Opinion
No. 2209 C.D. 2014
07-28-2015
Gregory J. Daigle, Petitioner v. Housing Finance Agency, Respondent
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE ANNE E. COVEY, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE COHN JUBELIRER
Gregory J. Daigle (Daigle), pro se, petitions for review of an Order of the Pennsylvania Housing Finance Agency (Agency) affirming the denial of his application (Application) for a homeowner's Emergency Mortgage Assistance Loan (HEMAP Loan) under the Act commonly known as the "Homeowners' Emergency Mortgage Assistance Loan Program" (Act 91). Daigle argues that the Agency erred in determining: (1) that he is suffering financial hardship due to overextension and not circumstances beyond his control; and (2) that he does not have a reasonable prospect of his resuming mortgage payments within 36 months of the date of his mortgage delinquency and paying the mortgage in full by its maturity.
Act of December 3, 1959, P.L. 1688, added by the Act of December 23, 1983, P.L. 385, as amended, 35 P.S. §§ 1680.401c - 1680.412c.
Daigle and his wife, Joan, purchased their residence on May 27, 2008 at a price of $275,000.00. (Deed, S.R.R. at 56b-57b.) In 2012, Daigle refinanced his original mortgage valued at $212,980.00 to capture a lower interest rate of 4.25%. (Verification of Mortgage Purpose, R.R. at 20; Hr'g Tr. at 20-21, S.R.R. at 45b-46b.) Daigle also owns a rental property where the tenants' rental payments finance that property's mortgage and utilities. (Counseling Agency Circumstances Analysis Form (Circumstances Form), R.R. at 9.)
Daigle owned and operated his own manufacturing business, American Reel Corporation (American Reel), from 1996 to 2012. (Application, R.R. at 5.) American Reel was an S-corporation (S-Corp) of which Daigle was the sole shareholder. (Hr'g Examiner Decision at 2; Hr'g Tr. at 12, S.R.R. at 37b.) For a number of years when American Reel was unable to obtain its own line of credit, Daigle used credit cards in both his and American Reel's names with zero percent interest rates as the company's operating line of credit. (Hr'g Tr. at 11, S.R.R. at 36b.) American Reel operated at a loss in 2009, 2010, and 2011. (Hr'g Tr. at 19, S.R.R. at 44b.) In March 2010, Daigle took out a $22,000.00 second mortgage against his home to provide capital to American Reel and pay off his wife's vehicle loan. (Verification of Mortgage Purpose, R.R. at 21.) The mortgage lender ultimately charged off the second mortgage in January 2013. (Daigle Credit Report at 2, S.R.R. at 83b.) Ultimately, American Reel ceased operations in 2012, but it has not filed for bankruptcy. (Hr'g Tr. at 12, 19, S.R.R. at 37b, 44b.)
An S-corporation is "[a] corporation whose income is taxed through its shareholders rather than through the corporation itself. Only corporations with a limited number of shareholders can elect S-corporation tax status under Subchapter S of the Internal Revenue Code." Black's Law Dictionary 394 (9th ed. 2009).
Daigle then obtained employment at Bosco Enterprises (Bosco) in November 2013. (Hr'g Examiner Decision at 2; Application, R.R. at 5.) Initially, Bosco paid Daigle's monthly health insurance premiums of $1,130.00; however, when, after several months, Bosco could no longer afford to do so, Daigle assumed this expense. (Circumstances Form, R.R. at 9.) Daigle also incurred significant vehicle costs, including repair costs, because his job at Bosco required him to travel from the greater Pittsburgh area to Wilkes-Barre/Scranton. (Letter of Circumstances, R.R. at 4.) When Bosco reduced Daigle's hours, he began to look for new, local, full-time employment. (Circumstances Form, R.R. at 10.) At the time of the hearing, Daigle had obtained a full-time position as an executive for a local Pittsburgh company but also continued to work as a part-time consultant for Bosco. (Hr'g Tr. at 7, S.R.R. at 32b.)
