of the projects, subject to

the following requirements:

(A) Subsidized or formerly subsidized projects

receiving mortgage-related assistance

In the case of a subsidized or formerly subsidized

project referred to in subparagraphs (A) through

59a

(i) the contract shall be sufficient to assist at

least all units covered by an assistance contract

under any of the authorities referred to in

subsection (b)(2)(D) of this section before

acquisition or foreclosure, unless the Secretary

acts pursuant to the provisions of subparagraph

(C);

(ii) the contract shall provide that, when a

vacancy occurs in any unit in the project

requiring project-based rental assistance

pursuant to this subparagraph that is occupied

by a family who is not eligible for assistance

under such section 8 [42 U.S.C.A. § 1437f], the

owner shall lease the available unit to a family

eligible for assistance under such section 8 [42

U.S.C.A. § 1437f]; and

(iii) the Secretary shall take actions to ensure

that any unit in any such project that does not

otherwise receive project-based assistance

under this subparagraph remains available and

affordable for the remaining useful life of the

project, as defined by the Secretary; to carry out

this clause, the Secretary may require

purchasers to establish use or rent restrictions

maintaining the affordability of such units.

(B) Subsidized or formerly subsidized projects

receiving rental assistance

In the case of a subsidized or formerly subsidized

project referred to in subsection (b)(2)(D) of this

section that is not subject to subparagraph (A)—

60a

(i) the contract shall be sufficient to assist at

least all units in the project that are covered, or

were covered immediately before foreclosure on

or acquisition of the project by the Secretary, by

an assistance contract under any of the

provisions referred to in such subsection, unless

the Secretary acts pursuant to provisions of

subparagraph (C); and

(ii) the contract shall provide that, when a

vacancy occurs in any unit in the project

requiring project-based rental assistance

pursuant to this subparagraph that is occupied

by a family who is not eligible for assistance

under such section 8 [42 U.S.C.A. § 1437f], the

owner shall lease the available unit to a family

eligible for assistance under such section 8 [42

U.S.C.A. § 1437].

(i) Authority

In heu of providing project-based assistance

under section 8 of the United States Housing

Act of 1937 [42 U.S.C.A. § 1437f] in accordance

with subparagraph (A)(i) or (B)(i) for a project,

the Secretary may, for certain units in

unsubsidized projects located within the same

market area as the project otherwise required

to be assisted with such project-based

assistance—

(I) require use and rent restrictions providing

that such units shall be available to and

6la

affordable by very low-income families for the

remaining useful life of the project (as defined

by the Secretary), or

(II) provide project-based assistance under

section 8 [42 U.S.C.A. § 1437f] for such units

to be occupied by only very low-income

persons,

but only if the requirements under clause

(11) are met.

(11) Requirements

The requirements under this clause are that—

(I) upon the disposition of the project

otherwise required to be assisted with project-

based assistance under subparagraph (A)(i) or

(B)(i), the Secretary shall make available

tenant-based assistance under section 8 [42

U.S.C.A. § 14387f] to low-income families

residing in units otherwise required to be

assisted with such project-based assistance;

and

(II) the number of units subject to use

restrictions or provided assistance under

clause (i) shall be at least equivalent to the

number of units otherwise required to be

assisted with project-based assistance under

section 8 [42 U.S.C.A. § 1437f] in accordance

with subparagraph (A)(i) or (B)(i).

(D) Unsubsidized projects

62a

Notwithstanding actions taken pursuant to

subparagraph (C), in the case of unsubsidized

projects, the contract shall be sufficient to

provide—

(i) project-based rental assistance for all units

that are covered, or were covered immediately

before foreclosure or acquisition, by an

assistance contract under—

(I) the new construction and substantial

rehabilitation program under section 8(b)(2) of

the United States Housing Act of 1937 (as in

effect before October 1, 1983) [42 U.S.C.A §

1437f(b)(2))];

(II) the property disposition program under

section 8(b) of such Act [42 U.S.C.A. §

1437f(b)};

(III) the project-based certificate program

under section 8 of such Act [42 U.S.C.A. §

1437f];

(ITV) the moderate rehabilitation program

under section 8(e)(2) of such Act [42 U.S.C.A. §

1437f(e)(2)];

(V) section 23 of such Act (as in effect before

January 1, 1975) [42 U.S.C.A. § 1421b];

(VI) the rent supplement program under

section 101 of the Housing and Urban

Development Act of 1965 [12 U.S.C.A. §

63a

1701s]; or

(VII) section 8 of the United States Housing

Act of 1937, following conversion from

assistance under section 101 of the Housing

and Urban Development Act of 1965 [12

U.S.C.A. § 17018]; and

(ii) tenant-based assistance under section 8 of

the United States Housing Act of 1937 [42

U.S.C.A. § 1437f] for families that are

preexisting tenants of the project in units that,

immediately before foreclosure or acquisition of

the project by the Secretary, were covered by an

assistance contract under the loan management

set-aside program under section 8(b) of the

United States Housing Act of 1937 [42 U.S.C.A.

§ 1437f(b)).

(2) Annual contribution contracts for tenant-based

assistance

In the case of multifamily housing projects that are

acquired by a purchaser other than the Secretary

at foreclosure or after sale by the Secretary, the

Secretary may enter into annual contribution

contracts with public housing agencies to provide

tenant-based assistance under section 8 of the

United States Housing Act of 1937 [42 U.S.C.A. §

1437f] on behalf of all low-income families who are

otherwise eligible for assistance in accordance with

subparagraph (A), (B), or (D) of paragraph (1) on

the date that the project is acquired by the

purchaser, subject to the following requirements:

64a

(A) Requirement of sufficient affordable housing

in area

The Secretary may not take action under this

paragraph unless the Secretary determines that

there is available in the area an adequate supply

of habitable, affordable housing for very low-

income families and other low-income families

using tenant-based assistance.

(B) Limitation for subsidized and formerly

subsidized projects

The Secretary may not take actions under this

paragraph in connection with units in subsidized

or formerly subsidized projects for more than 10

percent of the aggregate number of units in such

projects disposed of by the Secretary in any fiscal

year.

(3) Other assistance

(A) In general

In accordance with the authority provided under

the National Housing Act [12 U.S.C.A. § 1701 et

seq.], the Secretary may provide other assistance

pursuant to subsection (f) of this section to the

owners of multifamily housing projects that are

acquired by a purchaser other than the Secretary

at foreclosure, or after sale by the Secretary, on

terms that ensure that—

(i) at least the units in the project otherwise

required to receive project-based assistance

65a

pursuant to subparagraphs (A), (B), or (D) of

paragraph (1) are available to and affordable by

low-income persons; and

(ii) for the remaining useful life of the project,

as defined by the Secretary, there shall be in

force such use or rent restrictions as the

Secretary may prescribe.

(B) Very low-income tenants

If, as a result of actions taken pursuant to this

paragraph, the rents charged to any very low-

income families residing in the project who are

otherwise required (pursuant to subparagraph

(A), (B), or (D) of paragraph (1)) to receive project-

based assistance under section 8 of the United

States Housing Act of 1937 [42 U.S.C.A. § 1437f]

exceed the amount payable as rent under section

3(a) of the United States Housing Act of 1937 [42

U.S.C.A. § 1437a(a)], the Secretary shall provide

tenant-based assistance under section 8 of such

Act [42 U.S.C.A. § 1437f] to such families.

(f) Discretionary assistance

In addition to the actions required under subsection

(e) of this section for a subsidized, formerly

subsidized, or unsubsidized multifamily housing

project, the Secretary may, pursuant to the

disposition plan and the goals in subsection (a) of

this section, take one or more of the following

actions:

(1) Discounted sales price

66a

In accordance with the authority provided under

the National Housing Act [12 U.S.C.A. § 1701 et

seq.], the Secretary may reduce the selling price of

the project. Such reduced sales price shall be

reasonably related to the intended use of the

property after sale, any rehabilitation

requirements for the project, the rents for units in

the project that can be supported by the market,

the amount of rental assistance available for the

project under section 8 of the United States

Housing Act of 1937 [42 U.S.C.A. § 1437f], the

occupancy profile of the project (including family

size and income levels for tenant families), and any

other factors that the Secretary considers

appropriate.

(2) Use and rent restrictions

The Secretary may require certain units in a

project to be subject to use or rent restrictions

providing that such units will be available to and

affordable by low- and very low-income persons for

the remaining useful life of the property, as defined

by the Secretary.

