Brotherhood Blocks Association of Sunset Park v. Secretary of Housing and Urban Development

No. 73 C 76 (E.D.N.Y. February 28, 1973)

In an action brought to compel the Department of Housing and Urban Development to comply with the National Environmental Policy Act in the administration of its federally insured home mortgage program, the court refuses to grant a preliminary injunction to prevent removal of occupants from properties conveyed to HUD upon mortgage foreclosure. The court holds, however, that the suit does raise substantial questions concerning NEPA's application to the administration of the program and to HUD's duty to review and update the program regulations.

Counsel for Plaintiffs
Douglas J. Kramer
John C. Gray, Jr.
Brooklyn Legal Services Corp., South Brooklyn Branch
152 Court Street
Brooklyn, New York 11201

Counsel for Defendants
Robert A. Morse U.S. Attorney
Harold J. Friedman
Cyril Hyman
225 Cadman Plaza East
Brooklyn, New York 11201

[3 ELR 20351]

Dooling, J.

Plaintiffs sue upon the National Environmental Policy Act of January 1, 1970, ("NEPA"), 42 U.S.C. § 4321-4347, for a declaration that NEPA requires the Secretary to prepare and file an environmental impact statement concerning his administration of 12 U.S.C. §§ 1709, et seq., and of the acquisition and holding of foreclosed properties conveyed to him under 12 U.S.C. § 1710 (a), and his implementation of 24 C.F.R. § 203.381 and other regulations, and for preliminary and permanent injunctions against defendants' continuing their present practices respecting removal of occupants from properties conveyed to the Secretary upon foreclosure of federally insured mortgages until there has been full compliance with NEPA.

12 U.S.C. § 1709 authorizes the Secretary to issue commitments to insure and thereafter to insure the payment to lenders of mortgage-secured loans made by the insured lenders upon one to four family dwellings. The lender must pay an annual premium. Under 12 U.S.C. § 1710, if the mortgagee has foreclosed and taken possession of the mortgaged property in accordance with the Secretary's regulations (12 U.S.C. § 1715b) after default, the mortgagee is entitled to the insurance benefit upon conveyance to the Secretary of title to the property in accordance with the regulations and upon assignment of all incidental claims arising out of the mortgage transaction and foreclosure. The Secretary has power to deal with, complete, rent, renovate, modernize, insure or sell for cash or credit any properties acquired from insured mortgagees (12 U.S.C. § 1710 (g)).

Plaintiffs are Block Associations, and individual residents, affected by the condition of foreclosed properties that have been conveyed to the Secretary. They allege that the Secretary holds 200 or more foreclosed one-to-four family houses in the areas of their interest which are vacant as a result of the Secretary's administration of the conditional vacant-delivery requirement of 24 C.F.R. § 203.381, that many more mortgages in the area are in default and under foreclosure, and that, while most of the properties under foreclosure are tenanted, pursuit of present administrative policy will result in the tenants' eviction so that the mortgagee can make vacant delivery of the property to the Secretary.

The heart of plaintiffs' claims is that building vacancy is a generative factor in the radical deterioration of the neighborhood of the vacated building, since the vacant building creates health hazards, intensifies the risk of fire, furnishes a haven for human dereliction and a lair for gangs, becomes a focus of street crime and drug addiction, and results in breaking up local communities, since neighbors move away from the area rather than run the risks of continued residence. In consequence, plaintiffs urge, defendants' administration of its foreclosures necessarily raises the twin questions whether the foreclosures are individually, or as a continuing succession of comparable and cumulatively affective acts, "major Federal actions," and, if so, whether they significantly affect the quality of the human environment.

Giving to plaintiffs' affidavits a generous reading, they reduce to writing what, many say, has long been evident to the eye and has been publicized in countless ways, that in the areas of Brooklyn most affected by demographic change and the age and obsolescence of their buildings there is building vacancy on an extending scale, and that vacant buildings are themselves both a consequence of neighborhood collapse and an accelerator of progressive deterioration, acting as foci of vandalism and filth, and centers of drug addiction and street crime. The first group of affidavits relate primarily to Sunset Park, and to areas on Bergen Street and Greene Avenue. The affidavits specify fourteen properties in Sunset Park between 49th and 55th Streets and, it seems, 2nd Avenue and 5th Avenue (however, one property, now demolished, was apparently between 8th and 9th Avenues on 51st Street), two properties on one block on Greene Avenue, and a property on Bergen Street; the affidavits particularize and illustrate the mechanism of deterioration and the role of the vacant building enacts in introducing conspicuous neighborhood deterioration and causing recurrent nuisance, fires, offensive accumulations of trash and garbage, and reported need for police aid against gangsterism. The later group of affidavits, more generally, refers to the Department's ownership of 800 or more foreclosed properties in Brooklyn and to its reported refusal to agree that NEPA was at all involved in its mortgage foreclosure problems. These later affidavits refer to specific properties on van Siclen Avenue in the East New York area and to a Sterling Place property (near Flatbush Avenue), [3 ELR 20352] but append (Exhibits C, D) a list of Department-owned foreclosed properties from the material issued in connection with the since-cancelled invitation for bulk purchase bids. Exhibit C in particular furnishes some indication of the extent of the Department's concentration or diffusion of ownership because it gives block data. E.g., five properties on the Vermont Street side of Block 3757 were offered for bid; six properties on Block 3776, four on the Bradford Street side of the block and two on the Miller Avenue side; five properties on Block 4088 on the Hendrix Street side; four properties on Block 4087 on the Van Siclen Avenue side; and four on the Hendrix Street side of Block 4075.

