Opinion
No. 1238 C.D. 2013
02-21-2014
John F. Harkins, Petitioner v. Pennsylvania Housing Finance Agency, Respondent
BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE COHN JUBELIRER
John F. Harkins (Harkins), representing himself, petitions for review of an Order of the Pennsylvania Housing Finance Agency (Agency) affirming the denial of his 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). Harkins argues that the Agency erred in determining that he does not have a reasonable prospect of resuming full mortgage payments within 36 months of the date of his mortgage delinquency and paying the mortgage in full by its maturity, and that he is not suffering from financial hardship due to circumstances beyond his control.
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.
Harkins is a self-employed mechanical contractor. In 2008, Harkins took out a $450,000.00 mortgage on his primary home to finance the purchase of a second home in Florida. The current interest rate on the mortgage is a fixed 7.63% and the monthly payment is $3,684.00. Harkins became delinquent on the mortgage in November 2012. On January 8, 2013, the mortgage lender sent Harkins a notice that it intended to foreclose on his mortgage. On February 7, 2013, Harkins met with Clarifi, a consumer credit counseling service, which assisted Harkins in completing an application for a HEMAP Loan that was filed with the Agency on March 1, 2013. (Hr'g Examiner Decision at 2-3, S.R.R. at 22-23; Act 91 Notice, January 8, 2013, S.R.R. at 1; Notification of Face-to-Face Meeting, February 7, 2013, R. Item 21; Application, March 1, 2013, S.R.R. at 3.)
On April 4, 2013, the Agency notified Harkins that it denied his application for a HEMAP Loan on the basis that Harkins was not suffering financial hardship due to circumstances beyond his control because he owned commercial rental properties he could sell to help remedy his mortgage delinquency. The Agency also determined that any financial hardship Harkins was experiencing was caused by mismanagement of his funds and not by circumstances beyond his control. Finally, the Agency determined that Harkins had no reasonable prospect of resuming full mortgage payments within 36 months of the date of the mortgage delinquency based upon insufficient income. (Letter from Agency to Harkins, (April 4, 2013), S.R.R. at 5.)
Harkins appealed the Agency's determination and a hearing was held before the Hearing Examiner on May 2, 2013. At the hearing, Harkins represented himself and testified on his own behalf. Harkins testified that his mortgage delinquency was caused by his inability to find work after he finished his last major contract in October 2009. (Hr'g Tr. at 8, S.R.R. at 14.) Harkins testified that he had secured a new contract that would bring in approximately $100,000.00 in net income during a 5-month period from July to December 2013. (Hr'g Tr. 5, S.R.R. at 11.) Harkins testified that he had worked out a "master plan" with a general contractor for a project that would generate $14,000,000.00 in profits to Harkins over 5 years. (Hr'g Tr. at 4-5, S.R.R. at 10-11.) Harkins testified that his commercial rental properties were worth $1,400,000.00, approximately the same amount as the mortgage owed on them. (Hr'g Tr. at 6, S.R.R. at 12.) Harkins testified that these properties were to be put up for sheriff's sale approximately 2 weeks after the hearing, but that neither he nor the bank holding the mortgage on the properties believed any offers would be received. (Hr'g Tr. at 6, S.R.R. at 12.) Harkins testified that he was selling his Florida home, but that no money would be left to put towards his mortgage delinquency after liens and expenses from the sale of the Florida home were paid, along with payments towards the commercial mortgage and Harkins' credit card debt. (Hr'g Tr. at 10-11, S.R.R. at 16-17.) Harkins testified that he had no savings left, but that with his new contracts he expected he would be able to resume full payments on his primary home's mortgage by the end of 2013. (Hr'g Tr. at 11- 12, S.R.R. at 17-18.)
Following the hearing, on May 21, 2013, the Hearing Examiner issued a Decision affirming the denial of Harkins' application for a HEMAP Loan. The Hearing Examiner determined that Harkins had no reasonable prospect of resuming full mortgage payments within 36 months of the date of the mortgage delinquency on the basis that Harkins' income over the previous three years was insufficient to maintain the mortgage or meet his monthly expenses. (Hr'g Examiner Decision at 3-4, S.R.R. at 23-24.) With respect to Harkins' testimony that he had obtained new contracts that he expected would allow him to resume paying his mortgage, the Hearing Examiner determined that "it remains speculative to assume that [Harkins] will consistently generate sufficient income to meet total monthly expenses of $9,655[.00] when he has been unable to generate a positive income within the last 4 years." (Hr'g Examiner Decision at 4, S.R.R. at 24.) The Hearing Examiner also determined that Harkins' financial difficulties were not beyond his control because he obtained the mortgage on his home after a recession began in December 2007 and he overextended his finances by relying on credit cards for business expenses. (Hr'g Examiner Decision at 4, S.R.R. at 24.) Therefore, on behalf of the Agency, the Hearing Examiner issued an Order denying Harkins' appeal. Harkins appealed the Agency's Order to this Court.