Daigle became delinquent on the refinanced mortgage in February 2014, and, on April 24, 2014, the mortgage lender sent Daigle a notice that it intended to foreclose on his mortgage (Act 91 Notice). (Act 91 Notice, S.R.R. at 8b-14b.) On May 29, 2014, Daigle met with Advantage Credit Counseling Service (ACCS), which assisted Daigle in completing the Application that was filed with the Agency on June 23, 2014. (Notification of Face-to-Face Meeting, S.R.R. at 15b; Application, R.R. at 5; Notification of Receipt of HEMAP Loan Application, June 23, 2014, S.R.R. at 18b.) In Daigle's Application, he stated that his mortgage delinquency was caused by a loss in income due to having to cover a defaulting tenant's rent and utility payments and repairing the damage the tenant caused to the rental property. (Circumstances Form, R.R. at 9.) Daigle further stated that he has suffered a loss in income related to his employment since Bosco stopped paying his health insurance, reduced his hours, and created significant personal vehicle costs due to the commute. (Circumstances Form, R.R. at 9; Letter of Circumstances, R.R. at 4.)
An Act 91 Notice is an official notice from the mortgage lender that the mortgage on a home is in default, and the lender intends to foreclose. (Act 91 Notice, S.R.R. at 8b-14b.)
On August 12, 2014, the Agency denied Daigle's Application, concluding that Daigle was not suffering financial hardship beyond his control, but was overextended because of significant installment credit card debt in his name that required monthly payments in the amount of $3,534.00. (Letter from Agency to Daigle (August 12, 2014), R.R. at 24.) The Agency did not accept Daigle's claims of lost income due to his tenant defaulting on rent and utility payments and damaging Daigle's rental property because Daigle provided no official Schedule E from his tax return to verify the lost rental income and additional property expenses. (Letter from Agency to Daigle (August 12, 2014), R.R. at 24.) The Agency also determined that Daigle had no reasonable prospect of "resuming full mortgage payments within thirty-six (36) months from the date of the mortgage delinquency" because he was financially overextended. (Letter from Agency to Daigle (August 12, 2014), R.R. at 24.)
Daigle appealed the Agency's determination, and a telephone hearing was held with a Hearing Examiner on September 9, 2014. At the hearing, Daigle represented himself and testified on his own behalf. Daigle testified that his mortgage delinquency was caused by financial difficulties beyond his control related to problems with his rental property and employment at Bosco. (Hr'g Tr. at 4-6, S.R.R. at 29b-31b.) Daigle explained that he paid the mortgage and utilities on his rental property in early 2014 when his tenant went into arrearages. (Hr'g Tr. at 5, S.R.R. at 30b.) Daigle stated that he had to expend $1,800.00 to fix damage caused by the tenant to the property upon the tenant's eviction. (Hr'g Tr. at 6, S.R.R. at 31b.) Regarding his employment, Daigle testified that he assumed the $1,130.00 monthly payment for his health insurance, which he had carried over from a previous employer, when Bosco could no longer afford the COBRA payments after initially promising to pay them. (Hr'g Tr. at 6, S.R.R. at 31b.) Daigle further testified that his employment with Bosco forced him to incur significant vehicular expenses traveling from Pittsburgh to Wilkes-Barre/Scranton for work. (Hr'g Tr. at 10, S.R.R. at 35b.)
Consolidated Omnibus Budget Reconciliation Act, 29 U.S.C. §§ 1161-1169.
However, Daigle testified that, as of the date of the hearing, he had secured both part-time and full-time work, which increased his income and reduced his health insurance costs to $310.00 per month. (Hr'g Tr. at 7, 9, S.R.R. at 32b, 34b.) Daigle also explained that Bosco had agreed to pay for the repairs to Daigle's vehicle that were related to his previous employment with that company. (Hr'g Tr. at 10, S.R.R. at 35b.) Daigle further indicated that he found a new tenant for the rental property who has provided a financial guarantee, first month's rent, and a security deposit, which has allowed him to renew mortgage payments on the rental property. (Hr'g Tr. at 5, S.R.R. at 30b.)