(3) Short-term loans

The Secretary may provide short-term loans to

facilitate the sale of a multifamily housing project

(A) authority for such loans is provided in

advance in an appropriation Act;

(B) such loan has a term of not more than 5

years;

documentation provided to the Secretary, that

the borrower has obtained a commitment of

permanent financing to replace the short-term

loan from a lender who meets standards

established by the Secretary; and

(D) the terms of such loan are consistent with

prevailing practices in the marketplace or the

provision of such loan results in no cost to the

Government, as defined in section 661a of Title 2.

(4) Up-front grants

If the Secretary determines that action under this

paragraph is more cost-effective than establishing

rents pursuant to subsection (h)(2) of this section,

the Secretary may utilize the budget authority

provided for contracts issued under this section for

project-based assistance under section 8 of the

United States Housing Act of 1937 [42 U.S.C.A. §

1437f] to (in addition to providing project-based

section 8 rental assistance) provide up-front grants

for the necessary cost of rehabilitation and other

related development costs. This paragraph shall be

effective during fiscal years 2006 through 2010

only to the extent that such budget authority is

made available for use under this paragraph in

advance in appropriation Acts.

(5) Tenant-based assistance

The Secretary may make available tenant-based

assistance under section 8 of the United States

68a

Housing Act of 1937 [42 U.S.C.A. § 1437f] to

families residing in a multifamily housing project

that do not otherwise qualify for project-based

assistance.

(6) Alternative uses

(A) In general

Notwithstanding any other provision of law, after

providing notice to and an opportunity for

comment by preexisting tenants, the Secretary

may allow not more than—

(i) 10 percent of the total number of units in

multifamily housing projects that are disposed

of by the Secretary during any fiscal year to be

made available for uses other than rental or

cooperative uses, including low-income

homeownership opportunities, or in any

particular project, community space, office

space for tenant or housing-related service

providers or security programs, or small

business uses, if such uses benefit the tenants

of the project; and

(ii) 5 percent of the total number of units in

multifamily housing projects that are disposed

of by the Secretary during any fiscal year to be

used in any manner, if the Secretary and the

unit of general local government or area-wide

governing body determine that such use will

further fair housing, community development,

or neighborhood revitalization goals.

69a

(B) Displacement protection

The Secretary may take actions under

subparagraph (A) only if—

(i) tenant-based rental assistance under section

8 of the United States Housing Act of 1937 [42

U.S.C.A. § 1437f] is made available to each

eligible family residing in the project that is

displaced as a result of such actions; and

(ii) the Secretary determines that sufficient

habitable, affordable rental housing is available

in the market area in which the project is

located to ensure use of such assistance.

(7) Transfer for use under other programs of

Secretary

(A) In general

Notwithstanding the provisions of subsection (e)

of this section, the Secretary may, pursuant to an

agreement under subparagraph (B), transfer a

multifamily housing project—

(i) to a public housing agency for use of the

project as public housing; or

(ii) to an entity eligible to own or operate

housing assisted under section 1701q of this

title or under section 811 of the Cranston-

Gonzalez National Affordable Housing Act [42

U.S.C.A. § 8013] for use as supportive housing

70a

under either of such sections.

(B) Requirements for agreement

An agreement providing for the transfer of a

project described in subparagraph (A) shall—

(i) contain such terms, conditions, and

limitations as the Secretary determines

appropriate, including requirements to ensure

use of the project as public housing, supportive

housing under section 1701q of this title, or

supportive housing under section 811 of the

Cranston-Gonzalez National Affordable

Housing Act [42 U.S.C.A. § 8013], as applicable;

and

(ii) ensure that no tenant of the project will be

displaced as a result of actions taken under this

paragraph.

(8) Rebuilding

Notwithstanding any provision of section 8 of the

United States Housing Act of 1937 [42 U.S.C.A. §

1437f], the Secretary may provide project-based

assistance in accordance with subsection (e) of this

section to support the rebuilding of a multifamily

housing project rebuilt or to be rebuilt (in whole or

in part and on-site, off-site, or in a combination of

both) in connection with disposition under this

section, if the Secretary determines that—

(A) the project is not being maintained in a

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decent, safe, and sanitary condition;

(B) rebuilding the project would be less expensive

than substantial rehabilitation;

the project is located approves the rebuilding and

makes a financial contribution or other

commitment to the project; and

(D) the rebuilding is a part of a _ local

neighborhood revitalization plan approved by the

unit of general local government.

The provisions of subsection (j)(2) of this section

shall apply to any tenants of the project who are

displaced.

(9) Emergency assistance funds

The Secretary may make arrangements with State

agencies and units of general local government of

States receiving emergency assistance under part

A of title IV of the Social Security Act [42 U.S.C.A.

§ 601 et seq.] for the provision of assistance under

such Act [42 U.S.C.A. § 301 et seq.] on behalf of

eligible families who would reside in any

multifamily housing projects.

(g) Protection for unassisted very low-income tenants

For each multifamily housing project disposed of

under this section, the Secretary shall require that,

for any very low-income family who is a preexisting

tenant of the project who (upon disposition) would be

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required to pay rent in an amount in excess of 30

percent of the adjusted income (as such term is

defined in section 3(b) of the United States Housing

Act of 1937 [42 U.S.C.A. § 1437a(b)]) of the family—

(1) for a period of 2 years beginning upon the date

of the acquisition of the project by the purchaser

under such disposition, the rent for the unit

occupied by the family may not be increased above

the rent charged immediately before acquisition;

(2) such family shall be considered displaced for

purposes of any system of preferences established

pursuant to section 6(c)(4)(A), 8(d)(1)(A), or

8(0)(6)(A) of the United States Housing Act of 1937

[42 U.S.C.A. §§ 1437d(c)(4)(A), 1437£(d)(1)(A), and

1437f(0)(6)(A)]; and

(3) notice shall be provided to such family, not

later than the date of the acquisition of the project

by the purchaser—

(A) of the requirements under paragraphs (1) and

(2); and

(B) that, after the expiration of the period under

paragraph (1), the rent for the unit occupied by

the family may be increased.

(h) Contract requirements

Contracts for project-based rental assistance under

section 8 of the United States Housing Act of 1937

[42 U.S.C.A. § 1437f] provided pursuant to this

section shall be subject to the following

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requirements:

(1) Contract term

The contract shall have a term of 15 years, except

that the term may be less than 15 years—

(A) to the extent that the Secretary finds that,

based on the rental charges and financing for the

multifamily housing project to which the contract

relates, the financial viability of the project can

be maintained under a contract having such a

term; except that the Secretary shall require that

the amount of rent payable by tenants of the

project for units assisted under such contract

shall not exceed the amount payable for rent

under section 3(a) of the United States Housing

Act of 1937 [42 U.S.C.A. § 1437a(a)] for a period

of at least 15 years; or

(B) if such assistance is provided—

(i) under a contract authorized under section 6

of the HUD Demonstration Act of 1993; and

(ii) pursuant to a disposition plan under this

section for a project that is determined by the

Secretary to be otherwise in compliance with

this section.

(2) Contract rent

The Secretary shall establish the contract rents

under such contracts at levels that, together with

other resources available to the purchasers,

provide sufficient amounts for the necessary costs

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of rehabilitating and operating the multifamily

housing project and do not exceed the percentage of

the existing housing fair market rentals for the

market area in which the project assisted under

the contract is located as determined by the

Secretary under section 8(c) of the United States

Housing Act of 1937 [42 U.S.C.A. § 1437f(c)].

(i) Right of first refusal for local and State

government agencies

(1) Notification

Not later than 30 days after the Secretary acquires

title to a multifamily housing project, the Secretary

shall notify the appropriate unit of general local

government (including public housing agencies)

and State agency or agencies designated by the

chief executive officer of the State in which the

project is located of such acquisition of title and

that, for a period beginning upon such notification

that does not exceed 90 days, such unit of general

local government and agency or agencies shall

have the exclusive right under this subsection to

make bona fide offers to purchase the project.

(2) Right of first refusal

During the 90-day period, the Secretary may not

sell or offer to sell the multifamily housing project

other than to a party notified under paragraph (1),

unless the unit of general local government and the

designated State agency or agencies notify the

Secretary that they will not make an offer to

purchase the project. The Secretary shall accept a

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bona fide offer to purchase the project made during

such period if it complies with the terms and

conditions of the disposition plan for the project or

is otherwise acceptable to the Secretary.

