On Appeal from the United States District Court for the Eastern District of Pennsylvania, Civil Action No. 87-4814.
Seitz, Sloviter, and Greenberg, Circuit Judges
Pennsylvania's Homeowner's Emergency Mortgage Assistance Program (HEMAP), 35 Pa.Cons.Stat.Ann. 1680.401(c) et seq. (Purdon Supp. 1988), provides loans to homeowners in financial difficulty to prevent imminent mortgage foreclosure. Loan payments are suspended during the pendency of bankruptcy proceedings, when foreclosure is prohibited under the Bankruptcy Code; they may resume, however, if the automatic stay under the Bankruptcy Code is lifted or when bankruptcy proceedings end if foreclosure once again is impending. The district court held that the suspension of the plaintiffs' loan payments pursuant to these provisions violated the anti-discrimination and automatic stay provisions of the Bankruptcy Code, 11 U.S.C. 525 and 362(a)(3), as well as 42 U.S.C. 1983. We disagree and therefore will reverse.
HEMAP was passed in 1983 to establish "a program which will, through emergency mortgage assistance payments, prevent widespread mortgage foreclosures and distress sales of homes which result from default caused by circumstances beyond a homeowner's control." 35 Pa.Cons.Stat.Ann. 1680.401c (note) (Findings and Purpose). It authorizes the Pennsylvania Housing Finance Agency (PHFA) to pay directly to an eligible homeowner's mortgagee the full amount needed to make the mortgage current, as well as monthly payments to help keep it so. 35 Pa.Cons.Stat.Ann. 1680.405c(a), (b). A loan for the assistance is made to eligible homeowners, secured by a mortgage lien on their homes and repayable with interest. 35 Pa.Cons.Stat.Ann. 1680.405c(g); 1680.406c.
A homeowner must satisfy various eligibility requirements to obtain a loan under HEMAP, including the requirement that the mortgagee "has indicated to the mortgagor its intention to foreclose." 35 Pa.Cons.Stat.Ann. 1680. 404c(a)(2)(i). Relatedly, and significantly for present purposes, a condition of eligibility is that "[the] mortgagee is not prevented by law from foreclosing upon the mortgage." 35 Pa.Cons.Stat.Ann. 1680.404c(a)(7). The pertinent regulations note that if a homeowner is in bankruptcy and the automatic stay is in effect, the lender is legally prevented from foreclosing, further elaborating that if a homeowner is in bankruptcy at the time of application, assistance is contingent upon, inter alia, the lifting of the stay. 16 Pa.Code 40.202(e).
If all eligibility requirements are met and if "money is available in the Homeowner's Emergency Mortgage Assistance Fund," assistance will follow. 35 Pa.Cons.Stat.Ann. 1680.404c(b); see also 35 Pa.Cons.Stat.Ann. 1680.409c. PHFA must review a homeowner's financial circumstances at least annually, 16 Pa.Code 40.204(c)(6), and "[payments] may stop if the Agency determines that, because of changes in the homeowner's financial circumstances, the payments are no longer necessary." 16 Pa.Code 40.204(c)(2).
The named plaintiffs in this case, Dorothy Watts, Robert Bratton, and John and Irene Pizzileo, all applied for loans under HEMAP and were determined eligible for assistance. PHFA cured Watts' and Bratton's arrearages, and for a time provided them with monthly assistance. However, when Watts and Bratton filed Chapter 7 bankruptcy petitions, their monthly payments were suspended. The PHFA approved the Pizzileos' loan application but, after the Pizzileos' filed bankruptcy proceedings under Chapter 7, the PHFA reevaluated their eligibility, and notified their mortgagee that payments would not be made.
PHFA notified Watts, Bratton, and other unnamed class members of the termination of monthly assistance in a form letter, which provided in part,
[please] be advised that the Agency is discontinuing your monthly assistance under the Homeowner's Emergency Mortgage Assistance Program due to your filing for bankruptcy.
Pursuant to Act 91, a homeowner is ineligible for assistance when the mortgagee is prevented by law from foreclosing upon the mortgage. (35 P.S. Section 1680.404(a)(7)). As long as the automatic stay of the Bankruptcy Court remains in effect, the mortgagee is prohibited from instituting foreclosure proceedings against you. Accordingly, you presently fail to satisfy this eligibility requirement.*fn1
The plaintiffs, in their individual capacities and on behalf of a class consisting of "all individuals who have been or will in the future apply for or be awarded benefits under HEMAP and thereafter become debtors under the Bankruptcy Code," filed suit against PHFA and Robert Bobincheck, its director (hereinafter collectively referred to as PHFA). Complaint, 10. They alleged that PHFA's suspension of monthly assistance following the filing of their bankruptcy petitions violated the anti-discrimination provision of the Bankruptcy Code, 11 U.S.C. 525, the automatic stay provision, 11 U.S.C. 362, and 42 U.S.C. 1983. Complaint, 39-41.
After the complaint was filed, Watts received a discharge in bankruptcy. PHFA then apparently reinstated assistance and cured her mortgage default. Appx. 43; 93. Bratton also received a discharge, Appx. 9, and the record indicates that he was reevaluated "and will be reinstated" after providing documentation "that the automatic stay has been lifted for all mortgagees, all discharged mortgage obligations have been reaffirmed, and the Bankruptcy Court and the Trustee have approved of his receiving emergency mortgage assistance." Appx. 42. Although the record does not reveal whether the Pizzileos have received a discharge, it does indicate that they have been ...