Daigle also offered testimony regarding his finances, particularly the $3,534.00 in monthly payments due on the installment debt cited by the Agency as the reason Daigle was overextended. Daigle testified that his only personal installment debts were the mortgages on his residence and rental property and his vehicle loan, and that the majority of the installment credit card debt on his credit report belonged to his former S-Corp, American Reel. (Hr'g Tr. at 23, S.R.R. at 48b.) Regarding the credit card debt on his credit report, Daigle testified:
[T]he cards that you read and the balances associated with those cards they're in the name of American Re[e]l Corporation and myself. . . . [T]hose cards were all for expenses of American Reel corporation. . . . We operated the business without a credit line for a number of years we used the credit cards which were always offered to you at zero percent as a means of basically a line of credit. . . . [M]y name is on the cards with the corporation. . . . The argument with those is. . . they are true deb[t]s of American Reel and not myself.(Hr'g Tr. at 11-12, S.R.R. at 36b-37b (emphasis added).) Daigle further explained that he had counsel working to separate that debt from his credit and apply it solely to American Reel. (Hr'g Tr. at 11, S.R.R. at 36b.) Daigle testified that American Reel is no longer operating but has yet to file for bankruptcy. (Hr'g Tr. at 12, S.R.R. at 37b.) Daigle explained that he had no savings, but, based on his new full-time employment and part-time consulting job, his wife's employment, and cost-cutting measures, he would be able to resume full payments on his primary mortgage in October 2014 while paying approximately $550.00 per month toward the arrearages. (Hr'g Tr. at 22, S.R.R. at 47b.)
Following the hearing, on October 7, 2014, the Hearing Examiner issued a Decision affirming the denial of Daigle's Application. The Hearing Examiner determined that when Daigle incurred credit card debt to finance American Reel he overextended himself, and overextension is not a circumstance beyond Daigle's control. (Hr'g Examiner Decision at 6.) With respect to Daigle's testimony that the credit card debt belonged to American Reel, not him, the Hearing Examiner concluded that Daigle "may choose to ignore the payment of the installment debt. However, the Agency includes these payments because ultimately the responsibility of the payment of the debt remains [Daigle's]. . . . Whether the majority of the debt was incurred to supplement a failing business is irrelevant." (Hr'g Examiner Decision at 6.)
In addition, the Hearing Examiner found that "$3,534 a month in installment debt would affect [Daigle's] ability to maintain the mortgage" because, at the time of the hearing, Daigle's total monthly expenses of $10,389.00 exceeded his current monthly net income of $7,609.00. (Hr'g Examiner Decision at 6.) On this basis, the Hearing Examiner held that Daigle had no reasonable prospect of resuming full mortgage payments within 36 months from the date of mortgage delinquency. (Hr'g Examiner Decision at 6.) Therefore, on behalf of the Agency, the Hearing Examiner issued an Order denying Daigle's appeal. (Hr'g Examiner Decision at 7.) Daigle petitions this Court to review the Agency's Order.
This calculation of Daigle's total expenses includes installment credit card debt related to American Reel and personal expenses, both mortgages, his vehicle loan, and living costs. (Hr'g Examiner Decision at 3-5.)
This Court's review of adjudications by the Agency "is limited to determining whether constitutional rights were violated, an error of law was committed or whether the necessary findings of fact are not supported by substantial evidence." Paz v. Pennsylvania Housing Finance Agency, 722 A.2d 762, 765 (Pa. Cmwlth. 1999). "[T]he Agency's interpretation of Act 91 is entitled to great weight and should be disregarded or overturned only if such construction is clearly erroneous." Horton v. Pennsylvania Housing Finance Agency, 511 A.2d 917, 918 (Pa. Cmwlth. 1986).
Before this Court, Daigle argues that: (1) the Agency wrongfully attributed the credit card debt of American Reel to Daigle in calculating his monthly installment debt for the purposes of determining whether his financial hardship was due to circumstances beyond his control; and (2) he has a reasonable prospect of resuming full mortgage payments within 36 months from the date of mortgage delinquency as required by Act 91.
We first address Daigle's argument that the Agency erred in considering American Reel's credit card debt as Daigle's debt in determining that his financial hardship was due to overextension. (Daigle's Petition for Review at 2, R.R. at 50.)
Section 404-C(a) of Act 91 provides that a mortgagor may not receive assistance unless:
(4) The mortgagor is a permanent resident of this Commonwealth and is suffering financial hardship due to circumstances beyond the mortgagor's control which render the mortgagor unable to correct the delinquency or delinquencies within a reasonable time and make full mortgage payments.35 P.S. § 1680.404c(a)(4), (10) (emphasis added). The Agency's regulations provide, in pertinent part, that it considers financial mismanagement or overextension to be circumstances not beyond an applicant's control:
. . . .
(10) For purposes of this section, in order to determine whether the financial hardship is due to circumstances beyond the mortgagor's control, the agency may consider information regarding the mortgagor's employment record, credit history, and current income.