(3) Procedure

The Secretary shall establish any procedures

necessary to carry out this subsection.

(j) Displacement of tenants and relocation assistance

(1) In general

Whenever tenants will be displaced as a result of

the demolition of, repairs to, or conversion in the

use of, a multifamily housing project that is owned

by the Secretary (or for which the Secretary is

mortgagee in possession), the Secretary shall

identify tenants who will be displaced, and shall

notify all such tenants of their pending

displacement and of any relocation assistance that

may be available. In the case of a multifamily

housing project that is subject to a mortgage held

by the Secretary, the Secretary shall require the

owner of the project to carry out the requirements

of this paragraph, if the Secretary has authorized

the demolition of, repairs to, or conversion in the

use of such multifamily housing project.

(2) Rights of displaced tenants

The Secretary shall ensure for any such tenant

(who continues to meet applicable qualification

standards) the right—

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(A) to return, whenever possible, to a repaired or

rebuilt unit;

(B) to occupy a unit in another multifamily

housing project owned by the Secretary;

United States Housing Act of 1937 [42 U.S.C.A. §

1437 et seq.}; or

(D) to receive any other available similar

relocation assistance as the Secretary determines

to be appropriate.

(k) Mortgage and project sales

(1) In general

The Secretary may not approve the sale of any loan

or mortgage held by the Secretary (including any

loan or mortgage owned by the Government

National Mortgage Association) on any subsidized

project or formerly subsidized project, unless such

sale is made as part of a transaction that will

ensure that such project will continue to operate at

least until the maturity date of such loan or

mortgage, in a manner that will provide rental

housing on terms at least as advantageous to

existing and future tenants as the terms required

by the program under which the loan or mortgage

was made or insured prior to the assignment of the

loan or mortgage on such project to the Secretary.

(2) Sale of certain projects

The Secretary may not approve the sale of any

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subsidized project—

(A) that is subject to a mortgage held by the

Secretary, or

(B) if the sale transaction involves the provision

of any additional subsidy funds by the Secretary

or a recasting of the mortgage,

unless such sale is made as part of a transaction

that will ensure that the project will continue to

operate, at least until the maturity date of the

loan or mortgage, in a manner that will provide

rental housing on terms at least as advantageous

to existing and future tenants as the terms

required by the program under which the loan or

mortgage was made or insured prior to the

proposed sale of the project.

(3) Mortgage sales to State and local governments

Notwithstanding any provision of law that requires

competitive sales or bidding, the Secretary may

carry out negotiated sales of mortgages held by the

Secretary, without the competitive selection of

purchasers or intermediaries, to units of general

local government or State agencies, or groups of

investors that include at least one such unit of

general local government or State agency, if the

negotiations are conducted with such agencies,

except that—

(A) the terms of any such sale shall include the

agreement of the purchasing agency or unit of

local government or State agency to act as

mortgagee or owner of a beneficial interest in

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such mortgages, in a manner consistent with

maintaining the projects that are subject to such

mortgages for occupancy by the general tenant

group intended to be served by the applicable

mortgage insurance program, including, to the

extent the Secretary determines appropriate,

authorizing such unit of local government or

State agency to enforce the provisions of any

regulatory agreement or other program

requirements applicable to the related projects;

and

(B) the sales prices for such mortgages shall be,

in the determination of the Secretary, the best

prices that may be obtained for such mortgages

from a unit of general local government or State

agency, consistent with the expectation and

intention that the projects financed will be

retained for use under the applicable mortgage

insurance program for the life of the initial

mortgage insurance contract.

(4) Sale of mortgages covering unsubsidized

projects

Notwithstanding any other provision of law, the

Secretary may sell mortgages held on projects that

are not subsidized or formerly subsidized projects

on such terms and conditions as the Secretary may

prescribe.

(5) Mortgage sale demonstration

The Secretary may carry out a demonstration to

test the feasibility of restructuring and disposing of

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troubled multifamily mortgages held by the

Secretary through the establishment of

partnerships with public, private, and nonprofit

entities.

(6) Project sale demonstration

The Secretary may carry out a demonstration to

test the feasibility of disposing of troubled

multifamily housing projects that are owned by the

Secretary through the establishment of

partnerships with public, private, and nonprofit

entities.

(1) Report to Congress

Not later than June 1 of each year, the Secretary

shall submit to the Vongress a report describing the

status of multifamily housing projects owned by or

subject to mortgages held by the Secretary, on an

aggregate basis, which highlights the differences, if

any, between the subsidized and the unsubsidized

inventory. The report shall include—

(1) the average and median size of the projects;

(2) the geographic locations of the projects, by

State and region;

(3) the years during which projects were assigned

to the Department, and the average and median

length of time that projects remain in the HUD-

held inventory;

(4) the status of HUD-held mortgages;

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(5) the physical condition of the HUD-held and

HUD-owned inventory;

(6) the occupancy profile of the projects, including

the income, family size, race, and ethnic origin of

current tenants, and the rents paid by such

tenants;

(7) the proportion of units that are vacant;

(8) the number of projects for which the Secretary

is mortgagee in possession;

(9) the number of projects sold in foreclosure sales;

(10) the number of HUD-owned projects sold;

(11) a description of actions undertaken pursuant

to this section, including a description of the

effectiveness of such actions and any impediments

to the disposition or management of multifamily

housing projects;

(12) a description of the extent to which the

provisions of this section and actions taken under

this section have displaced tenants of multifamily

housing projects;

(13) a description of any of the functions performed

in connection with this section that are contracted

out to public or private entities or to States; and

(14) a description of the activities carried out

under subsection (i) of this section during the

preceding year.

8la

APPENDIX H - 12 U.S.C. § 171517

§ 17151. Housing for moderate income

and displaced families

(a) Purpose

This section is designed to assist private industry in

providing housing for low and moderate income

families and displaced families.

(b) Authorization

The Secretary is authorized, upon application by the

mortgagee, to insure under this section as

hereinafter provided any mortgage (including

advances during construction on mortgages covering

property of the character described in paragraphs (3)

and (4) of subsection (d) of this section) which is

eligible for insurance as provided herein and, upon

such terms and conditions as the Secretary may

prescribe, to make commitments for the insurance of

such mortgages prior to the date of their execution or

disbursement thereon.

As used in this section, the terms “mortgage”, “first

“mortgage”, “mortgagee”, “mortgagor”, “maturity

date” and “State” shall have the same meaning as in

section 1707 of this title.

(d) Eligibility for insurance; conditions; limits

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To be eligible for insurance under this section, a

mortgage shall—

(1) have been made to and be held by a mortgagee

approved by the Secretary as responsible and able

to service the mortgage properly;

(2) be secured by property upon which there is

located a dwelling conforming to applicable

standards prescribed by the Secretary under

subsection (f) of this section, and meeting the

requirements of all State laws, or local ordinances

or regulations, relating to the public health or

safety, zoning, or otherwise, which may be

applicable thereto, and shall involve a principal

obligation (including such initial service charges,

appraisal, inspection, and other fees as_ the

Secretary shall approve) in an amount (A) not to

exceed (i) $31,000 (or $36,006, if the mortgagor’s

family includes five or more persons) in the case of

a property upon which there is located a dwelling

designed principally for a single-family residence,

(ii) $35,000 in the case of a property upon which

there is located a dwelling designed principally for

a two-family residence, (iii) $48,600 in the case of a

property upon which there is located a dwelling

designed principally for a three-family residence,

or (iv) $59,400 in the case of a property upon which

there is located a dwelling designed principally for

a four-family residence, except that the Secretary

may increase the foregoing amounts to not to

exceed $36,000 (or $42,000 if the mortgagor’s

family includes five or more persons), $45,000,

$57,600, and $68,400, respectively, in any

geographical area where he finds that cost levels so

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require; and (B) not to exceed the appraised value

of the property (as of the date the mortgage is

accepted for insurance): Provided, That (i)(1) in the

case of a displaced family, he shall have paid on

account of the property at least $200 in the case of

a single-family dwelling, $400 in the case of a two-

family dwelling, $600 in the case of a three-family

dwelling, and $800 in the case of a four-family

dwelling, or (2) in the case of any other family, he

shall have paid on account of the property at least

3 per centum of the Secretary's estimate of its

acquisition cost (excluding the mortgage insurance

premium paid at the time the mortgage is insured),

in cash or its equivalent; which amount in either

instance may include amounts to cover settlement

costs and initial payments for taxes, hazard

insurance, and other prepaid expenses; or (ii) in

the case of repair and rehabilitation, the amount of

the mortgage shall not exceed the sum of the

estimated cost of repair and rehabilitation and the

Secretary’s estimate of the value of the property

before repair and rehabilitation, except that in no

case involving refinancing shall such mortgage

exceed such estimated cost of repair and

rehabilitation and the amount (as determined by

the Secretary) required to refinance existing

indebtedness secured by the property: Provided:

further, That the mortgagor shall to the maximum

extent feasible be given the opportunity to

contribute the value of his labor as equity in such

dwelling; or

(3) if executed by a mortgagor which is a public

body or agency (and, except with respect to a

project assisted or to be assisted pursuant to

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section 8 of the United States Housing Act of 1937

