*1 GARTH, and RO- Before BECKER America, STATES UNITED SENN, Judges. Circuit Appellant, THE COURT OPINION OF Joseph L. Mario B. BECKER, Judge. Circuit CAPANO, Appellees. practice of di- Equity skimming is the mortgaged verting generated by No. 84-5645. revenues purposes other than default Appeals, Court United States mortgage pay- maintenance or Third Circuit. question presents the ments. This case statute, 12 whether a federal Argued 1985. Feb. (1982), -pro- U.S.C. § 11, Decided March federally-as- skimming from scribes multifamily housing projects, applies sisted receive an although mortgagor did not or a of time to cure the default extension terms. We modification not, and we therefore will hold that does judgment of the district court affirm the *2 multifamily 4(b) only the indictment on this when which dismissed a housing ground. project by is insured HUD and by held a when, party mortgagee, third as al-
I. leged indictment, the project in is secur- prosecution ity out assigned This criminal arose that has been actually by to and is Secretary, financial difficulties of Golden Acres held In alternative, apartment project 88-unit Apartments, an the court held by the statute, in in Del- Claymont, built 1973 and 1974 terms of the penalties the criminal financing project apply only aware. The initial where the had re- ap- included a HUD-insured ceived an extension of time to a cure proximately million. This $1.4 or a fault modification of the terms of their 1976, May Sep- in in went into default and mortgage. Because the indictment did not 1976, mortgage assigned tember was allege Capanos that the had ever received by was HUD modification, HUD and thereafter held extension an or the dis- Hous- of the National trict court dismissed the indictment Act, (1982). 1713(g) ing 12 U.S.C. independent that additional and § reason. alleges indictment that from on or before brought The United States the instant 1981, February 1977, through December appeal dismissal, arguing from the that the Capano, appellees, Joseph Mario and U.S.C, interpretation court’s district of 12 Inc., Acres, in Golden owned all stock 1715z-4(b) incorrect, and that § n developer sponsor project. and by proscribes equity skimming states, further and it is indictment whose HUD-held or HUD- parties, May, uncontested that from multifamily on a housing December, 1981, through Capa- regardless unit is in default whether he $300,000 in- nos took more than of rental has received modification or extension. come derived from Golden Acres di- appellate jurisdiction We have virtue of verted it to themselves and other (1982). business- 3731 18 U.S.C. Inasmuch as this § es controlled. indictment thus undertaking solely question involves charges appellees, Capano Mario B. law, scope plenary. our of review is See Heckler, Joseph Capano, L. with 110 (3d substantive 749 F.2d Tustin v. 1060 equity skimming counts of of Cir.1984). violation 1715z-4(b),
12 and with count U.S.C. one § conspiracy, U.S.C. 371 18 § II. allege indictment does not that the the district court had two inde- Because requested ever received an extension of pendent reasons for its dismissal time to cure on the the default . indictment, district we will affirm the court modification of terms of the mort- its agree if we with either of reasons. gage. follows, assume, we discussion deciding, applies indict- The district court dismissed the without the statute First, mortgages ment for it held that held HUD two reasons. of 12 is an We consid- the criminal U.S.C. 1715z- for which HUD insurer.1 HUD, Kopecky, assumption only is in John W. to the De- Our accord with Counsel ‘ reported partment which we are that ad of Justice stated that there can be no case of aware Norris, question, an of Section 239 after insured mort- dresses the States violation , —U.S. (4th Cir.1984), assigned secretary.” gage F.2d cert. been to the Re- 1116 has denied —, (1985), Additionally, printed Appendix 85 L.Ed.2d at A53-A54. 105 S.Ct. 10, 1980, penalty provision applies opinion of Tune which held that the letter subject projects Federal HUD Counsel to the General ‘T§ held well as those insured HUD. is in accord: 1715z-4 was] Commissioner itself, although requirement only supports cases HUD as a where instant. intended previously secretary mortgagee.” Reprinted prosecution, appears to have reached is not the A25, opposite Appendix A n. 3. The district conclusion. letter dated Decem at A47-A48 Acting holding that the General these letters in ber Associate court stressed .from ing any request ap- of consent to er whether 12 U.S.C. § curing a have never received extension of the time for default plies to even those who any mortgage covering multifami- modification of their mort- under an extension or language ly housing, or for a modification of the gages. to the We look regard history, well-ac- terms of such without foregoing requirement, case cepted canons of the crim- *3 exemption or class of cases in which an inal statutes. (as requirement from such does not de- Analysis A. the Statute by Secretary) jeopardize termined interests of the United States. 