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TERRILL MANOR ASSOCS. v. UNITED STATES HUD

August 12, 1980

TERRILL MANOR ASSOCIATES, Plaintiff,
v.
UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT and ELCI Realty Company, Inc., Defendants



The opinion of the court was delivered by: COOLAHAN

This an action by plaintiff Terrill Manor Associates (hereinafter "TMA") against the United States Department of Housing and Urban Development (hereinafter "HUD") and ELCI Realty Company, Inc. (hereinafter "ELCI Realty"). As against HUD, TMA seeks a declaratory judgment *fn1" that plaintiff is not obligated to HUD on an alleged sum due on a mortgage held by HUD. TMA also desires that HUD be enjoined from foreclosing said mortgage due to the alleged deficiency and that HUD be ordered to grant final approval of the transfer of physical assets of the mortgaged premises to plaintiff. *fn2" HUD moves to dismiss the action against it for lack of subject matter jurisdiction *fn3" on the ground that the suit is barred by the doctrine of sovereign immunity. For the reasons which follow, the Court concludes that the motion to dismiss should be granted.

 This suit concerns an apartment complex located in Hackensack, New Jersey, commonly known as "Terrill Manor." HUD originally took a mortgage on Terrill Manor from co-defendant ELCI Realty on January 29, 1971 in the amount of.$ 1,043,200.00. On May 9, 1977, ELCI Realty and TMA entered into a contract for the sale of Terrill Manor to plaintiff. The contract provided that "the total purchase price is to be $ 350,000.00 over the existing mortgage at closing."

 On or about September 15, 1977, the HUD Newark Area Office issued plaintiff a letter of preliminary approval of the proposed sale of Terrill Manor to TMA. The letter provided that final approval by HUD of the transfer was subject to certain enumerated conditions, among which was the requirement that "(a)t closing, the delinquent mortgage held by HUD must be brought current by either the seller or purchaser." Ex. B to the Affidavit of James F. Smith.

 The gravaman of the suit concerns the September 1977 HUD monthly billing notice to ELCI Realty of mortgage payments due. It is uncontested that this notice erroneously understated the amount of interest and principal due to bring the Terrill Manor mortgage current by $ 29,611.19.

  TMA alleges *fn4" that on the day of closing its attorney placed a telephone call to the HUD Newark Area Office to confirm the amount due on the mortgage as stated (incorrectly) in the September billing notice. Plaintiff further alleges that its counsel thereupon was orally informed that the figures in said notice were accurate. See Affidavit of Paul Rosenberg. Although HUD admits that one of its employees telephonically confirmed the figures in the billing notice, it contends that said confirmation was made by a HUD accountant in the agency's Washington, D.C. office. Said accountant by affidavit affirms that he used the most recent billing information and read to plaintiff's attorney the amount indicated therein as the amount then due on the Terrill Manor mortgage. Affidavit of Dana Billingslea.

 It is now apparent to all concerned that the misstatement of amount due on the Terrill Manor mortgage resulted from a bookkeeping error by HUD in its June 1977 billing notice to ELCI Realty. Said error was repeated from month to month, resulting in the aforementioned inaccuracy in the September 1977 billing notice. Complaint, P 6. The error was discovered during HUD's subsequent examination of the status of the Terrill Manor mortgage in connection with plaintiff's request that HUD grant final approval to the transfer of the physical assets of Terrill Manor. Complaint, P 6, and Schedule C. Upon the discovery of the error, HUD refused to grant final approval of the transfer until TMA (or ELCI Realty) brought the mortgage current.

 In its Complaint, plaintiff alleges that HUD had complete control of the books and records concerning the Terrill Manor mortgage and therefore HUD knew or should have known of the true mortgage figures. TMA further alleges that all parties, including HUD, agreed that the transfer of Terrill Manor to plaintiff should be quickly effectuated inasmuch as ELCI Realty was then in dire financial straits. Complaint, PP 3, 7. Thus, the Complaint avers that "HUD knew that plaintiff would rely upon its (September 1977) notice and its confirmation of the accuracy of same." Id., at P 8.

 Highly significant to the Court's determination of the instant motion is plaintiff's allegation that it "did rely upon the information supplied by HUD and acted upon this information to its detriment, closing the transfer on the basis of HUD's figures and suffering a loss now claimed by HUD of $ 29,611.19." Complaint, P 12. Accordingly, plaintiff contends that HUD should be "estopped" from asserting a claim against TMA for the alleged deficiency. Complaint, P 13.

 TMA also alleges that HUD has threatened to foreclose its mortgage on the subject premises. Complaint, P 12. No such action, however, has yet been instituted. Finally, because it is pertinent to our resolution of this motion, we repeat TMA's prayer for relief against HUD in full:

 
"WHEREFORE, plaintiff demands judgment:
 
A. Declaring that plaintiff is not responsible for payment of the $ 29,611.14 demanded by HUD;
 
B. Declaring that HUD is estopped from employing this claim as a basis for denying plaintiff final approval of the transfer of physical assets, foreclosing on the subject premises or taking any ...

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