[42 U.S.C.A. § 1437f], which certifies that it is not

receiving financial assistance from the United

States exclusively pursuant to such Act [42

U.S.C.A. § 1437 et seq.]), a cooperative (including

an investor-sponsor who meets such requirements

as the Secretary may impose to assure that the

consumer interest is protected), or a_ limited -

dividend corporation (as defined by the Secretary),

or a private nonprofit corporation or association, or

other mortgagor approved by the Secretary, and

regulated or supervised under Federal or State

laws or by political subdivisions of States, or

agencies thereof, or by the Secretary under a

regulatory agreement or otherwise, as to rents,

charges, and methods of operation, in such form

and in such manner as in the opinion of the

Secretary will effectuate the purposes of this

section—

(i) Repealed. Pub.L. 93-383, Title III, § 304(e)(1),

Aug. 22, 1974, 88 Stat. 678

(ii)() not exceed, for such part of the property or

project as may be attributable to dwelling use

(excluding exterior land improvements as defined

by the Secretary), $42,048 per family unit

without a bedroom, $48,481 per family unit with

one bedroom, 58,469 per family unit with two

bedrooms, $74,840 per family unit with three

bedrooms, and $83,375 per family unit with four

or more bedrooms; except that as to projects to

consist of elevator-type structures the Secretary

may, in his discretion, increase the dollar amount

limitations per family unit to not to exceed

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$44,250 per family unit without a bedroom,

$50,724 per family unit with one bedroom,

$61,680 per family unit with two bedrooms,

$79,793 per family unit with three bedrooms, and

$87,588 per family unit with four or more

bedrooms, as the case may be, to compensate for

the higher costs incident to the construction of

elevator-type structures of sound standards of

construction and design; (II) the Secretary may,

by regulation, increase any of the dollar amount

limitations in subclause (I) (as such limitations

may have been adjusted in accordance with

section 1712a of this title) by not to exceed 170

percent in any geographical area where the

Secretary finds that cost levels so require and by

not to exceed 170 percent, or 215 percent in high

cost areas, where the Secretary determines it

necessary on a project-by-project basis, but in no

case may any such increase exceed 90 percent

where the Secretary determines that a mortgage

purchased or to be purchased by the Government

National Mortgage Association in implementing

its special assistance functions under section

1720 of this title (as such section existed

immediately before November 30, 1983) is

involved; and

(iii) mot exceed (1) in the case of new

construction, the amount which the Secretary

estimates will be the replacement cost of the

property or project when the _ proposed

improvements are completed (the replacement

cost may include the land, the proposed physical

improvements, utilities within the boundaries of

the land, architect’s fees, taxes, interest during

86a

construction, and other miscellaneous charges

incident to construction and approved by the

Secretary), or (2) in the case of repair and

rehabilitation, the sum of the estimated cost of

repair and rehabilitation and the Secretary’s

estimate of the value of the property before repair

and rehabilitation: Provided, i‘hat the mortgage

may involve the financing of the purchase of

property which has been rehabilitated by a local

public agency with Federal assistance pursuant

to section 110(c)(8) of the Housing Act of 1949,

and, in such case, the amount of the mortgage

shall not exceed the appraised value of the

property as of the date the mortgage is accepted

for insurance: Provided further, That in the case

of any mortgagor other than a_ nonprofit

corporation or association, cooperative (including

an investor-sponsor), or public body, or a

mortgagor meeting the special requirements of

subsection (e)(1) of this section, the amount of the

mortgage shall not exceed 90 per centum of the

amount otherwise authorized under this section:

Provided further, That such property or project,

when constructed, or repaired and rehabilitated,

shall be for use as a rental or cooperative project,

and low and moderate income families or

displaced families shall be eligible for occupancy

in accordance with such regulations and

procedures as may be prescribed by the Secretary

and the Secretary may adopt such requirements

as he determines to be desirable regarding

consultation with local public officials where such

consultation is appropriate by reason of the

relationship of such project to projects under

other local programs; or

87a

(4) if executed by a mortgagor and which is

approved by the Secretary—

(i) Repealed. Pub. L. 93-383, Title III, § 304(e)(2),

Aug. 22, 1974, 88 Stat. 678.

(ii)(1) not exceed, for such part of the property or

project as may be attributable to dwelling use

(excluding exterior land improvements as defined

by the Secretary), $37,843 per family unit

without a bedroom, $42,954 per family unit with

one bedroom, $51,920 per family unit with two

bedrooms, $65,169 per family unit with three

bedrooms, and $73,846 per family unit with four

or more bedrooms; except that as to projects to

consist of elevator-type structures the Secretary

may, in his discretion, increase the dollar amount

limitations per family unit to not to exceed

$40,876 per family unit without a bedroom,

$46,859 per family unit with one bedroom,

$56,979 per family unit with two bedrooms,

$73,710 per family unit with three bedrooms, and

$80,913 per family unit with four or more

bedrooms, as the case may be, to compensate for

the higher costs incident to the construction of

elevator-type structures of sound standards of

construction and design; (II) the Secretary may,

by regulation, increase any of the dollar

limitations in subclause (I) (as such limitations

may have been adjusted in accordance with

section 1712a of this title) by not to exceed 170

percent in any geographical area where the

Secretary finds that cost levels so require and by

not to exceed 170 percent, or 215 percent in high

cost areas, where the Secretary determines it

88a

necessary on a project-by-project basis, but in no

case may any such increase exceed 90 percent

where the Secretary determines that a mortgage

purchased or to be purchased by the Government

National Mortgage Association in implementing

its special assistance functions under section

1720 of this title (as such section existed

immediately before November 30, 1983) is

involved;

(iii) not exceed (in the case of a property or

project approved for mortgage insurance prior to

the beginning of construction) 90 per centum of

the amount which the Secretary estimates will be

the replacement cost of the property or project

when the proposed improvements are completed

(the replacement cost may include the land, the

proposed physical improvements, utilities within

the boundaries of the land, architect’s fees, taxes,

interest during construction, and _ other

miscellaneous charges incident to construction

and approved by the Secretary, and shall include

an allowance for builder’s and sponsor’s profit

and risk of 10 per centum of all of the foregoing

items, except the land, unless the Secretary, after

certification that such allowance is unreasonable,

shall by regulation prescribe a lesser percentage);

and

(iv) not exceed 90 per centum of the sum of the

estimated cost of repair and rehabilitation

(including the cost of evaluating and reducing

lead-based paint hazards, as such terms are

defined in section 4851b of Title 42) and the

Secretary's estimate of the value of the property

89a

before repair and rehabilitation if the proceeds of

the mortgage are to be used for the repair and

rehabilitation of a property or project: Provided,

That the Secretary may, in his discretion, require

the mortgagor to be regulated or restricted as to

rents or sales, charges, capital structure, rate of

return, and methods of operation, and for such

purpose the Secretary may make such contracts

with and acquire for not to exceed $100 such

stock or interest in any such mortgagor as the

Secretary may deem necessary to render effective

such restrictions or regulations, with such stock

or interest being paid for out of the General

Insurance Fund and being required to be

redeemed by the mortgagor at par upon the

termination of all obligations of the Secretary

under the insurance;

(5) bear interest at such rate as may be agreed

upon by the mortgagor and the mortgagee; and

contain such terms and provisions with respect to

the application of the mortgagor’s periodic payment

to amortization of the principal of the mortgage,

insurance, repairs, alterations, payment of taxes,

default reserves, delinquency charges, foreclosure

proceedings, anticipation of maturity, additional

and secondary liens, and other matters as the

Secretary may in his discretion prescribe:

Provided, That a mortgage insured under the

provisions of subsection (d)(3) of this section shall

bear interest (exclusive of any premium charges for

insurance and service charge, if any) at not less

than the lower of (A) 3 per centum per annum, or

(B) the annual rate of interest determined, from

time to time by the Secretary of the Treasury at

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the request of the Secretary, by estimating the

average market yield to maturity on all

outstanding marketable obligations of the United

States, and by adjusting such yield to the nearest

one-eighth of 1 per centum, and there shall be no

differentiation in the rate of interest charged under

this proviso as between mortgagors under

subsection (d)(8) of this section on the basis of

differences in the types or classes of such

mortgagors; and

(6) provide for complete amortization by periodic

payments (unless otherwise approved by the

Secretary) within such terms as the Secretary may

prescribe, but as to mortgages coming within the

provisions of subsection (d)(2) of this section not to

exceed from the date of the beginning of

amortization of the mortgage (i) 40 years in the

case of a displaced family, (ii) 35 years in the case

of any other family if the mortgage is approved for

insurance prior to construction, except that the

period in such case may be increased to not more

than 40 years where the mortgagor is not able, as

determined by the Secretary, to make the required

payments under a mortgage having a shorter

amortization period, and (iii) 30 years in the case of

any other family where the mortgage is not

approved for insurance prior to construction.

(e) “Mortgagor” defined; release of mortgagor or part

of property

(1) A mortgagor which may be approved by the

Secretary as provided in subsection (d)(3) of this

section includes a mortgagor which, as a condition of

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obtaining insurance of the mortgage and prior to the

submission of its application for such insurance, has

entered into an agreement (in form and substance

satisfactory to the Secretary) with a private

nonprofit corporation eligible for an insured

mortgage under the provisions of subsection (d)(3) of

this section, that the mortgagor will sell the project

when it is completed to the corporation at the actual

cost of the project, as certified pursuant to section

1715r of this title. The mortgagor to whom the

property is sold shall be regulated or supervised by

the Secretary as provided in subsection (d)(3) of this

section to effectuate its purposes.

(2) The Secretary may at any time, under such

terms and conditions as he may prescribe, consent to

the release of the mortgagor from his liability under

the mortgage or the credit instrument secured

thereby, or consent to the release of parts of the

mortgaged property from the lien of the mortgage.

(f) Compliance with standards; nondwelling facilities

in projects in urban renewal areas; number of family

units; premium charges; housing for low-income

purchasers; expiration of mortgage insurance

authority; “family” defined; single occupants in

subsection (d)(3) housing; use of certain housing

facilities for classroom purposes; return of advances

for capital improvements

The property or project shall comply with such

standards and conditions as the Secretary may

prescribe to establish the acceptability of such

property for mortgage insurance and may include

such commercial and community facilities as the

92a

Secretary deems adequate to serve the occupants:

Provided, That in the case of any such property or

project located in an urban renewal area, the

provisions of section 1715k(d)(8)(B)(iv) of this title

shall apply with respect to the nondwelling facilities

which may be included in the mortgage: Provided

further, That, in the case of a mortgage which bears

interest at the below-market interest rate prescribed

in the proviso of subsection (d)(5) of this section, the

provisions of section 1715k(d)(3)(B)(iv) of this title

shall only apply if the mortgagor waives the right to

receive dividends on its equity investment in the

portion thereof devoted to commercial facilities.

A property or project covered by a mortgage insured

under the provisions of subsection (d)(3) or (d)(4) of

this section shall include five or more family units:

Provided, That such units, in the case of a project

designed primarily for occupancy by displaced,

elderly, or handicapped families, need not, with the

approval of the Secretary, contain kitchen facilities,

and such projects may include central dining and

other shared facilities. The Secretary is authorized

to adopt such procedures and requirements as he

determines are desirable to assure that the dwelling

accommodations provided under this section are

available to displaced families. Notwithstanding any

provision of this chapter, the Secretary, in order to

assist further the provision of housing for low and

moderate income families, in his discretion and

under such conditions as he may prescribe, may

insure a mortgage which meets the requirements of

subsection (d)(3) of this section as in effect after June

30, 1961, or which meets the requirements of

subsection (h), (i), or () of this section, with no

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premium charge, with a reduced premium charge, or

with a premium charge for such period or periods

during the time the insurance is in effect as the

Secretary may determine, and there is authorized to

be appropriated, out of any money in the Treasury

not otherwise appropriated, such amounts as may be

necessary to reimburse the General Insurance Fund

for any net losses in connection with such insurance.

Any person who is sixty-two years of age or over, or

who is a handicapped person within the meaning of

section 1701iq of this title, or who is a displaced

person, shall be deemed to be a family within the

meaning of the terms “family” and “families” as

those terms are used in this section. Low- and

moderate-income persons who are less than 62 years

of age shall be eligible for occupancy of dwelling

units in a project financed with a mortgage insured

under subsection (d)(3) of this section. In any case in

which it is determined in accordance with

regulations of the Secretary that facilities in

existence or under construction on December 31,

1970, which could appropriately be used for

classroom purposes are available in any such

property or project and that public schools in the

community are overcrowded due in part to the

attendance at such schools of residents of the

property or project, such facilities may be used for

such purposes to the extent permitted in such

regulations (without being subject to any of the

requirements of the proviso’ in _ section

1715k(d)(3)(B)(iv) of this title except the requirement

that the project be predominantly residential).

94a

As used in this section the terms “displaced family’,

“displaced families”, and “displaced person” shall

mean a family or families, or a person, displaced

from an urban renewal area, or as a result of

governmental action, or as a result of a major

disaster as determined by the President pursuant to

the Disaster Relief and Emergency Assistance Act

[42 U.S.C.A. § 5121 et seq.]

In order to induce advances by owners for capital

improvements (excluding any owner contributions

that may be required by the Secretary as a condition

for assistance under section 201 of the Housing and

Community Development Amendments of 1978) to

benefit projects covered by a mortgage under the

provisions of subsection (d)(3) of this section that

bears a below market interest rate prescribed in the

proviso to subsection (d)(5) of this section, in

establishing the rental charge for the project the

Secretary may include an amount that would permit

a return of such advances with interest to the owner

out of project income, on such terms and conditions

as the Secretary may determine. Any resulting

increase in rent contributions shall be—

(A) to a level not exceeding the lower of 30 percent

of the adjusted income of the tenant or the

published existing fair market rent for comparable

housing established under section 8(c) of the

United States Housing Act of 1937 [42 U.S.C.A. §

1437f];

(B) phased in equally over a period of not less than

3 years, if such increase is 30 percent or more; and

95a

such increase is more than 10 percent but less than

30 percent.

Assistance under section 8 of the United States

Housing Act of 1937 [42 U.S.C.A. § 1437f] shall be

provided, to the extent available under

appropriations Acts, if necessary to mitigate any

adverse effects on income-eligible tenants.

(g) Entitlement of mortgagee to benefits;

applicability of other provisions; debentures; “going

Federal rate” defined; transfer of original credit

instrument

The mortgagee shall be entitled to receive the

benefits of the insurance as hereinafter provided—

(1) as to mortgages meeting the requirements of

paragraph (2) of subsection (d) of this section,

paragraph (5) of subsection (h) of this section, or

paragraph (2) of subsection (i) of this section, as

provided in section 1710(a) of this title with respect

to mortgages insured under section 1709 of this

title, and the provisions of subsections (b), (c), (d),

(e), (), (g), (h), G), and (k) of section 1710 of this

title shall be applicable to. such mortgages insured

under this section, except that all references

therein to the Mutual Mortgage Insurance Fund or

the Fund shall be construed to refer to the General

Insurance Fund and all references therein to

section 1709 of this title shall be construed to refer

to this section; or

96a

(2) as to mortgages meeting the requirements of

paragraph (3) or (4) of subsection (d) of this section,

paragraph (1) of subsection (h) of this section, or

paragraph (2) of subsection (j) of this section, as

provided in section 1713(g) of this title with respect

to mortgages insured under said section 1713, and

the provisions of subsections (h), (i), @), (k), and (1)

of section 1713 of this title shall be applicable to

such mortgages insured under this section; or

(3) as to mortgages meeting the requirements of

this section which are insured or initially endorsed

for insurance on or after June 30, 1961,

notwithstanding the provisions of paragraphs (1)

and (2) of this subsection, the Secretary in his

discretion, in accordance with such regulations as

he may prescribe, may make payments pursuant to

such paragraphs in cash or in debentures (as

provided in the mortgage insurance contract), or

may acquire a mortgage loan that is in default and

the security therefor upon payment to the

mortgagee in cash or in debentures (as provided in

the mortgage insurance contract) of a total amount

equal to the unpaid principal balance of the loan

plus any accrued interest and any advances

approved by the Secretary and made previously by

the mortgagee under the provisions of the

mortgage, and after the acquisition of any such

mortgage by the Secretary the mortgagee shall

have no further rights, liabilities, or obligations

with respect to the loan or the security for the loan.