1715z-4(b) (herein- Because U.S.C. § Violations and (b)”) opaque and convo- after “subsection luted, Whoever, it refers back proper- and because as an owner of 1715z-4(a) (hereinafter “subsec- ty security mortgage U.S.C. which is § (a)”), (a) section, forth both subsections tion we will set in scribed subsection of this in full. corporation or as a stockholder of a own- ing property, such or as a beneficial own- in terms 1715z-4
§
Modifications
any
organization
er under
business
or
mortgages covering multi-
owning
property,
trust
such
or as an
family projects
officer, director,
agent
any
or
such
Requests
to cure de-
extensions
for
owner, (1)willfully uses
authorizes the
or
mort-
or
modification of
faults
for
any part
use of
of the rents or other
terms;
gage
regulations
property
by
funds derived
covered
(a)
Secretary
shall not consent to
regula-
in
such
violation of a
request
of the time
any
for an extension
Secretary
prescribed by
under
any mortgage
for
a default under
(a)
section,
(2)
subsection
of this
if
covering multifamily housing, as defined
determined,
provid-
such
Secretary,
regulations
of the
or for
(a)
section,
ined
subsection
of this
to be
a modification of the terms of such mort-
requirement
from the
conformity
regula-
gage, except in
with
regulation
such
or is not otherwise cover-
prescribed by
Secretary
tions
in ac-
by
regulation, willfully
ed
cordance with the
of this sec-
use,
knowingly
uses or authorizes
regulations
require,
tion. Such
shall
as a
while such
is in default of
granting
condition to the
part of the rents or other funds derived
request,
during
period
of such
covered
such mort-
modification, any part
extension or
gage
any purpose
for
other than to meet
rents or other
derived
the mort-
funds
arising
necessary expenses
actual and
in
gagor
covered
property (including
connection with such
required meet
which is not
charges
amortization
under the mort-
necessary expenses arising
actual and
in
gage),
more
shall be fined not
than
operation
connection with the
of such
$5,000 imprisoned
more than three
property, including
charges
amortization
years, or both.
in
be held
trust
Secretary
and distributed
Subsection
states that the
Secretary; except
modify
the consent of the
of HUD cannot extend or
mort-
Secretary
provide
grant-
gage
except
multifamily housing
on a
unit2
ing
satisfactory
penalties
mortgages
do not
under
to standards
to the Commission-
Secretary.
Administration,
held
er of the Federal
containing at
five
units. See 24
least
rental
Secretary
promul-
2. Subsection
allows the
argues
C.F.R. 207.24. As no
that Golden
§
one
gate regulations
“multifamily housing"
to define
multifamily housing,
Acres is not
and as noth-
purposes
provision,
for
yet
of this
but HUD has not
ing
the definition of
in our decision turns on
regulations
done so. Other HUD
define
"multifamily housing,"
gen-
we assume that the
multifamily housing as accommodations de-
signed principally for residential
use,
conform-
conformity
regulations
multi-family dwellings
she or
which HUD has a
Allowing
financial interest.5
promulgates,
he
and that
for this im-
those
precision,
shall,
parties put
among
prohibit
forth two
things,
mean-
ings
us
that strike
as most
skimming.3
can be found
.reasonable.
government argues
phrase
at 24 U.S.C. 207.256b
Not wish-
“mortgage
(a)”
described
re-
unduly,
ing
Secretary
to bind
mortgages multifamily
fers to all
hous-
“escape
included an
clause”
ing
interest,
HUD has
which
a financial
(a):
in cases where the
would
i.e.,
permission
ones for
of the Secre-
“jeopardize the
interests
tary
required
would be
before there could
States,”
extend
could
or mod-
extension or
modification of the
ify
regu-
regard
without
mortgage. This reading of the statute
lations.
encompass
Golden Acres and thus
(b) provides
Subsection
criminal sanc-
subject
liability
to criminal
hold
against
“property
tions
those who
their
Capanos argue
actions. The
*4
security
for a
is
described “mortgage
(a)”
in
described
subsection
re-
(a)”
in
if
subsection
the
holder
mortgages
fers to
multifamily
all
on
in
regulation prescribed by
violates “a
the which
has a
HUD
financial interest and
(a);” or,
Secretary under subsection
al- which have received an extension or modifi-
(a)’s
though
ishe
from subsection
cation.
