In the Matter of EASTER SINCLAIR, Petitioner

HUDBCA No. 99-C-NY-Y138 Claim No. 7-707702350B

 

DECISION and ORDER

Petitioner was notified by 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 Petitioner or to seek administrative wage garnishment of Petitioner's 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).

Petitioner has 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 burden of proof is on the Government to prove the existence or amount of the alleged debt. 31 C.F.R. ? 285(f)(8)(i). The Secretary has filed a Statement with supporting documentary evidence in support of his position that Petitioner is indebted to the Department in a specific amount.

Petitioner does not dispute the existence or amount of the debt incurred pursuant to a loan agreement insured by the Secretary under Title I of the National Housing Act, 12 U.S.C. ? 1703, or that the debt is delinquent. Rather, Petitioner contends that the debt is unenforceable because (1) Advantage Improvements, Inc. (hereinafter "Advantage") violated applicable federal and state law by perpetrating various unfair and deceptive acts and practices relating to the formation of the Property Improvement Order between the contractor and Petitioner; (2) HUD is an assignee of Advantage, and as such the Secretary is subject to Petitioner's claims and defenses; and (3) Advantage's installation of Petitioner's roof exhibited poor workmanship. See (Petitioner's Statement That The Debt Which Is The Subject of This Action Is Not Legally Enforceable, hereinafter "Pet. Stat."; see also Petitioner's Letter, hereinafter "Pet. Ltr.," dated Nov. 2, 1998).

The Government does not address Petitioner's unfair and deceptive acts claim, but instead relies upon the Completion Certificate, among other things, in support of its position that the debt is enforceable. (Secretary's Statement, hereinafter "Secy. Stat.", at 7).

I.  HUD's Liability is Not Solely Determined by the Completion Certificate.

While it is true that Petitioner signed a Completion Certificate waiving the Secretary's liability for materials and workmanship, (Secy. Stat., Exh. A2), I find, however, that the loan document holds the Secretary liable for any defense that could be asserted against the contractor.

The loan agreement sets out the terms of the loan and incorporates all terms and conditions which are attached to the note or by reference. Here, the loan agreement and any attachments do not contain waivers regarding liability for materials or workmanship. Rather, the loan agreement, entitled, "Installment Contract, Note & Disclosure Statement," states in large capital letters, enclosed within a box marked "NOTICE," the following:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED THE AMOUNTS PAID BY THE DEBTOR HEREUNDER.

(Secy. Stat., Exh. A).

This conspicuous provision in the loan agreement is disclaimed in the Completion Certificate by HUD stating:

(4) I(we) understand that the selection of the dealer or contractor and the acceptance of the materials used and the work performed is my(our) responsibility, and HUD does not guarantee the quality or workmanship of the property improvements.

(Secy. Stat., Exh. A2). However, the main purpose of the Completion Certificate is to certify that the work was satisfactorily completed and it is that language that is visually emphasized on the Certificate. Such a disclaimer of liability in small print on the Completion Certificate does not create an internal conflict in the loan agreement concerning any liability of the Secretary, as an uncontested assignee of the contract, for defects of materials or workmanship under North Carolina law. Bobby Rickman, HUDBCA No. 90-4687-L170 (Aug. 2, 1990) (citing Idolina Munoz, HUDBCA No. 89-4544-L32 (July 27, 1990)).

II.  Petitioner Does Not Provide Sufficient Evidence to Support an Unfair and Deceptive Acts and Practices Claim Under North Carolina Law.

Petitioner asserts that she was "the victim of various unfair and deceptive acts and practices under applicable federal and North Carolina law" as perpetrated by Advantage. (Pet. Stat. at 1). An unfair and deceptive trade practice claim pursuant to North Carolina General Statute ? 75-1.1 (1969) requires the petitioning party to show: "(1) that defendants committed an unfair or deceptive act or practice; (2) in or affecting commerce; and (3) plaintiffs were injured thereby." Edwards v. West, 495 S.E.2d 920, 923 (N.C. Ct. App. 1998), cert. denied, Edwards v. West, 501 S.E.2d 918 (N.C. 1998). The Petitioner is not required to demonstrate deliberate acts of deceit or bad faith. Id. at 924. Rather, the Petitioner "must demonstrate the act possessed the tendency or capacity to mislead, or created the likelihood of deception." Id. (citations omitted) (internal quotation marks omitted).

First, Petitioner alleges that "Advantage knew [sic] the price charged [her] was substantially in excess of that which she could have readily obtained elsewhere." (Pet. Stat. 1a.). Petitioner supports her position by stating that Advantage charged her nearly $6,000.00 more than was necessary to re-roof her home. Id. There is no evidence that Advantage represented that their price was the "best price".

Second, Petitioner asserts that "Advantage accepted money for which it knew [she] would receive no substantial benefit." (Pet. Stat. 1b.). Petitioner offers no evidence indicating that Advantage was aware that the she would receive no substantial benefit from the re-roofing due to poor workmanship.

