In the Matter of: RANDOLPH L. PITKIN and BARBARA PITKIN, Petitioners

HUDBCA No. 99-C-NY-Y181 Claim No. 77-14914-0

 

DECISION and ORDER

Petitioners were notified by a Due Process Notice that the Secretary of the U.S. Department of Housing and Urban Development ("HUD") intended to seek administrative offset of any Federal payments due to Petitioners or to seek administrative wage garnishment of Petitioners' pay in satisfaction of a delinquent and legally enforceable debt allegedly owed to HUD. Administrative offset is authorized by 31 U.S.C. ?3720A; administrative wage garnishment is authorized by 31 U.S.C. ? 3720D. The claimed debt has resulted from a defaulted loan that was insured against non- payment by the Secretary pursuant to Title I of the National Housing Act (12 U.S.C. ?1703)

Petitioners made a timely request for a hearing concerning the existence, amount or enforceability of the debt allegedly owed to HUD. The Administrative Judges of this Board have been designated to conduct a hearing to determine whether the debt allegedly owed to HUD is legally enforceable. 24 C.F.R. ? 20.4(b). As a result of Petitioner's request, referral of the debt for offset or issuance of a wage withholding order was temporarily stayed by the Board.

Discussion

31 U.S.C. ?3720A and 31 U.S.C. ?3720D provide Federal agencies with remedies for the collection of debts owed to the United States Government. The loan at issue is a defaulted home improvement loan for $25,000, secured by the real property to be improved, and insured against non- payment by HUD. The Secretary is the holder of the loan note, which was assigned to the Secretary by the lender after default by Petitioners. (Secretary's unnumbered Exhibits, the loan note, Addendum and Assignment). The Secretary's administrative offset action in this case is based on enforcement of the loan note.

The burden of proof is on the Government to prove the existence or amount of the alleged debt. 31 U.S.C. ? 285(f)(8)(i). The Secretary has filed a Statement with supporting documentary evidence in support of his position that Petitioners are indebted to the Department in a specific amount. Petitioners do not contest the existence or amount of the debt, but contend that the debt claimed by the Secretary is not enforceable against them because their signatures were forged on certain loan documents, financial documents and letters were fabricated by the lender to make it appear that Petitioners qualified for the loan, and loan documents contained false information that was not provided to the lender by Petitioners. The Secretary has failed to respond to the forgery and false documentation issue, even though ordered to show cause for the failure.

Petitioners also question whether they would have qualified for the loan if true and correct financial information had been used to support their loan application. Petitioners' signatures on their request for review to the Board appear to be substantially similar to Petitioners' signatures that purport to be theirs on the loan note and on the Addendum to Note.

However, Petitioners may be correct in their assertion that their signatures were forged on certain documents used to support the loan application, and the Secretary has failed to rebut Petitioners' assertions that other documents used by the lender to support the loan application contained false information, or were fabricated to make it appear that Petitioner Barbara Pitkin was employed by Van-Max Medical Group, which she was not. I find, based on comparing Barbara Pitkin's true signature on the loan contract, that it is substantially dissimilar to Barbara Pitkin's signature on the undated statement that purports to explain certain credit problems that Petitioners had encountered. Randolph Pitkin handwrote on a copy of the undated statement that: "nothing in this letter is accurate. It was never written or offered by myself of my wife. The signatures & initial is completely forged." Randolph Pitkin also handwrote on a copy of the Credit Application for the loan that it contains entirely false information that Barbara Pitkin worked for five years as an administrator at Van-Mar, earning $3,387 a month. Randolph Pitkin states that Barbara Pitkin never worked there at all.

Petitioners' signatures on page 3 of the Credit Application are their signatures, and they were not forged. Petitioners admit that they signed the document. The Credit Application clearly states that Petitioners certify that the statements in the Credit Application are true and correct to the best of their knowledge and belief. In addition, the Confidential Statement of Information is also signed by Petitioners, and their signatures are not forged. However, they state that the typed information on it "must have been typed in after we signed it." Some of the information in the Confidential Statement is hand printed, but some is typed, including a typed statement that Barbara Pitkin was currently employed at Van-Max and had been employed there for five years as of June 3, 1995. Petitioners contend that information is false and was not provided by them. On February 17, 1998, the lender wrote a detailed summary of the history of the loan to the HUD Title I Claims Examination Section, which Petitioners contend contains a number of false statements. (Petitioners' unnumbered Exhibits.) .