reading,
Under this
the
by
explicit escape
virtue of the
culpable.
would not be
clause,
covered,”
“not
or is
otherwise
imprecision just
Given the
to in
referred
(a) regulations, engages
the subsection
in
(b),
the language
“plain
of
the
subsection
skimming.4
equity
of
result
subsec-
meaning”
the
of
words of the statute does
(b)’s classificatory
tion
system is that all
Thus,
not
a result.
direct
we must consid-
security
those whose
is
er
aspects
particu-
in
(a)
mortgage described in subsection
lar
regard,
points
its structure.
this
two
skim,
equity
culpable
are
under crimi-
First,
special
are of
relevance.
1715z-4
(b).
nal subsection
purport
aspects
does not
to deal
all
of
equity
It
undenied that the defendants
is
of
behavior
defaulted
but
Therefore,
question
skimmed.
this
only with the extension or modification of
by “mortgage
case is what is meant
mortgages.
defaulted
Section 1715z-4’s ti-
(a).”
question
scribed in subsection
is
explicitly
tle
that
it
states
concerns
answer,
(a)
difficult to
for subsection
does
“[mjodifications in terms of insured mort-
rather,
not
mortgages;
describe
gages.”
suggests
(b)
it
This
that subsection
places certain limitations on the
similarly
extension is
limited
of
to instances
mort-
extension,
mortgages
gage
or modification of defaulted
on
modification or
otherwise
housing”
“multifamily
may
eral
of
definition
to decide in
cases
be
courts
whether a
particular
permissible.
used here.
of
use
funds was
ignores
stating
complication, seizing
3. The dissent is therefore
5.
incorrect
The dissent
(a)
(a)
"unequivocally proscribe[s]
upon
"any
that subsection
the fact
subsection
refers to
practice
equity skimming
equity
mortgage covering
housing,”
multifamily
mortgaged properties.”
concluding
Dissent at
without discussion that these
130.
mort-
(a)
equity
gages
Subsection
makes restraint
must be
ones “described
subsection
But,
skimming
(a).”
a condition of extension or modifica-
at 131.
Dissent
the mere fact that
mortgage;
says nothing
(a)
a defaulted
it
mortgages
refers
subsection
to such
does not
mortgages
about defaulted
that have not re-
mean that those are the
it
ones that
describes.
(a)
ceived extensions or modifications.
Since subsection
is
with the ex-
concerned
tension or modification of defaulted
multifamily dwellings,
equally
the first
at least
Whereas in
situation
it is
regulations,
plausible
argue
is defined
we
latter two
shall
below that it is
—and
apply;
pro-
plausible
"mortgage
situations the
do not
more
described in
—that
scription against equity skimming
(a)”
in these
situa-
subsection
means those
re-
quite general
tions is thus
and it has been
ceive
left
extensions modifications.
Congress.
house of
would be inaccurate. See Brother-
floor of either
title
Railway
only
congressional intent is the
Trainmen
Baltimore
evidence of
hood of
Co.,
Report
R.
Report. Fortunately,
House
& Ohio
331 U.S.
S.Ct.
(court
(1947)
explicit
point at
here.
While could Capanos’ analysis, confident that the read- designed discourage This section is to ing only plau- the not the of while of rental multifam- distribution income of one, reading, is the sible nonetheless better mortga- ily to of a projects stockholders legislative history, turn now to for we the gor or owners corporation individual supports reading. it that to income should be used where such payments. mortgage meet Where it is Legislative History
B.
prob-
thought
mortgaged property
that a
ably
generate enough income to
will not
1715z-4
enacted as
Section
302 of
§
mortgage payments,
there is
Housing
Development
meet
the
and Urban
Act
90-448,
temptation
the
to divert
Pub.L.
for
owners
of
82 Stat. 506. The
from
their own
provision generated
discussion
the
funds
rentals to
received
position,
mortgagor
government’s
cannot
an extension
On behalf of the
the
faulted
receive
mortgage
argues
Capanos’ interpretation
unless he
that the
or
of his
dissent
modification
(a)’’
by
"mortgage
agrees
generated
trust all
of
described in subsection
would
to hold in
monies
superfluous
language
mortgaged property
render
the
the
that are not needed
(b) referring
mortgage
regula-
operation
property.
to "a
not otherwise cov-
the
of the
Id.
argues
regulation.”
exemption
such
The dissent
provide
ered
an
decision
tions also
for
that
the
Two facts
of
FHA. Id.
