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MASON v. ROCK CREEK PLAZA

June 30, 1958

Norman P. MASON, Commissioner of the Federal Housing Administration, Plaintiff,
v.
ROCK CREEK PLAZA, INC., Defendant



The opinion of the court was delivered by: MATTHEWS

This action was brought by Norman P. Mason, Commissioner of the Federal Housing Administration under Section 513 of the National Housing Act. 12 U.S.C.A. § 1731b. That section was added to the Act in 1954 as an amendment, *fn1" and states in pertinent part:

'The Congress declares that it has been its intent since the enactment of the National Housing Act that housing built with the aid of mortgages insured under that Act is to be used principally for residential use; and that this intent excludes the use of such housing for transient or hotel purposes while such insurance on the mortgage remains outstanding.

 'Notwithstanding any other provisions of this Act, no new, existing, or rehabilitated multifamily housing with respect to which a mortgage is insured under this Act shall be operated for transient or hotel purposes unless * * * on or before May 28, 1954 the Commissioner has agreed in writing to the rental of all or a portion of the accommodations in the project for transient or hotel purposes (in which case no accommodations in excess of the number so agreed to by the Commissioner shall be rented on such basis) * * *

 'As used in this section, * * * the term 'rental for transient or hotel purposes' shall have such meaning as prescribed by the Commissioner but rental for any period less than thirty days shall in any event constitute rental for such purposes * * *.'

 The Commissioner is empowered by Section 513 to enforce its provisions.

 The defendant, Rock Creek Plaza, Inc., a Maryland corporation, was organized to build a multifamily housing project at 3636 -- 16th Street, Northwest, Washington, D.C., with the proceeds of loans guaranteed by the Federal Housing Administration under Section 608 of the National Housing Act. *fn2" The project is owned and operated by defendant and known as 'The Woodner'. All of its 1135 apartments have kitchen equipment and are suitable for permanent occupancy. However, defendant has made 246 of these apartments available for rental to transients on a night to night basis.

 The plaintiff seeks a permanent injunction restraining the defendant from operating its project as a hotel, from renting any of the units in the project for any term less than one month until such time as the loans have been repaid and the Federal Housing Administration insurance terminated, and from charging rent for any unit in excess of the monthly rental schedule approved by the Commissioner of the Federal Housing Administration.

 Under peculiar circumstances to be related hereinafter an agreement was entered into in August 1952 between the then Assistant Commissioner of the Federal Housing Administration and defendant whereby under certain conditions defendant was given permission to use 250 apartments in its project for transient rentals.

 It is contended by plaintiff that such right as defendant had to rent to transients was based solely upon the aforementioned agreement, that defendant has breached the agreement in several ways hereinafter stated, and that because of such breaches plaintiff terminated the agreement in 1955. On this premise, plaintiff maintains that defendant by continuing to rent to transients is violating Section 513 of the National Housing Act, 12 U.S.C.A. § 1731b, which prohibits transient rentals in projects on which FHA insured loans are outstanding. On the other hand, defendant denies that its right to rent to transients is dependent upon the agreement, but asserts that if it is, the agreement is still in effect and that plaintiff's attempt to terminate it is unwarranted. Further, defendant maintains that its method of operation does not violate Section 513. It is argued that prior to adoption of Section 513 in 1954 there was no reserved power in the National Housing Administration to prohibit rentals for less than thirty days, and hence that it would be violative of due process to apply the prohibitions of that Section to projects completed before its enactment (as was defendant's project). Moreover, defendant claims that Section 513 exempts from its prohibitions the hotel and transient operations of The Woodner. This claim is grounded on the clause therein concerning accommodations which prior to adoption of Section 513 had been used for hotel and transient operations with the written consent of the Federal Housing Administrator. *fn3"

 From the testimony, and exhibits in evidence, the court makes the following

 Findings of Fact

 1. In February 1949, Rock Creek Plaza, Inc., hereinafter referred to as the defendant, filed applications for mortgage insurance under Section 608 of the National Housing Act for two projects, each being described as an 'eight story apartment' with over 500 'family units'.

 2. Commitments of insurance were executed and issued to the proposed mortgagee in March 1949 by the Federal Housing Administration, hereinafter referred to as FHA. Under the terms thereof FHA undertook to insure loans made to defendant up to the amount of $ 9,897,300.

 3. Thereafter the mortgagee loaned to the defendant said insured sum, which moneys were to be used for the construction of two apartment projects, located at 3636 -- 16th Street, Northwest, Washington, D.C., described as Sections I and II. The two sections are separated by a strip of caulking compound one inch wide, and the entire project, known as The Woodner, is operated as a single unit.

 4. As required by FHA the defendant adopted a model charter, the terms of which were, for the most part, prepared by FHA. Under the terms of this charter, the defendant's business activities were limited to the construction and operation of rental housing projects, the text in that regard being as follows:

 'So long as any property of this corporation is encumbered by a mortgage or Deed of Trust insured by the Commissioner it shall engage in no business other than the construction and operation of a Rental Housing Project or Projects.' (Emphasis supplied.)

 5. The charter further provided that FHA would control the rental schedules for all apartments in the project, and defendant certified that 'in selecting tenants for the property' it would 'not ...


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