Third, Petitioner alleges that "Advantage used high pressures sales tactics knowing [sic] [she] was of limited education and economic means" and in an unconscionable manner. (Pet. Stat. 1c, 2, 3.). There is no documentation in the record indicating that Advantage was or should have been aware of Petitioner's education or economic means.

Moreover, the letter from David C. Nimmer, Director, Office of Manufactured Housing and Regulatory Functions, to Greg Hunter of Gannett Co., Inc., is not sufficient evidence that Advantage committed acts which violate the relevant North Carolina statute. (Pet. Ltr. dated Nov. 2, 1998, attached letter dated Feb. 14, 1995). While the letter states that Advantage participated in "fraudulent and unethical business practices," which may have affected the "average consumer," there is no mention of any specific acts or representations that Advantage perpetrated against or told to Petitioner. See Rucker v. Huffman, 392 S.E.2d 419, 422 (N.C. Ct.App. 1990) (stating "In determining whether a representation is deceptive, its effect on the average consumer is considered, and proof of actual deception is not required."). Therefore, Petitioner, by not submitting any evidence of "acts" by Advantage which "possessed the tendency or capacity to mislead, or created the likelihood of deception," has not satisfied the liberal standard under which a claim of unfair and deceptive acts or practices can be successful under North Carolina law. See Edwards, 435 S.E.2d at 924 (citations omitted) (internal quotation marks omitted).

In light of the above, Petitioner's assertions, without evidence, are not sufficient to show that the debt claimed by the Secretary is not past-due or enforceable under applicable North Carolina law. Bonnie Walker, HUDBCA No. 95-G-NY-T300 (July 3, 1996).

III.  Petitioner Does Not Present Sufficient Evidence to Support Her Federal Claim.

With regard to Petitioner's claim of unfair and deceptive acts under Federal law, 15 U.S.C. ? 45 (1994), as N.C. Gen. Stat. 75-1.1 has relatively the same language as the Federal statute, and both statutes have been interpreted in the same light, I find that, for the same reasons set forth above, Petitioner has not submitted sufficient evidence which can support such a claim. See Johnson v. Phoenix Mutual Life Ins. Co., 266 S.E.2d 610, 620-623 (N.C. 1980).

IV. Petitioner's Debt Is Unenforceable Because of Advantage's Negligent Performance As Evidenced By Its Poor Workmanship in Installing Petitioner's Roof.

Petitioner also asserts that the "work for which the debt was incurred was so poorly done that she should not be required to pay the debt in full." (Pet. Ltr. dated Nov. 2, 1998).

"[A]ccompanying every contract is common-law duty to perform with ordinary care the thing agreed to be done, and that a negligent performance constitutes a tort as well as a breach of contract." Olympic Products Co. v. Roof Systems, Inc., 363 S.E.2d 367, 371 (N.C. Ct.App. 1988). See also Westover Products, Inc. v. Gateway Roofing Co., Inc., 380 S.E.2d 369, 372 (N.C. Ct.App. 1989).

The Property Improvement Order (hereinafter "PIO") agreed upon by Petitioner and Advantage states the specifications of the re-roofing repair on Petitioner's home. (Secy. Stat., Exh. A1). The PIO also states the following:

Contractor agrees to do all work in a good and workmanlike manner. The acknowledgment of the completion of the work, signed by the owners of said premises, shall be sufficient notice that this contract has been satisfactorily completed by the contractor on the date thereof in accordance with terms of this contract.

Id. As previously discussed, the Completion Certificate's disclaimer as to workmanship does not deny Petitioner any of her rights under the loan agreement. See Bobby Rickman, HUDBCA No. 90-4687-L170 (Aug. 2, 1990). Also, under North Carolina law, an "acceptance of work done under a construction contract does not constitute a waiver of latent defects of which the owner was ignorant at the time, or which may appear thereafter." Cantrell v. Woodhill Enter., Inc., 160 S.E.2d 476, 481 (N.C. 1968). The defects which Petitioner complains of are latent defects and could not have been discovered simply upon physical examination. To determine if a roof has been properly installed, generally, some incident must occur, such as rain or other act of God, which would alert the individual to any defects. The Completion Certificate was signed less than one month from the execution of the PIO. While there is no evidence in the record as to weather conditions during the relevant time period, presumably such a short time period is not necessarily enough time to discover whether the roof was installed properly. As the alleged defects are latent, Petitioner did not waive her right to claims regarding poor workmanship as related to those defects.

Poor workmanship may be evidenced in several ways. For example, it may be evidenced (1) when a party does not perform the specifications as required by the contract, see Olympic, 363 S.E.2d at 372-373; (2) by obvious flaws such as leaks in the roof, see Walker Mfg. Co. v. Dickerson Inc., 619 F.2d 305, 308 (4th Cir. 1980); or (3) by an expert describing "what should have been done" so that the contractor exercised ordinary care, see Dawson Indus., Inc. v. Godley Constr. Co., Inc., 224 S.E.2d 266, 268-269 (N.C. Ct. App. 1976). In the instant case, Petitioner submitted, as evidence of Advantage's poor workmanship, a "Roof Evaluation" performed by Harley A. Putnam of Regional Roof Systems, Inc. (Pet. Stat., attachment, undated but with a fax date of September 20, 1995). In this document, an independent contractor, familiar with North Carolina building practices, found deficiencies in the home's roof and attributed some of these defects to poor installation.