Commissioner
particularly important
regulations are
about the
interpretation,
majority’s
only
[u]nder
first,
present purposes:
for
distinguish
have received
extension
who
of the
the’
between
Commissioner
or modification of their
would be
mortgagee,
are
implying that
FHA and the
penalties. Since
liable for criminal
mortgagors
all such
same; second,
regula-
not one in the
subject
of
are
to
"Rights
Duties
the subtitle
and
(a),
tions fall under
imagine
hard to
it is
Mortgagee
the Contract of Insurance.”
of
under
might
category mortgagors
fit into
lia-
facts that
It is a
inference
these
fair
penalties but "not
ble to criminal
otherwise
mortgag-
regulations apply
es,
to HUD-insured
regulations.
covered”
the subsection
mort-
Since HUD-held
ones.
not HUD-held
at 132.
Dissent
specifically exempted
gages
not
are
this is
is evident from a brief
That
incorrect
however,
they be-
regulations,
must be
inspection
regulations HUD
has issued
(a),
long
“not otherwise
class of
pursuant
to subsection
C.F.R.
207.-
regulations.
256(b) (1985).
regulations state
de-
covered”
that a
go
Despite
evidence,
and to allow the
use
into
argues
the dissent
recoup
in order
default
their invest-
language
broader
in the second
project
ment
even to show a
quoted paragraph
statute
“[the
is]
—
profit
the investment.
discourage
signed to
distribution of rental
generally proven
actions
in-
Civil
have
multifamily projects
income of
to stock-
adequate
discouraging
as a
means
mortgagor
holders of a
corporation or indi-
recovering
such
or of
actions
all diverted vidual owners where such income should be
funds. Section 239
would
[§ 1715z-U]
to meet
payments”
used
—should
provide criminal
such
for
precedence
guide
take
interpreta-
our
mortga-
diversion
willful
funds
tion. Dissent at 134. We cannot agree.
stockholder,
officer,
director,
gor or a
or Although the
paragraph
second
is broadly
agent
peri-
during the
worded, paragraphs
other three
are
od in which the
a de-
time for
circumscribed;
carefully
they deal exclu-
or
has been extended
the terms
fault
sively
extension or modifi-
maximum
modified.
To
paragraph
cation.
read the second
liter-
penalty would
a fine of
than
not more
does,
as
ally,
the dissent
contrary
$5,000
imprisonment
of not more than
expressed
the intention of
years, or
both.
quoted
in the whole of the
section of the
Secretary
in his
could
Report
Committee
especially
the em-
provide
granting
consent to an exten-
portion
phasized
quoted para-
third
of a
sion or modification
graph.
regard
class of
without
case or
cases
requirements of
the regulations
That the
and Ur-
he determined such
where
action would
Development
ban
legislative
has read the
jeopardize
the interests of
history
strengthens
as have
posi-
we
our
However, in the
States.
case of
In a
tion.
letter from John
Kopecky,
W.
mortgages,
knowing
will-
Acting
Counsel,
General
Associate
to Wil-
use,
use,
ful
authorization
Ruckleshaus,
D.
liam
Attorney
Assistant
any part of the rents or other funds
General,
dated December
the Sec-
mortgaged property
derived from the
retary’s
counsel stated that “the
any purpose other than to meet actual
*6
history
pen-
indicates the
criminal
[sic]
necessary expenses
(including amor-
239(b)
(b)
under
alties
Section
[subsection
]
tization)
while the
is in default
during
to willful diversions
carry
penalty.
a similar
period in
time
which the
for
1585,
H.R.Rep.
Cong.,
Sess.,
No.
90th
2d
default has
been extended or the
reprinted in
Cong.
1968 U.S.Code
& Ad.
Although
is under modification.”
the Sec-
2873,
(emphasis supplied).
News at
2906
retary’s interpretation
binding
is not
no
or suggestion
There is
indication
court,
surely
See,
probative.
this
it is
e.g.,
portion
the emphasized
para-
of the third
Rutherford,
544,
United States v.
442 U.S.
graph
intended
be merely
to
illustra-
552,
2470, 2475,
99 S.Ct.
C.
for
Congress
expressed,
begin-
Criminal Statutes
has
not at the
ning
overriding
as an
consideration of be-
statutes,
must,
construing
When
courts
”
wrongdoers.’