The appropriate provisions of sections 1710 and

1713 of this title relating to the issuance of

debentures shall apply with respect to debentures

issued under this paragraph, and the appropriate

97a

provisions of sections 1710 and 1713 of this title

relating to the rights, liabilities, and obligations of

a mortgagee shall apply with respect to the

Secretary when he has acquired an insured

mortgage under this paragraph, in accordance with

and subject to regulations (modifying such

provisions to the extent necessary to render their

application for such purposes appropriate and

effective) which shall be prescribed by the

Secretary, except that as applied to mortgages so

acquired (A) all references in section 1710 of this

title to the Mutual Mortgage Insurance Fund or

the Fund shall be construed to refer to the General

Insurance Fund, and (B) all references in section

1710 of this title to section 1709 of this title shall

be construed to refer to this section. If the

insurance is paid in cash, there shall be added to

such payment an amount equivalent to the interest

which the debentures would have’ earned,

computed to a date to be established pursuant to

regulations issued by the Secretary.

(4)(A) in the event any mortgage insured under

this section pursuant to a commitment to insure

entered into before November 30, 1983, is not in

default at the expiration of twenty years from the

date the mortgage was endorsed for insurance, the

mortgagee shall, within a period thereafter to be

determined by the Secretary, have the option to

assign, transfer, and deliver to the Secretary the

original credit instrument and the mortgage

securing the same and receive the benefits of the

insurance as_ hereinafter provided in _ this

paragraph, upon compliance with such

requirements and conditions as to the validity of

98a

the mortgage as a first lien and such other matters

as may be prescribed by the Secretary at the time

the loan is endorsed for insurance. Upon such

assignment, transfer, and delivery the obligation of

the mortgagee to pay the premium charges for

insurance shall cease, and the Secretary shall issue

to the mortgagee debentures having a par value

equal to the amount of the original principal

obligation of the mortgage which was unpaid on

the date of the assignment, plus accrued interest to

such date. Debentures issued pursuant to this

paragraph shall be issued in the same manner and

subject to the same terms and conditions as

debentures issued under paragraph (1) of this

subsection, except that the debentures issued

pursuant to this paragraph shall be dated as of the

date the mortgage is assigned to the Secretary,

shall mature ten years after such date, and shall

bear interest from such date at the going Federal

rate determined at the time of issuance. The term

“going Federal rate” as used herein means the

annual rate of interest which the Secretary of the

Treasury shall specify as applicable to the six-

month period (consisting of January through June

or July through December) which includes the

issuance date of such debentures, which applicable

rate for each such six-month period shall be

determined by the Secretary of the Treasury by

estimating the average yield to maturity, on the

basis of daily closing market bid quotations or

prices during the month of May or the month of

November, as the case may be, next preceding such

six-month period, on all outstanding marketable

obligations of the United States having a maturity

date of eight to twelve years from the first day of

99a

such month of May or November (or, if no such

obligations are outstanding, the obligation next

shorter than eight years and the obligation next

longer than twelve years, respectively, shall be

used), and by adjusting such estimated average

annual yield to the nearest one-eight of 1 per

centum. The Secretary shall have the same

authority with respect to mortgages assigned to

him under this paragraph as contained in sections

1713(k) and 1713() of this title as to mortgages

insured by the Secretary and assigned to him

under section 1713 of this title.

(B) In processing a claim for insurance benefits

under this paragraph, the Secretary may direct the

mortgagee to assign, transfer, and deliver the

original credit instrument and the mortgage

securing it directly to the Government National

Mortgage Association in lieu of assigning,

transferring, and delivering the credit instrument

and the mortgage to the Secretary. Upon the

assignment, transfer, and delivery of the credit

instrument and the mortgage to the Association,

the mortgage insurance contract shall terminate

and the mortgagee shall receive insurance benefits

as provided in subparagraph (A). The Association

is authorized to accept such loan documents in its

own name and to hold, service, and sell such loans

as agent for the Secretary. The mortgagor’s

obligation to pay a service charge in lieu of a

mortgage insurance premium shall continue as

long as the mortgage is held by the Association or

by the Secretary. The Secretary shall have the

same authority with respect to mortgages assigned

to the Secretary or the Association under this

100a

subparagraph as provided by section 1715n(c) of

this title.

(C)(i) In lieu of accepting assignment of the

original credit instrument and the mortgage

securing the credit instrument under

subparagraph (A) in exchange for receipt of

debentures, the Secretary shall arrange for the sale

of the beneficial interests in the mortgage loan

through an auction and sale of the (I) mortgage

loans, or (II) participation certificates, or other

mortgage-backed obligations in a form acceptable

to the Secretary (in this subparagraph referred to

as “participation certificates”). The Secretary shall

arrange the auction and sale at a price, to be paid

to the mortgagee, of par plus accrued interest to

the date of sale. The sale price shall also include

the right to a subsidy payment described in clause

(iii).

(ii)@) The Secretary shall conduct a public auction

to determine the lowest interest rate necessary to

accomplish a sale of the beneficial interests in the

original credit instrument and mortgage securing

the credit instrument.

(II) A mortgagee who elects to assign a mortgage

shall provide the Secretary and persons bidding at

the auction a description of the characteristics of

the original credit instrument and mortgage

securing the original credit instrument, which

shall include the principal mortgage balance,

original stated interest rate, service fees, real

estate and tenant characteristics, the level and

duration of applicable Federal subsidies, and any

10la

other information determined by the Secretary to

be appropriate. The Secretary shall also provide

information regarding the status of the property

with respect to the provisions of the Emergency

Low Income Housing Preservation Act of 1987 or

any subsequent Act with respect to eligibility to

prepay the mortgage, a statement of whether the

owner has filed a notice of intent to prepay or a

plan of action under the Emergency Low Income

Housing Preservation Act of 1987 or any

subsequent Act, and the details with respect to

incentives provided under the Emergency Low

Income Housing Preservation Act of 1987 or any

subsequent Act in lieu of exercising prepayment

rights.

(III) The Secretary shall, upon receipt of the

information in subclause (1]), promptly advertise

for an auction and publish such mortgage

descriptions in advance of the auction. The

Secretary may conduct the auction at any time

during the 6-month period beginning upon receipt

of the information in subclause (IJ) but under no

circumstances may the Secretary conduct an

auction before 2 months after receiving the

mortgagee’s written notice of intent to assign its

mortgage to the Secretary.

(TV) In any auction under this subparagraph, the

Secretary shall accept the lowest interest rate bid

for purchase that the Secretary determines to be

acceptable. The Secretary shall cause the accepted

bid to be published in the Federal Register.

Settlement for the sale of the credit instrument

and the mortgage securing the credit instrument

102a

shall occur not later than 30 business days after

the date winning bidders are selected in the

auction, unless the Secretary determines that

extraordinary circumstances require an extension

(not to exceed 60 days) of the period.

(V) If no bids are received, the bids that are

received are not acceptable to the Secretary, or

settlement does not occur within the period under

subclause (IV), the mortgagee shall retain all

rights (including the right to interest, at a rate to

be determined by the Secretary, for the period

covering any actions taken under this

subparagraph) under this section to assign the

mortgage loan to the Secretary.

(iii) As part of the auction process, the Secretary

shall agree to provide a monthly interest subsidy

payment from the General Insurance Fund to the

purchaser under the auction of the original credit

instrument or the mortgage securing the credit

instrument (and any subsequent holders or assigns

who are approved mortgagees). The subsidy

payment shall be paid on the first day of each

month in an amount equal to the difference

between the stated interest due on the mortgage

loan and the lowest interest rate necessary to

accomplish a sale of the mortgage loan or

participation certificates (less the servicing fee, if

appropriate) for the then unpaid principal balance

plus accrued interest at a rate determined by the

Secretary. Each interest subsidy payment shall be

treated by the holder of the mortgage as interest

paid on the mortgage. The interest subsidy

payment shall be provided until the earlier of—

103a

(I) the maturity date of the loan;

(II) prepayment of the mortgage loan in

accordance with the Emergency Low Income

Housing Preservation Act of 1987 or any

subsequent Act, where applicable; or

(III) default and full payment of insurance

benefits on the mortgage loan by the Federal

Housing Administration.