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, Homeowners Emergency Mortgage Assistance Loan Program, 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, Harkins argues that: (1) his financial difficulties were caused by his loss of work during the recession and not by financial overextension; and (2) because of his new contracts, he has a reasonable prospect of resuming payments on his mortgage within 36 weeks of the delinquency and paying the mortgage in full by its maturity.
We first address Harkins' argument that the Agency erred in determining that his financial difficulties were not caused by circumstances beyond his control. 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). The Agency's regulations provide 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:
. . . .
(4) When the homeowner's financial hardship was a result of money mismanagement or an over extension of credit to the homeowner. In this regard, the Agency will consider the following in determining whether the homeowner used prudent financial management:
12 Pa. Code § 31.205(c)(4).(i) The homeowner's continued payment of normal and necessary living expenses after the financial hardship occurred will not be considered evidence of poor financial management. The homeowner's continuing to make reasonable payments on debts reasonably incurred prior to the financial hardship also will not be considered evidence of poor financial management.
(ii) Debts incurred or expenditures made by the homeowner for non-necessities, during the financial hardship, which exceeded the homeowner's ability to pay, will be considered evidence of poor financial management.
In this case, the Agency determined that Harkins' financial difficulty was caused, in part, by financial overextension as well as the recession that led to Harkins' inability to find work. (Hr'g Examiner Decision at 4, S.R.R. at 24.) The Agency determined that Harkins overextended himself by taking out a mortgage on his home "during the period when the country was embroiled in a deep recession." (Hr'g Examiner Decision at 4, S.R.R. at 24.) While the country may have been in a recession when Harkins took out a mortgage on his home, this does not automatically make such a decision financial mismanagement. This Court has previously rejected arguments by the Agency that simply obtaining a mortgage constitutes financial mismanagement. In Coyne v. Pennsylvania Housing Finance Agency, 826 A.2d 925, 929 (Pa. Cmwlth. 2003), the applicant was a nurse who was self-employed when she took out a mortgage on her home. The Agency held that her financial difficulties were not due to circumstances beyond her control because she had no taxable income when her mortgage originated. Id. This Court held that where the applicant's mortgage stemmed from an arm's length transaction, it was "unfair and illogical to penalize [the applicant] for her ability to obtain a mortgage when her future income may have been uncertain, as it often is for the self-employed." Id. at 930. Similarly here, it is unfair to penalize Harkins for his ability to obtain a mortgage even though the national economy was in an uncertain state. When he obtained the mortgage, Harkins was still realizing income and able to find work. Thus, there is no substantial evidence that this decision constituted financial mismanagement.
However, the Agency argues that Harkins' payment of his other financial obligations, including his credit card debt, at the expense of his mortgage delinquency constitutes financial mismanagement or a circumstance not beyond Harkins' control. Harkins testified that he planned to use $100,000.00 of the proceeds from the sale of his Florida home to pay credit card debt. (Hr'g Tr. at 11, S.R.R. at 17.) While Harkins testified that he maintains his credit card debt in order to fund his business, he offered no explanation why he could not apply some of the proceeds from the sale of the Florida home to his mortgage delinquency.
While it is understandable that Harkins desired to maintain his business, 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. For instance, in Froman v. Pennsylvania Housing Finance Agency, 522 A.2d 1164, 1166 (Pa. Cmwlth. 1987), this Court held that the applicant's financial difficulties were partly due to her decision to maintain two homes by renting an apartment in Florida while also maintaining her Pennsylvania home. In Valentine v. Pennsylvania Housing Finance Agency, 511 A.2d 915, 916 (Pa. Cmwlth. 1986), this Court affirmed 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. Similarly in this case, Harkins' decision to maintain his credit card debt while allowing his mortgage to remain delinquent constitutes a deliberate choice regarding the allocation of his financial resources that puts Harkins' current financial difficulty with regard to his mortgage delinquency within his control, at least to a degree.
Therefore, for the foregoing reasons, we must affirm the Agency's Order.
Due to our holding on this issue, we do not reach the issue of whether Harkins did not have a reasonable prospect of resuming payments on his mortgage within 36 weeks of the delinquency and paying the mortgage in full by its maturity. --------
/s/ _________
RENÉE COHN JUBELIRER, Judge ORDER
NOW, February 21, 2014, the Order of the Pennsylvania Housing Finance Agency in the above-captioned matter is hereby AFFIRMED.
/s/ _________
RENÉE COHN JUBELIRER, Judge