Russello v.
ing
lenient
course, give effect
to the will
of Con-
29,
States,
16,
104 S.Ct.
464 U.S.
United
honest,
than
gress. We would be less
how-
Cal-
(1983)
296, 303,
(quoting
17
L.Ed.2d
78
ever,
if we did not admit that
some cases
States,
587, 596,
lanan v.
United
364
U.S.
determine that will with
we cannot
certain-
326,
321,
(1961)).
81
5
S.Ct.
L.Ed.2d 312
ty, and statutes are therefore sometimes
It is
This
does not stem
ambiguity.
left with
well-settled that
rule
from a societal
compassion
potential
interpretative
effort fails
Rath-
where
court’s
criminals.
er,
ambiguity
meaning
expresses
in the
the rule
eliminate
conviction that
uncertainty
potential
the residual
criminal
defendants
be ac-
must
See,
lenity.
proscribed
be resolved in favor of
corded fair notice of the
con-
will
—
States,
States,
Dowling
McBoyle
e.g.,
v.
See
v.
duct.
United
United
U.S.
283
—,
3127, 3131-32,
25, 27,
340,
—,
341,
87 U.S.
51 S.Ct.
105 S.Ct.
judicial
proper
construed to cover
diversion un-
administra
merely
project
der a
do
of the
after default." We
tion
criminal
law cannot
left
to
”
stipulation
accept
suggestion.
Kopecky’s
parties.’
(quoting
not
this
ob-
of
Id.
Mr.
[the]
States,
Young
nothing
to do
v. United
315 U.S.
62
servation has
511,
(b) which,
history
S.Ct.
tion”) We concede that skimming is ob- jectionable regardless of whether an exten- purposes underlying Both the rule of len- sion or granted. modification has been ity are served here our narrow construc- Thus, Capanos’ nothing is we conduct (b). argued tion of subsection We have condone.9 That does not imply that there above that the narrow construction is the anything illogical is about the appli- limited one, plausible supported by more the statu- cability (b). Congress tory language and context. Even those have wished to equity skimming outlaw disagree admit that must broader certain cases because of limited funds for correct, interpretation clearly is not and enforcement, or because it felt that ap- (b)’s ambiguous that ambit is pro propriate quid quo mortgagor’s open Capanos, and to debate. The and benefit from an extension or modification position, others in their were thus without of his would be that he would guidance clear on the contours of the crimi- run the risk of prosecutions criminal if he Moreover, nal law. our case, skimmed equity. In either the limita- courts, Congress, it leaves for the not the illogical. tion is not to extend the federal sanction. Certainly Congress could have pro be, Congress This is as it should is the equity skimming scribed on all multifamily appropriate forum for the extension of the mortgages jurisdiction over which federal Garcia, supra, criminal law. See (Stevens, (it might be exercised could have done so J., dissenting). lenity The rule of thus on all period, for that mat directs us to construe the statute in the ter), consequence. but that is of no We are Capanos’ favor. did, concerned with Congress what might with what Sitkin have done. Cf. Logic The the Limitation D. Smelting Refining Corp., & Co. FMC government’s argument final is that (3d Cir.1978); 575 F.2d Seaboard limiting subsection to extensions and Supply Congoleum Corp., Co. v. 770 F.2d modifications defaulted (3d Cir.1985) (“Although the activi simply illogical equity skimming because ty reprehensible probably was violated objectionable as when there has law, been agree state civil and criminal we that extension or modification as when there the scheme did not scope come within the dissent, have been laws.”). such alterations. of the antitrust It is not for the too, courts to create a crime where up argument. takes line See argument unper- at 132. The has not.10 Dissent note, however, Acres, inc., opera- Capanos
9. We that submit stock of Golden and assumed time, their conduct was not without some project re- tion of the at that the half states, deeming features. Their brief and the apartment project floundering. vacant government deny, Capanos does not money assert that invested more initially became involved with Golden Acres in project attempt protect in an capacities principals Capano, their Inc., of J.L. ultimately recoup Capa- the sum owed to J.L. general project; contractor no, Inc., enough but that their efforts were not at the time of settlement on J.L. to avoid default. Inc., $234,000 Capano, was still owed some Capanos' background rendition of the Acres, Inc.; building contract with Golden part stage this case is not of the record at this settlement, contemporaneous with the J.L. litigation, accordingly we do not relv on Inc., Acres, Inc., Capano, agreed and Golden *8 deciding it in the case. debt, outstanding pay- refinance the with full ment to be made on or before December proscription 10. The lack of a criminal did not 1974; security, attorney and that as for J.L. remedy against Capa- leave HUD without a Inc., Acres, Capano, Inc., held the stock of Golden Indeed, HUD, mortgage nos. was held Capanos in escrow. The also contend that agency seques- and the could have foreclosed or January remaining with the debt Inc., tered the rents at time. unpaid, Capano, possession J.L. took operation