In the Roof Evaluation, Mr. Putnam found, among other things, the following: (1) the frontal aprons appeared reused "due to the existence of nail holes without nails in them;" (2) the "turbine vent located on the house was not properly flashed, and water could possibly enter the home underneath it during a period of rain;" (3) the roll roofing used was "totally inappropriate in this application;" and (4) "[p]ipe flashings were in poor condition and should have been replaced during reroofing." The flaws indicated are items which Advantage was directly or indirectly required to fix according to the specifications in the POI. See (Secy. Stat., Exh. A1).

The Government does not dispute Mr. Putnam's findings or observations concerning the roof installation. Rather, to contradict Petitioner's evidence, the Government submitted an electronic mail message ("e-mail") alleging that Petitioner's roof was installed correctly. (Secy. Stat., Exh. D, E-mail from Elizabeth V. Lawrence to Glen Goodman dated October 2, 1995) (stating Frank Parker's inspection "revealed that the roof appeared to have been installed correctly."). This document notes some irregularities and defects of the roof; however, it attributes the defects to either the wind or someone replacing the roofing material. The Government also submitted evidence of another inspection conducted by Empire Funding Group. This document states that the "general appearance [sic] and workmanship [are] good." (Secy. Stat., Exh. B, dated March 29, 1993).

The Government's e-mail documenting an inspection does not entirely rule out poor workmanship. Although the inspection concludes with "it looked like a basically acceptable job," it also indicates that portions of the roof had "pulled loose from the edges and had either been blown back by the wind or rolled back by someone." (Secy. Stat., Exh. D). The report does not indicate even if the roofing material was properly installed, that it was a natural occurrence for the wind to eventually pull the material loose. The report also states that "our speculation was that the roofing was originally blown up, causing the roof to leak, and at some later time, someone went on the roof? ." Id. (emphasis added). The report does not indicate what "blown up" means or whether a roof "blowing up" is an expected event which occurs with regularity, through no fault of installers. Further, the report indicated that the larger leak was where the roof was flat. The Roof Evaluation specifically states that the improper roofing materials were used on the flat portions of the roof. (Pet. Stat., attached Roof Evaluation).

It is also important to note that although the Government disputes that Advantage displayed poor workmanship, it does not dispute that a new roof was installed. (See Pet. Ltr. dated Nov. 2, 1998, Mr. Nimmer's letter to Mr. Hunter) (stating "the Department appreciates your efforts on behalf of Mrs. Sinclair which resulted in the installation of a new roof at no charge."). Logically, absent any defects or improper installation, the roof would not have required re-roofing.

The Secretary has satisfied his burden of proof as to the existence or amount of the debt, pursuant to 31 C.F.R. ? 285(f)(8)(i), by submitting the aforementioned documents and additional documents found in the record. However, Petitioner has also satisfied her burden of proof by presenting "by a preponderance of the evidence that no debt exists or that the amount of the debt is incorrect." 31 C.F.R. ? 285(f)(8)(ii). Despite the Government's documents which indicated that the roof was properly installed, Petitioner's evidence of the Roof Evaluation and Mr. Nimmer's letter to Mr. Hunter indicating that as a result of the news broadcast, a new roof was installed on Petitioner's home, as well as the noted inconsistencies between the Government and Petitioner's roof evaluation reports, demonstrates that, in fact, Advantage negligently failed to perform the specifications as required by the POI contract agreement.

V. Petitioner's Failure to Convey Her Contentions to HUD at an Earlier Time, Does Not Bar Her From Asserting Her Claims.

Lastly, the Government contends that Petitioner did not express "any displeasure with the workmanship of the contract." (Secy. Stat. at 8; see also Declaration of Glen Goodman at 7). Indeed, Petitioner does not present any evidence that she gave Advantage or HUD notice of the defects in her roof. However, North Carolina law allows a claimant six years from the date when the work is completed to bring a suit for damages "based upon or arising out of the defective or unsafe condition of an improvement to real property." N.C. Gen.Stat. ? 1-50(a)(5)a (1997). There is no statutory requirement of when notice must be given, aside from filing suit. See id. Thus, despite any laxity on Petitioner's part in asserting her rights, under North Carolina law, she would be entitled to assert those rights for a six-year period from performance of the work in dispute.

VI. Conclusion

In light of the foregoing, Petitioner has a valid defense against the Secretary of HUD as holder of the contract in question. For these reasons, I find that the debt is not enforceable against Petitioner.

Order

I find that the debt which is the subject of this proceedings is not legally enforceable against Petitioner. The Order imposing the stay of referral of this matter to the IRS for administrative offset or to the U.S. Department of Treasury for issuance of a wage withholding order is made permanent.

It is hereby ORDERED that the Secretary of HUD is not authorized to seek collection of this outstanding obligation by means of administrative offset of any Federal payments due to Petitioner or by means of issuance of a wage withholding order

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March 10, 2000