(iv) The Secretary shall require that the mortgage

loans or participation certificates presented for

assignment are auctioned as whole loans with

servicing rights released and also are auctioned

with servicing rights retained by the current

servicer.

(v) To the extent practicable, the Secretary shall

encourage State housing finance agencies,

nonprofit organizations, and organizations

representing the tenants of the property securing

the mortgage, or a qualified mortgagee

participating in a plan of action under the

Emergency Low Income Housing Preservation Act

of 1987 or subsequent Act to participate in the

auction.

(vi) The Secretary shall implement the

requirements imposed by this subparagraph within

30 days from November 5, 1990, and not be subject

to the requirement of prior issuance of regulations

in the Federal Register. The Secretary shall issue

regulations implementing this section within 6

months of November 5, 1990.

104a

(vii) Nothing in this subparagraph shall diminish

or impair the low income use _ restrictions

applicable to the project under the original

regulatory agreement or the revised agreement

entered into pursuant to the Emergency Low

Income Housing Preservation Act of 1987 or

subsequent Act, if any, or other agreements for the

provision of Federal assistance to the housing or its

tenants.

(viii) This subparagraph shall not apply after

December 31, 2002, except that this subparagraph

shall continue to apply if the Secretary receives a

mortgagee’s written notice of intent to assign its

mortgage to the Secretary on or before such date.

Not later than January 31 of each year (beginning

in 1992), the Secretary shall submit to the

Congress a report including statements of the

number of mortgages auctioned and sold and their

value, the amount of subsidies committed to the

program under this subparagraph, the ability of

the Secretary to coordinate the program with the

incentives provided under the Emergency Low

Income Housing Preservation Act of 1987 or

subsequent Act, and the costs and benefits derived

from the program for the Federal Government.

(ix) The authority of the Secretary to conduct

multifamily auctions under this paragraph shall be

effective for any fiscal year only to the extent and

in such amounts as are approved in appropriations

Acts for the costs of loan guarantees (as defined in

section 661la of Title 2), including the cost of

modifying loans.

105a

(h) Insurance of mortgages to finance purchase and

rehabilitation by nonprofit organizations of housing

for resale to low-income purchasers, and insurance of

mortgages executed for the purpose of financing

rehabilitation or improvement of dwellings owned

and occupied by mortgagors who purchased from

nonprofit organizations

(1) In addition to mortgages insured under the other

provisions of this section, the Secretary is

authorized, upon application by the mortgagee, to

insure under this subsection as hereinafter provided

any mortgage (including advances under such

mortgage during rehabilitation) which is executed by

a nonprofit organization to finance the purchase and

rehabilitation of deteriorating or substandard

housing for subsequent resale to low-income home

purchasers and, upon such terms and conditions as

the Secretary may prescribe, to make commitments

for the insurance of such mortgages prior to the date

of their execution or disbursement thereon.

(2) To be eligible for insurance under paragraph (1)

of this subsection, a mortgage shall—

(A) be executed by a private nonprofit corporation

or association, approved by the Secretary, for

financing the purchase and rehabilitation (with the

intention of subsequent resale) of property

comprising one or more tracts or parcels, whether

or not contiguous, upon which there is located

deteriorating or substandard housing consisting of

(i) four or more single-family dwellings of detached,

semidetached, or row construction, or (ii) four or

more one-family units in a structure or structures

106a

for which a plan of family unit ownership approved

by the Secretary is established;

(B) be secured by the property which is to be

purchased and rehabilitated with the proceeds

thereof;

appraised value of the property at the time of its

purchase under the mortgage plus the estimated

cost of the rehabilitation;

(D) bear interest (exclusive of premium charges for

insurance and service charge, if any) at the rate in

effect under the proviso in subsection (d)(5) of this

section at the time of execution;

(E) provide for complete amortization (subject to

paragraph (5)(E)) by periodic payments within

such term as the Secretary may prescribe; and

(F) provide for the release of individual single-

family dwellings from the lien of the mortgage

upon the sale of the rehabilitated dwellings in

accordance with paragraph (5).

(3) No mortgage shall be insured under paragraph

(1) unless the mortgagor shall have demonstrated to

the satisfaction of the Secretary that (A) the

property to be rehabilitated is located in a

neighborhood which is sufficiently stable and

contains sufficient public facilities and amenities to

support long-term values, or (B) the rehabilitation to

be carried out by the mortgagor plus its related

activities and the activities of other owners of

107a

housing in the neighborhood, together with actions

to be taken by public authorities, will be of such

scope and quality as to give reasonable promise that

a stable environment will be created in the

neighborhood.

(4) The aggregate principal balance of all mortgages

insured under paragraph (1) and outstanding at any

one time shall not exceed $50,000,000.

(5)(A) No mortgage shall be insured under

paragraph (1) unless the mortgagor enters into an

agreement (in form and substance satisfactory to the

Secretary) that it will offer to sell the dwellings

involved, upon completion of their rehabilitation, to

individuals or families (hereinafter referred to as

“low-income purchasers”) determined by the

Secretary to have incomes below the maximum

amount specified (with respect to the area involved)

in section 1701s(c)(1) of this title.

(B) The Secretary is authorized to insure under this

paragraph mortgages executed to finance the sale of

individual dwellings to low-income purchasers as

provided in subparagraph (A). Any such mortgage

shall—

(i) be in a principal amount equal to that portion of

the unpaid balance of the principal mortgage

covering the property (insured under paragraph

(1)) which is allocable to the individual dwelling

involved; and

108a

(ii) bear interest at the same rate as the principal

mortgage or such lower rate, not less than 1 per

centum, as the Secretary may prescribe if in his

judgment the purchaser’s income is sufficiently low

to justify the lower rate, and provide for complete

amortization within a term equal to the remaining

term (determined without regard to subparagraph

(E)) of such principal mortgage: Provided, That, if

the rate of interest initially prescribed is less than

the rate borne by the principal mortgage and the

purchaser’s income (as determined on the basis of

periodic review) subsequently rises, the rate of

interest so prescribed shall be increased (but not

above the rate borne by such principal mortgage),

under regulations of the Secretary, to the extent

appropriate to reflect the increase in such income,

and the mortgage shall so provide.

sold to a low-income purchaser under this paragraph

shall be the amount of the mortgage covering the

sale as determined under subparagraph (B), except

that the purchaser shall in addition thereto be

required to pay on account of the property at the

time of purchase such amount (which shall not be

less than $200, but which may be applied in whole or

in part toward closing costs) as the Secretary may

determine to be reasonable and appropriate in the

circumstances.

(D) Upon the sale under this paragraph of any

individual dwelling, such dwelling shall be released

from the lien of the principal mortgage, and such

mortgage shall thereupon be replaced by an

individual mortgage insured under this paragraph to

109a

the extent of the portion of its unpaid balance which

is allocable to the dwelling covered by such

individual mortgage. Until all of the individual

dwellings in the property covered by the principal

mortgage have been sold, the mortgagor shall hold

and operate the dwellings remaining unsold at any

given time as though they constituted rental units in

a project covered by a mortgage which is insured

under subsection (d)(3) of this section (and which

receives the benefits of the interest rate provided for

in the proviso in subsection (d)(5) of this section).

(E) Upon the sale under this paragraph of all of the

individual dwellings in the property covered by the

principal mortgage, and the release of all individual

dwellings from the lien of the principal mortgage,

the insurance of the principal mortgage shall be

terminated and no adjusted premium charge shall be

charged by the Secretary upon such termination.

(F) Any mortgage insured under this paragraph

shall contain a provision that if the low-income

mortgagor does not continue to occupy the property

the interest rate shall increase to the highest rate

permissible under this section and the regulations of

the Secretary effective at the time of commitment for

insurance of the principal mortgage; except that the

increase in interest rate shall not be applicable if the

property is sold and the purchaser is (i) the nonprofit

organization which executed the principal mortgage,

(ii) a public housing agency having jurisdiction

under the United States Housing Act of 1937 [42

U.S.C.A. § 1437 et seq.] over the area where the

dwelling is located, or (iii) a low-income purchaser

110a

approved for the purposes of this paragraph by the

Secretary.