III. which are not needed in the of Thus, 1715z-4(a) property. subsection legis- of 1715z-4 and its The structure § regulations and the enacted in accordance history suggest lative § unequivocally proscribe prac- therewith proscribe equity skim- was not intended tice of equity of mort- ming except multifamily mortgag- in those gaged property. in HUD had a financial interest es which had received some form of ex- and which (b) Subsection of 1715z-4 establishes § We tension or modification. note penalties prop- for owners of such disagreeing those with our assessment of erty guilty equity skimming. are of legislative history and of structure willfully Owners who knowingly use admit, very would have to at the 1715z-4 § funds derived from the property viola- least, , 1715z-4(b) whether does ex- § (a) tion of subsection and who are convicted mortgagor has tend to situations where equity of skimming may impris- be fined or modification is not received extension or oned for not years more than three or both. cases, highly ambiguous. In such the leni- The text of the portions relevant of subsec- ty principle dictates that we find in favor of (a), regulations, tion with its and the text of reading the more restrictive 1715z- § reproduced Appen- are as an 4(b). opinion. dix to this judgment court of the district will dispute do not that the in- affirmed. dictment sets forth the “willful and know- ing” diversion of rents that should have GARTH, Judge, dissenting: Circuit pay mortgage obligations, been used to but I I un- dissent because believe that the pay that were instead used to off construc- ambiguous language 12 U.S.C. 1715z-4(b)(2)(a) tion loans. pro- Section 1715z-4 criminalizes all skim- § vides that the owner of whose ming1 by mortgagors housing whose is mortgage is or was insured even subject a which was or is though he is either from the re- Secretary quirements issued under (HUD) Development Urban is now of that section or is “not regardless default. This is so of whether regulations, otherwise covered” those granted mortgagor or not has HUD subject nevertheless to criminal if modification terms or an ex- willingly knowingly equity. he skims tension of time to cure a default. The (,See Appendix for text of 1715z- § majority ignores unambiguous con- 4(b)(2)(a).) gressional direction. Since indictment facts which recites would establish a crimi- dispute There is no in this case that the violation, nal I would reverse the district Capano mortgage is “not otherwise cover- dismissing court order the indictment. ed” issued under subsec- (a). Those cover
I. mortgages for which an extension of time provides 1715z-4 granted. Subsection or a modification has been Secretary Capano mortgage mortgage, HUD not extend a is not such a mortgagee’s curing mortgage time for rather but is a default for may modify nor he terms of which no extension or modification was Secretary’s unless the requested. By language action ever clear complies regulations prescribed by under subsection prescribed regulations (a), him. require exempted by whether that the hold trust all monies a determination of the or wheth- generated by mortgaged er it “not otherwise covered” because no Equity skimming practice diverting purposes is the than default maintenance or generated by mortgaged property mortgage payments. revenues *9 which have been grant- modification or extension was ever to those extended or mod- ed, purview equity part, noted, within the In comes ified. relevant as we have skimming prohibition (a) Secretary therefore sub- reads: “The shall jects mortgagor penalties to criminal any request not consent to for an extension skimming.2 for any the time for default under mortgage covering multifamily housing, Thus, having demonstrated that the stat- in the as defined of the Secre- in sub- ute covers all described 1715z-4(a) tary.” (emphasis 12 U.S.C. § (a), not, they exempt they or be section added).3 by regulation, be covered or not covered they they in default or be extended or pointed out, As I have it is clear that this modified, we need determine whether statute includes within its definition of Capano mortgage is “a “mortgages” all HUD that are (a)” phrase is scribed in subsection as that request whether or not a for an (b), 1715z-4(b)(2). in subsection used extension of time or a modification of contrast, present analysis, granted. terms has ever been majority’s
Under majority opinion, criminal sub- regards is clear that the triggered only granting are when the section of an extension or modification as mortgagor receives an extension of time trigger for liability, would sub- cure his default or a modification of the ject equity liability skimmer to criminal See mortgage. maj. op. terms of his at skimming only for when he has received an Thus, majority implicitly holds modification, extension or while it would play, that subsection does not come into equity allow the skimmer who never mortgagor defaults re- when without modification, sought an extension or questing a modification or an extension of request whose for extension or modifica- mortgage. play Nor does it come into denied, get tion was off scot-free. There view, majority’s when the logical can be no reason for requested has a modification or an exten- preferred equity have skimmer who sion and has been denied. applied never for an extension or modifica- tion, request for an