(c) Disallowance. The following circumstances will not be considered by the Agency to be beyond the mortgagor's control:12 Pa. Code § 31.205(c)(4). In determining whether an applicant's mortgage delinquency is due to circumstances beyond their control, we must analyze the totality of the applicant's financial circumstances. Froman v. Pennsylvania Housing Finance Agency, 522 A.2d 1164, 1164-65 (Pa. Cmwlth. 1987).
. . . .
(4) When the homeowner's financial hardship was a result of money mismanagement or an over extension of credit to the homeowner. . . .
In this case, the Agency determined that Daigle's financial difficulty was not due to circumstances beyond his control, but rather due to overextension from unsecured credit card debt that Daigle incurred to fund American Reel. (Hr'g Examiner Decision at 6.) Here, Daigle acknowledged that he used credit cards, which were in his name and appear on his credit report, as American Reel's operating line of credit. (Hr'g Tr. at 11, S.R.R. at 36b.) There is no evidence in this record to support Daigle's claim that he is not obligated to pay this debt or that his and American Reel's joint creditors will absolve him of his personal obligation to this debt. (Hr'g Tr. at 23, S.R.R. at 48b.) Furthermore, American Reel has not filed for bankruptcy. (Hr'g Tr. at 12, S.R.R. at 37b.) Accordingly, Daigle's claim that he is not personally responsible for American Reel's debt is not supported by substantial evidence in the record. Rather, the record evidence supports the Agency's findings that the debt appears on Daigle's personal credit report, and absent evidence suggesting otherwise, he is responsible for paying that debt. (Hr'g Examiner Decision at 6.)
"Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Froman, 522 A.2d at 1166 (citation omitted). "More specifically, in performing a substantial evidence analysis, this Court must view the evidence in a light most favorable to the party who prevailed before the fact-finder." WAWA v. Workers' Compensation Appeal Board (Seltzer), 951 A.2d 405, 408 (Pa. Cmwlth. 2008) (citation omitted).
While it is understandable that Daigle desired to maintain a business that he had been operating for sixteen years, this Court has held that an applicant's allocation of resources to further a business endeavor or protect assets other than the home may constitute financial overextension or a hardship not beyond the applicant's control. See Valentine v. Pennsylvania Housing Financing Agency, 511 A.2d 915, 916 (Pa. Cmwlth. 1986) (affirming the Agency's denial of a HEMAP loan where the applicant took out a second mortgage on his home in order to obtain capital for a business venture that ultimately failed). In the instant case, Daigle's decision to use credit cards in his name to finance American Reel's operations constituted a deliberate decision to put his financial standing in jeopardy to support his struggling business.
Under Section 404-C(a)(4) and (10) of Act 91, 35 P.S. § 1680.404c(a)(4), (10), the Agency properly analyzed Daigle's entire credit history because nothing in the record supports Daigle's contention that he is not responsible for all of the credit card debt on his credit report. Here, the Agency's analysis of the credit report on record supported its conclusion that Daigle is overextended because his credit report showed an accumulation of unpaid debt spread across several credit cards in Daigle's name and a number of accounts charged off by lenders.
Moreover, of Daigle's total monthly expenses of $10,389.00, $3,534.00, or approximately thirty-four percent, is attributable to the installment credit card debt incurred to finance American Reel. Daigle's total monthly net income, including his wife's earnings and rental income, can only cover $7,609.00, or approximately seventy-three percent of their total monthly costs. Although Daigle asserts that, absent American Reel's debt, he could afford his monthly mortgage payments and family living costs, the record does not indicate that Daigle will be successful in his efforts to be freed from these obligations. Rather, the evidence in the record supports the Agency's conclusion that, based on the totality of Daigle's financial circumstances, Daigle's financial hardship was caused by overextending his credit to finance American Reel and was, therefore, not beyond his control.
Therefore, while we empathize with Daigle's circumstances, the Hearing Examiner did not err or abuse her discretion in determining that Daigle's financial hardship was caused by overextension that was not beyond his control. For these reasons, we are constrained to affirm the Agency's Order.
Due to our holding on this issue, we do not reach the issue of whether Daigle did not have a reasonable prospect of resuming payments on his mortgage within 36 months of the delinquency and paying the mortgage in full by its maturity. --------
/s/ _________
RENÉE COHN JUBELIRER, Judge ORDER
NOW, July 28, 2015, the Order of the Pennsylvania Housing Finance Agency in the above-captioned matter is hereby AFFIRMED.
/s/ _________
RENÉE COHN JUBELIRER, Judge