In the Matter of GENE & JANET VALLINI, Petitioners

HUDBCA No. 99-C-CH-Y15 Claim No.7-708328860B

 

DECISION and ORDER

Petitioners were 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 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 have 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 Petitioners' 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 and amount of the alleged debt. 31 C.F.R. ? 285(f)(8)(i). The Secretary has filed documentary evidence that establishes the existence and amount of the debt. The Secretary has carried his evidentiary burden.

Petitioners do not dispute the existence or amount of the debt incurred pursuant to an installment note insured by the Secretary under Title I of the National Housing Act, 12 U.S.C. ? 1703, or that the debt is delinquent. Rather, Petitioners dispute the enforceability of the debt against them. Petitioners assert that the debt is not enforceable against them because the seller refused to repair a poorly manufactured mobile home and because of financial hardship. (Petitioners' letter dated October 19, 1998).

Petitioners state their mobile home was "poorly manufactured" and that the seller of the home refused to make repairs to the home, but they filed no evidence that would prove this assertion. (Petitioners' letter dated October 19, 1998).

Petitioners executed a Retail Installment Contract - Security Agreement on April 7, 1989 and there is no evidence in the record that Petitioners were dissatisfied with the construction of their home at the time of purchase. Based on the record, the first acknowledgment of dissatisfaction is evidenced by a letter Petitioners wrote to the Secretary, dated October 17, 1995, responding to the Secretary's request for repayment. (Exhibit A to Declaration of Glen Goodman dated November 17, 1998, Exhibit to Secretary's Statement dated December 7, 1998). In Petitioners' response to the Secretary's letter dated October 2, 1995, Petitioners state that "when the mobile home was four years old the shingles began cracking and [Petitioners] had a lot of leaks on ceiling in bedroom + between the walls." (Petitioner's letter dated October 17, 1995; Exhibit A to Declaration of Glen Goodman dated November 17, 1998, Exhibit to Secretary's Statement dated December 7, 1998). However, there is no evidence in the lender's file that Petitioners notified the lender, at any time, of the alleged problems with the mobile home.

In order to present a prima facie case of breach of implied warranty of merchantability in the state of North Carolina, Petitioners must prove that:

1. a merchant sold goods;
2. the goods were not "merchantable" at the time of sale;
3. the [Petitioner] was injured by such goods;
4. the defect or other condition amounting to a breach of the implied warranty of merchantability proximately caused the injury; and
5. the [Petitioner] so injured gave timely notice to the seller.

NC ST G.S. ? 25-2-314 (1999); see also Foyle ex rel. McMillan v. Leder Labs., 674 F.Supp. 530 (E.D.N.C. 1987)(NO. 85-1620-CIV-5)(first and second emphasis added).

Of the five requirements Petitioners must prove in order to establish a breach of implied warranty, only the first requirement has been met. From the record, it is clear that Clayton Homes, Inc. is a merchant, consistent with NC ST G.S. ?25-2-104 (1999), who deals with mobile homes of the kind Petitioners purchased. (Exhibit B to Declaration of Glen Goodman dated November 17, 1998, Exhibit to Secretary's Statement dated December 7, 1998). However, Petitioners fail to prove the remaining four of the five statutory requirements under North Carolina law to support their contention that the mobile home was defective and a breach of warranty had occurred. There is nothing in the record which evidences Petitioners complained of any problems with the construction of their home or that requests for repair were made, and subsequently denied. There is also no proof that Petitioners sought in any way to exercise their rights under the warranties clause of their contract. Therefore, in the absence of a showing that the mobile home was defective at the time of sale, that Petitioners were injured by the defective goods, that the condition complained of resulted in a breach of the impled warranty of merchantability, and that timely notice was given to the seller, Clayton Homes, Inc., any argument asserted by Petitioners which relies on a breach of implied warranty of merchantability must fail for lack of proof. Jessie H. & Delma W. Paulk, HUDBCA No. 99-C-NY-Y203 (June 23, 1999).

Petitioners also request that this Board consider Petitioners' financial hardship in determining whether the debt is enforceable against them. However, this Board must determine whether, as a matter of law, this debt is legally enforceable against Petitioners. 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-T11 (May 21, 1996). Petitioners have presented insufficient evidence to prove that the debt claimed by the Secretary is not legally enforceable against them.

Petitioners may wish to negotiate repayment terms with the Department. However, 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).

Petitioners may also request the Department to propose a repayment schedule. If the Department's repayment proposal is unacceptable, Petitioners has a right to seek Board review of the proposal. This Board is authorized to review "the terms of the repayment schedule [if the terms] are unlawful [or] would cause a financial hardship to the debtor . . . ." 31 C.F.R. ? 285(f)(8)(ii).

Order

I find the debt which is the subject of this proceeding to be legally enforceable against Petitioners in the amount claimed by the Secretary. 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 vacated.

It is hereby ORDERED that the Secretary is authorized to seek collection of this outstanding obligation by means of administrative offset of any Federal payments due to Petitioners or by means of issuance of a wage withholding order.

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January 5, 2000