According majority, only whose extension or to the a mort- denied, equity gage that modification was over the has been extended or modified (b). request granted. falls within the skimmer whose Yet terms plain language majority opinion, giving Yet the of subsection without rea- therefor, way description limits the explaining of a son and without However, Capanos they 2. The do not claim that have been of the United States. in the case of exempted requirements regula- mortgages, knowing from the However, if, following hypothetical use, use, tions. willful or authorization of such extension or modification of their HUD mort- any part of the funds derived rents or other gage, exempted had been from the mortgaged purpose they place requirement all revenues from necessary to meet other than actual and ex- trust, in a would still be liable amortization) (including penses while the prosecution equity skimming. The stat- carry a is in default would similar regulations clearly proscribe equi- ute and its all penalty. ty skimming provide equity -skimmers Sess., H.R.Rep. Cong., reprint- No. 90th 2d indicted, criminally equity even if the Cong. ed in 1968 U.S.Code & Ad.News at 2906. exempted compliance skimmer has been deposit with the ute, in trust of the stat- 3. Although promulgated regu HUD has not and even if the skimmer is not other- defining "multifamily housing" lations regulations. wise covered This purposes provision, regulations de of this explicitly intent was stated the House Com- multifamily housing accommodations fine Report mittee in its as follows: use, designed principally for residential con pro- in his could forming satisfactory to standards to the Com granting vide for consent to an extension or of the Federal Administra missioner modification of a case or tion, containing at least rental units. five regard require- class of cases without See 24 C.F.R. sec. 207.24. ments of the where he determined jeopardize such action would not the interests *10 132
anomaly, would agreement absolve criminal an as to lia- extension or modifica- bility request the skimmer who made no tion, similarly mortga- not to but situated denied, request whose punishing was while gors seeking who defaulted without such request granted. the skimmer whose agreement. This arbitrary an distinction is illogical when viewed in terms of the
This of the statute would discern, purpose of the superfluous, render I statute. Under this inter- as best can 1715z-4(b)(2)(a) language pretation, Congress of section given equi- re- would have ferring mortgage to “a not otherwise cov- ty perverse skimmers the incentive of by regulation.” ered such Under ma- avoiding all communication with HUD so jority’s interpretation, only mortgagors they escape could then criminal liabili- who have received an extension or modifi- ty. Again, it why is' unclear to me Con- mortgages cation of their would be liable to gress should subject have wished to penalties. mortga- criminal all such Since equity penalties skimmer to criminal when gors subject are of sub- he receives an extension or modification of (a), might imagine section it is hard to terms of his exculpat- while category mortgagors fit into the liable ing equity skimmer who neither re- penalties to criminal “not but otherwise quests granted nor is an extension or modi- by (a) regulations. covered” the subsection Again, fication. majority has failed to majority meaning to find seeks explain possibly what could have motivated category mortgages “not otherwise Congress illogical to make distinc- covered” in the fact tion. view, regulations apply those majority can make sense of the lan- only mortgages, to HUD-insured not to guage 1715z-4(b)(2)only by of section cre- mortgages,4 HUD-held whereas the crimi- ating artificial distinctions which penalties 1715z-4(b) apply nal to both did not see fit to make and which bear no mortgages. HUD-held and HUD-insured Congress’s purpose enacting relation to The “not otherwise category, covered” provision, namely prevention this majority speculates, comprise would thus equity mortgages those HUD-held that had once Maj. op.
been extended to modified.
mortgage
at HUD has a financial interest as
126 n. 6
mortgagee. Only
insurer or as
if it is
recognized
penalties apply
that criminal
to
But the
nowhere state that
equity skimming
mortgages,
from all HUD
they apply only
to HUD-insured
request
whether or not there has been a
mortgages.
and not to HUD-held
Further-
modification,
for extension or
more,
whether or
interpretation,
under this
the crimi-
request
granted,
not such
nal
has been
they
those
whether
are
whose
were
HUD-held
HUD-in-
sured,5
taken over HUD after
had
language
reached
can the
of section 1715z-
merely
temptation
4. A HUD-held
is a
once in-
HUD. The
sured
that has been defaulted on
equity
skim
from a HUD-held
is as
subsequently
taken over and
great
temptation
as the
to skim
from a
by HUD.
held
mortgage.