The affidavits do not show the ratio of Department owned foreclosed properties to totalvacant properties in the area; they do not show whether vacancy was initially unavoidable, and what the cause of it was; and they do not show that vacancy was less damaging than the tenancy that the buildings could attract and retain. The reliance at the present stage is necessarily on the obvious undesirability of protracted building vacancy and the extent, in absolute terms, of the Department's ownership of vacant properties.

The Government's submission is clear that — quite apart from the impact effect of bulk sales, now under active reconsideration — it does not regard individual actions in the one-to-four family mortgage insurance context as raising any NEPA issue (See July 16, 1971 Draft Circular 1390.1, p. 4, par. 4 (a), p. A-1, par. 2; April 1972 Draft Circular 1390.1, p. 10, par. 6). But the successive drafts reflect the broadest recognition of the applicability of NEPA in principle to HUD activity. The July 1971 draft detailed, as among the "environmental considerations" that were its concern "urban congestion, overcrowding, displacement, and relocation resulting from public or private action . . . urban blight, code violations and building abandonment" (Draft Circular 1390.1, p. A-1). Similarly, the April 1972 draft defined "environmental considerations" as including "urban congestion, overcrowding, displacement and relocation resulting from public and private action . . . urban blight, code violations and building abandonment . . . urban growth policy . . . urban design and the quality of the built environment"; and it defined environmental impact as "any alteration, adverse or beneficial, of environmental conditions caused or induced by the action or set of actions under consideration"; assessment of impact was noted as involving "two major elements: a quantitative measure of magnitude and a qualitative measure of importance" (April 1972 Draft Circular 1390.1, p. 4). The "thresholds" for determining whether a "special environmental clearance" would always be required, were outlined in the draft, and were, so far as concerns new construction housing assistance or insurance, primarily quantitative — e.g., 50 lot subdivisions for single-family units (Id. p. A-2). So, too, housing assistance or insurance connected with "Substantial rehabilitation or Property Disposition" provided "thresholds" of "50 contiguous or non-contiguous single-family units in the same area" and, for multi-family structures of "100-unit multifamily structure" where the "decision point" was "property disposition, Approval of Disposition Program."

The precise point, then, of individual involuntary vacant or tenanted acquisitions of foreclosed properties in performance of the insuring obligation of 12 U.S.C. § 1709 is not touched, unless a second aspect of the draft Circulars takes the matter into account. The September 1971 draft, pages 3-4, paragraph 1a (2) (3), required HUD to continue to review, update, or establish policies, standards and procedures for administering its "programs" to promote environmental quality, and, in outlining the spheres of HUD activity within which a final environmental statement may be required to accompany agency action proposals through review and decision procedures, states that promulgation of New Central Office Guidance Documents ("including regulations, policy circulars, program handbooks and guides, standards, documents, etc.") may be major actions, and that

"in each case a determination shall be made in consultation with the Deputy Under Secretary as to whether or not there is a significant impact on the human environment."

Existing Regulations contemplate that HUD shall acquire, in certain circumstances, property damaged by fire, earthquake, flood or tornado (24 C.F.R. § 203.379), and 24 C.F.R. § 203.381 unqualifiedly provides:

"Unless otherwise approved by the Commissioner the mortgagee shall certify that the property is vacant and does not contain any personal property as of the date of the filing for record of the deed to the Commissioner."

The "Mortgagees Guide, Administration of Insured Mortgages" of April 1970 (FHA G4015.9) reiterates the language of 24 C.F.R. § 203.381 (Ch. 3, par. 3-4) and provides (sub. par. b) that FHA will accept properties occupied

"by the former mortgagors when eviction would cause undue hardship on the mortgagors, where the mortgagee is unable to have the property vacated, or where eviction of the occupants might engender public unrest and tension. In these situations, the mortgagee should submit as written request to the FHA insuring office. . ."