If the lender fabricated documents, or knowingly included false information in the loan application package, with or without Petitioner's knowledge, these are serious acts that would be a basis for the lender losing its right to participate in HUD's mortgage insurance programs. See 24 C.F.R. ? 25.9. However, my jurisdiction in this case is limited to a determination of whether the debt is past-due and enforceable against Petitioners in the amount claimed by the Secretary.

The loan note is a negotiable instrument, as defined in California Commercial Code Annotated Section 3104, because it is a signed unconditional promise or order to pay a fixed amount of money, with interest. The Secretary is a holder in due course of the loan note, as defined in California law, because the note does not bear apparent evidence of forgery or alteration, nor is it otherwise so irregular or incomplete as to call into question its authenticity. In fact, it is only the documents that were submitted with the application for the loan in this case that were possibly forged or fabricated. A negotiable instrument is not defined by California law to include the supporting documents submitted to obtain it. Ann. Cal. Com. Code ? 3104 (a) and (e). Therefore, I can only look at the loan note itself, which is unaltered and was signed by Petitioners. Because the Secretary took the loan note from the lender for value, in good faith and without notice that any party had a defense or claim in recoupment on the loan note, the Secretary is a holder in due course who has the legal right under California law to enforce the obligation of a party to pay the instrument, unless the Secretary had notice that a party had a defense or claim in recoupment set out in Section 3305 (a) of the California Commercial Code, Ann. Cal. Com. Code ? 3302(a). Neither forgery nor alteration are defenses under Section 3305 (a ) and there is no evidence that the Secretary had any notice of defenses or claims in recoupment when the note was assigned.

In this case, Petitioners applied for a home improvement loan, they were approved for it and received the proceeds of the loan. They certified on the loan application that the information contained in it was true and correct. Notwithstanding the possibility of false information in the documents submitted in support of the properly executed loan note, Petitioners have failed to show that the loan note is, per se, unenforceable against them as a matter of law.

Petitioners state that they are presently financially unable to pay the debt on the loan note, and that the reason why they defaulted on the loan note was due to financial hardship. This Board's jurisdiction is limited to determining whether the debt exists and is legally enforceable against Petitioners in the amount claimed by the Secretary. Unfortunately, evidence of hardship, no matter how compelling, cannot be taken into consideration in determining whether the debt is legally enforceable. Anna Filiziana, HUDBCA No. 95-A--NY-T1l (May 21, 1996). Petitioners have no evidence to prove that *the debt claimed by the Secretary is not legally enforceable against them.

While Petitioners may wish to negotiate repayment terms with the Department, this Board is not authorized to extend, recommend, or accept any payment plan or settlement offer on behalf of the Department. Petitioners may wish to discuss this matter with Lester J. West, Director, HUD Albany Financial Operations Center, 52 Corporate Circle, Albany, NY 12203-5121. His telephone number is 1-800-669-5152, extension 4206. A review of Petitioners' financial status may be conducted if Petitioners submit to that HUD Office a Title I Financial Statement (HUD Form 56142)

Order

The debt which is the subject of this proceeding is legally enforceable against Petitioners in the amount claimed by the Secretary. The Order imposing the stay of referral of this matter to the IRS or to the U.S. Department of the Treasury is vacated.

It is hereby ORDERED that the Secretary is authorized to seek collection of this outstanding obligation by means of administrative offset of any eligible Federal payments due to Petitioners. No collection of this debt shall be by administrative wage garnishment unless Petitioners are given specific notice of the Government's intent to issue such an order and unless Petitioners are given the right to contest the issuance of such an order under the hearing provisions set forth at 31 C.F.R. Part 285.

 

June 14, 2000