(6) In addition to the mortgages that may be insured

under paragraphs (1) and (5), the Secretary is

authorized to insure under this subsection at any

time within one year after August 1, 1968, upon such

terms and conditions as he may prescribe, mortgages

which are executed by individuals or families that

meet the income criteria prescribed in paragraph

(5)(A) and are executed for the purpose of financing

the rehabilitation or improvement of single-family

dwellings of detached, semidetached, or row

construction that are owned in each instance by a

mortgagor who has purchased the dwelling from a

nonprofit organization of the type described in this

subsection. To be eligible for such insurance, a

mortgage shall—

(A) be in a principal amount not exceeding the

lesser of $18,000 or the sum of the estimated cost

of repair and rehabilitation and the Secretary’s

estimate of the value of the property before repair

and rehabilitation, except that in no case involving

refinancing shall such mortgage exceed such

estimated cost of repair and rehabilitation and the

amount (as determined by the Secretary) required

to refinance existing indebtedness secured by the

property;

(B) bear interest (exclusive of premium charges for

insurance and service charge, if any) at 3 per

centum per annum or such lower rate, not less

than 1 per centum, as the Secretary may prescribe

if in his judgment the mortgagor’s income is

Illa

sufficiently low to justify the lower rate: Provided,

That, if the rate of interest initially prescribed is

less than 3 per centum per annum and the

mortgagor’s income (as determined on the basis of

periodic review) subsequently rises, the rate shall

be increased (but not above 3 per centum), under

regulations of the Secretary, to the extent

appropriate to reflect the increase in such income,

and the mortgage shall so provide;

account of the property at the time of the

rehabilitation such amount (which shall not be less

than $200 in cash or its equivalent, but which may

be applied in whole or in part toward closing costs)

as the Secretary may determine to be reasonable

and appropriate under the circumstances; and

(D) contain a provision that, if the low-income

mortgagor does not continue to occupy the

property, the interest rate shall increase to the

highest rate permissible under this section and the

regulations of the Secretary effective at the time

the commitment was issued for insurance of the

mortgage; except that the increase in interest rate

shall not be applicable if the property is sold and

the purchaser is (i) a nonprofit organization which

has been engaged in purchasing and rehabilitating

deteriorating and substandard housing with

financing under a mortgage insured under

paragraph (1) of this subsection, (ii) a public

housing agency having jurisdiction under the

United States Housing Act of 1937 [42 U.S.C.A. §

1437 et seq.] over the area where the dwelling is

located, or (iii) a low-income purchaser approved

112a

for the purposes of this paragraph by the

Secretary.

(7) Where the Secretary has approved a plan of

family unit ownership, the terms “single-family

dwelling”, “single-family dwellings”, “individual

dwelling”, and “individual dwellings” shall mean a

family unit or family units, together with the

undivided imterest (or interests) in the common

areas and facilities.

(8) For purposes of this subsection, the terms

“single-family dwelling” and “single-family

dwellings” (except for purposes of paragraph (7))

shall include a two-family dwelling which has been

approved by the Secretary.

(i) Conversion of insured project to plan of family

unit ownership; sale of units; agreements for

maintenance; release from lien of project mortgage;

insurance of mortgages financing purchase of

individual family units; eligibility for insurance;

definitions

(1) The Secretary is authorized, with respect to any

project involving a mortgage insured under

subsection (d)(3) of this section which bears interest

at the below-market interest rate prescribed in the

proviso of subsection (d)(5) of this section, to permit

a conversion of the ownership of such project to a

plan of family unit ownership. Under such plan, each

family unit shall be eligible for individual ownership

and provision shall be included for the sale of the

family units, together with an undivided interest in

the common areas and facilities which serve the

113a

project, to low or moderate income purchasers. The

Secretary shall obtain such agreements as he

determines to be necessary to assure continued

maintenance of the common areas and facilities.

Upon such sale, the family unit and the undivided

interest in the common areas shall be released from

the lien of the project mortgage.

(2)(A) The Secretary is authorized, upon application

by the mortgagee, to insure under this subsection

mortgages financing the purchase of individual

family units under the plan prescribed in paragraph

(1). Commitments may be issued by the Secretary for

the insurance of such mortgages prior to the date of

their execution or disbursement thereon, upon such

terms and conditions as the Secretary may prescribe.

To be eligible for such insurance, the mortgage

shall—

(i) be executed by a mortgagor having an income

within the limits prescribed by the Secretary for

occupants of projects financed with a mortgage

insured under subsection (d)(3) of this section

which bears interest at the below-market rate

prescribed in the proviso of subsection (d)(5) of this

section;

(ii) involve a principal obligation (including such

initial service charges, and such appraisal,

inspection, and other fees, as the Secretary shall

approve) in an amount not to exceed the

Secretary's estimate of the appraised value of the

family unit, including the mortgagor’s interest in

the common areas and facilities, as of the date the

mortgage is accepted for insurance;

1l4a

(iii) bear interest at a rate determined by the

Secretary (which may vary in accordance with the

regulations of the Secretary promulgated pursuant

to the last sentence of paragraph (4) of this

subsection) but not less than the below-market rate

in effect under the proviso of subsection (d)(5) of

this section at the date of the commitment for

insurance; and

(iv) provide for complete amortization by periodic

payments within such term as the Secretary may

prescribe, but not to exceed forty years from the

beginning of amortization of the mortgage.

(B) The price for which the individual family unit is

sold to the low or moderate income purchaser shall

not exceed the appraised value of the property, as

determined under subparagraph (A)(ii), except that

the purchaser shall be required to pay on account of

the property at the time of purchase at least such

amount, in cash or its equivalent (which shall be not

less than 3 per centum of such price, but which may

be applied in whole or in part toward closing costs),

as the Secretary may determine to be reasonable and

appropriate.

(3) Upon the sale of all of the family units covered by

the project mortgage, and the release of all of the

family units (including the undivided interest

allocable to each unit in the common areas and

facilities) from the lien of the project mortgage, the

insurance of the project mortgage shall be

terminated and no adjusted premium charge shall be

collected by the Secretary upon such termination.

(4) Any mortgage covering an individual family unit

115a

insured under this subsection shall contain a

provision that, if the original mortgagor does not

continue to occupy the property, the interest rate

shall increase to the highest rate permissible under

this section and the regulations of the Secretary

effective at the time the commitment was issued for

the insurance of the project mortgage; except that

the requirement for an increase in interest rate shall

not be applicable if the property is sold and the

purchaser is (i) a nonprofit purchaser approved by

the Secretary, or (ii) a low or moderate income

purchaser who has an income within the limits

prescribed by the Secretary for occupants of projects

financed with a mortgage insured under subsection

(d)(3) of this section which bears interest at the

below-market rate prescribed in the proviso of

subsection (d)(5) of this section. The mortgage shall

also contain a provision that, if the Secretary

determines that the annual income of the original

mortgagor (or a purchaser described in clause (ii) of

the preceding sentence) has increased to an amount

enabling payment of a greater rate of interest, the

interest rate of the individual mortgage may be

increased up to the highest rate permissible under

the regulations of the Secretary for mortgages

insured under this section, effective at the time the

commitment was issued for the insurance of the

mortgage.

(5) For the purpose of this subsection—

(i) the term “mortgage”, when used in relation to a

mortgage insured under paragraph (2) of this

subsection, includes a first mortgage given to

secure the unpaid purchase price of a fee interest

1l6a

in, or a long-term lease-hold interest in, a one-

family unit in a multifamily project and an

undivided interest in the common areas and

facilities which serve the project; and

(ii) the term “common areas and facilities” includes

the land and such cecmmercial, community, and

other facilities as are approved by the Secretary.

(j) Conversion of insured rental projects to

cooperatives; eligibility for membership; insurance of

cooperative mortgages financing purchase of

projects; eligibility for insurance

(1) The Secretary is authorized, with respect to any

rental project involving a mortgage insured under

subsection (d)(3) of this section which bears interest

at the below-market interest rate prescribed in the

proviso of subsection (d)(5) of this section, to permit

a conversion of the ownership of such project to a

cooperative approved by the Secretary. Membership

in such cooperative shall be made available only to

those families having an income within the limits

prescribed by the Secretary for occupants of projects

financed with a mortgag

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