Paragraph 3-6 of the Guide regulates the mortgagees' management of properties abandoned by the mortgagor or otherwise vacated incident to action that will probably result in a claim for mortgage insurance benefits: the mortgagee is expected to take steps to secure the property against vandalism and the elements and to take care of refuse removal, lawn care, and planting "to preserve neighborhood appeal." Subparagraph d of the same Paragraph provides:

"Especially in areas in which there is an extensive redemption period during which the mortgagee has possession of the property, the best protection against damage to the property may be afforded by rental occupants. However, expenditures by the mortgagee solely for the purpose of seeking or maintaining rental occupancy may be recovered from rental income . . ."

Chapters 2 and 4 of the Property Disposition Handbook, RHM 4310.5, also advert to vacant possession of foreclosed one-to-four family properties and outline instances in which tenancies are tolerated or preferred. In Chapter 4, par. 91 of RHM 4310.5, the language of 24 C.F.R. § 203.381 is again reiterated, and the paragraph observes that vacant possession is normally preferred so that the property "may be programmed for repair and exposed to the sales market in the shortest practicable time." It then goes on:

"Continued tenant occupancy may be considered for a property requiring occupancy to prevent vandalism or for an investment property presenting no advantage insofar as immediate occupancy by a purchaser is concerned or a two to four family dwelling with tenants."

The "tension and unrest" language of the "Mortgagees Guide," par. 3-4, is repeated in par. 91 of RHM 4310.5.

The Government relates its present policy of demanding vacant possession (with few exceptions) to the cash flow needs of the various programs involving mortgages insured under 12 U.S.C. §§ 1709, 1715 l and 1715 z (National Housing Act, "NHA," §§ 203, 221 (d) (2) and 235), some of which are high risk loans programs designed to make home ownership possible for low-income familes, and in threatened neighborhoods. Noting that to February 1, 1973, HUD had insured 218,000 one-to-four family houses through the Hempstead insuring office, of which 170,000 were in force on June 30, 1972, it is said that 15% of these are in the Brooklyn area — that is, about 25,500 were in force in the Brooklyn area at June 30, 1972. It is argued that to keep the insurance funds, and the interrelated loan programs, functioning requires a steady in-flow of insurance premiums and prompt and successful liquidation of foreclosed properties through acquiring them vacant, rehabilitating them promptly, and reselling them either under one or another of the insured mortgage programs or otherwise.

But it cannot be said that plaintiffs have not raised a substantial question about HUD's duty to review and update its regulations and Guidance Documents covering its administration of its acquisitions of foreclosed one-to-four family properties and its management of them after acquisition in order to define the range of applicability of NEPA to this part of HUD's activities, and in so doing to determine whether the settling of policy guidelines into the form of updated or reconfirmed regulations and other Guidance Documents is not itself major federal action significantly affecting the quality of the human environment. It may well be that a large part of HUD's acquisition and dispositions are so truly individual and unaffective of neighborhood conditions that NEPA can hardly be invoked. But it does not follow that NEPA is not involved where the acquisitions are concentrated [3 ELR 20353] regionally, and the regional conditions are such that the ideal pattern of speedy rehabilitation and resale no longer fits the facts. HUD may in such regions be the victim of the diligence and success of its own pursuit of the Congressionally given goals of insuring loans that are designed to extend home ownership into lower income levels and to threatened neighborhoods; it may be that HUD is realizing the consequences of the high-risk-rate that such loans involve, when injected into neighborhoods where demographic changes and the age of the properties have conspired against HUD's effort to arrest neighborhood deterioration; that does not mean that NEPA is short-circuited. The decayed central city problem is certainly not limited to Brooklyn, and it is so obviously and characteristically an environmental problem that the questions may well be only about the precise points of NEPA applicability and the procedure required to deal with those points rather than any single question whether NEPA is or is not applicable to the whole set of activities related to individual insuring actions, including acquisition and disposition of properties the mortgages on which were insured.

But the nature of the case, the issues it raises, and the facts presented afford no ground for a preliminary injunction of the kind sought. It is rather the case that the issue should be moved rapidly forward toward determining whether HUD should be required by mandamus to make its determination about NEPA applicability in the manner and with the despatch required by NEPA when it is shown that a sphere of its action is non-frivolously and with some factual support claimed to constitute major federal action significantly affecting the quality of the human environment. Judicial review of the propriety of its determination in this or a fresh action, is a separate matter.

It is, accordingly,

ORDERED that the motions for a preliminary injunction dated January 19, 1973, and January 29, 1973, are denied.