HUD-insured
The concern of Con-
gress
upon deterring equity
was focused
skim-
court,
In its affirmance of the district
ming through
penalties,
merely
criminal
majority tentatively disclaims reliance on the
upon providing HUD as an insurer with an
argument
Capanos, accepted by
the dis-
alternative to civil remedies in case of
court,
penalties apply only
trict
(see
majority
maj. op.
theorizes
at 18 n.
skimming involving
mortgages,
HUD-insured
Second,
10).
Norris,
States
749 F.2d
mortgages.
maj. op.
not HUD-held
See
at 123
(4th Cir.1984),
denied, — U.S. —,
cert.
Capanos’ argument
rejected
n. 1. The
should be
(1985)
S.Ct.
bative or entitled to consideration. Com- IV. pare maj. op. at n. 7 127-28 with id. at 128 Because I believe that section 1715z-4 of perplexed why n. 8. I am as to selected clearly the statute criminalizes skim- segments of the same document are char- ming property security differently. acterized so mortgage regardless HUD of whether or case, opinion
In any not an extension letter does not or a modification of the agency constitute sought, granted, the sort of has been or de- nied, especially given entitled to I judgment would reverse the deference— Although opinion majority appellate brief. disclaims re- These circumstances are not a redeeming liance Capa- on ostensible features part of the record before district court on a conduct, curiously no’s refers to several cir- motion to dismiss an indictment and therefore underlying Joseph Capano’s acquisi- cumstances play any part not our decision of this Acres, ownership tion of of Golden Inc. These case. Capano’s factual assertions are found (a) mortgagee mortgagor and the dismissed indict- district court which may, approval indictments of the Commis- ments and reinstate with against Cápanos. respect- sioner, agreement I therefore enter into an which fully dissent. extends the time for a default pay- under the or modifies the
APPENDIX mortgage. ment terms of pro- Subsection of section 1715z-4 (b) approval The Commissioner’s . vides, pertinent part: agreement specified para- type any Secretary shall consent graph of this section shall not be request for an extension of the time for agrees given mortgagor unless the under curing a default writing during period pay- such housing, covering multifamily as defined mortgagee ments to the are less than the Secretary, or for required amounts under the terms of the of such mort- a modification of the terms original mortgage, it will hold in trust conformity regula- gage, except in disposition as directed the Com- in ac- prescribed tions missioner all rents or other funds derived with the of this sec- cordance required which are not require, shall as a tion. Such necessary expenses to meet actual and granting condition arising in operation connection with the that, during period request, of such property, including of such amortization modification, any part of the extension or charges mortgage. by the mort- rents or other funds derived (c) may exempt The Commissioner gagor from the covered requirement para- required is not to meet graph of this section in case necessary expenses arising in actual and where Commissioner determines that operation connection of such exemption jeopardize does not charges property, including amortization *14 interests the United States. be held in trust 24 C.F.R. 207.256b and distributed Secretary; the consent of the ... 1715z-4(a).
12 U.S.C. §
Section establishes criminal
penalties for: Whoever, as an owner of a (cid:127) security ATLANTA INTERNATIONAL in subsection of this section scribed COMPANY, INSURANCE (2) determined, if ... such Appellant, provided in subsection of this sec-
tion, requirement to be regulation such or is not other- The SCHOOL DISTRICT OF regulation, covered such
wise willful- PHILADELPHIA. knowingly ly and uses or authorizes the No. 85-1041. use, while such is in Appeals, United States Court of part of the rents or other funds Third Circuit. derived from the covered any purpose Argued Sept. 1985. necessary than to meet actual and ex- Decided March 1986. penses arising in connection As Amended March property____ 1715z-4(b). 12 U.S.C. § issued under subsection
(a) read as follows: