The opinion of the court was delivered by: HENRY KENNEDY JR., District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, Suburban Mortgage Associates, Inc. ("Suburban"),
brings this action against the United States Department of
Housing and Urban Development ("HUD"), and one of its
subagencies, the Federal Housing Administration ("FHA").
Suburban, a commercial mortgage lender, obtained FHA insurance
coverage for a mortgage loan it issued to a nursing home in
Providence, Rhode Island. After the borrower defaulted, Suburban
elected to assign the mortgage to HUD. After nearly a year of
inaction, HUD rejected the assignment on grounds of fraud or
material misrepresentation. Suburban now seeks declaratory and
injunctive relief that would require HUD to accept the assignment
of the mortgage and pay insurance proceeds to Suburban, and also
seeks review of HUD's determination that it engaged in fraud or
Presently before the court are defendants' motions to dismiss
for lack of subject matter jurisdiction [#22], or in the
alternative to transfer the case to the Court of Federal Claims
[#45], and Suburban's motions for a preliminary injunction [#3]
and for production of the administrative record [#38].*fn1 Upon consideration of the
parties' briefing, the accompanying submissions, and the argument
of counsel at a preliminary injunction hearing, the court
concludes that defendants' motion to dismiss must be granted in
part and denied in part; defendants' motion to transfer must be
denied; plaintiff's motion for a preliminary injunction must be
denied; and plaintiff's motion to produce the administrative
record must be granted.
A. HUD's Mortgage Insurance Program
The National Housing Act ("NHA"), 12 U.S.C. §§ 1701 et seq.,
authorizes HUD to insure mortgage loans, and empowers the
Secretary of HUD "to insure as hereinafter provided any mortgage
offered to him which is eligible for insurance as hereinafter
provided, and, upon such terms as the Secretary may prescribe, to
make commitments for the insuring of such mortgages prior to the
date of their execution and disbursement thereon." Id. §
1709(a). The FHA is the component of HUD responsible for
implementing the NHA's mortgage insurance program.*fn2 See
id. § 1708. HUD may insure mortgages which, among other
purposes, are issued for the development of nursing homes,
intermediate care facilities, and "assisted living facilities for
the care of frail elderly persons." Id. § 1715w(a).*fn3 To be eligible for mortgage insurance, the mortgage must
"[h]ave been made to, and be held by, a mortgagee approved by the
Secretary as responsible and able to service the mortgage
properly." Id. § 1709(b)(1). In addition, HUD may specify
"terms and provisions with respect to insurance, repairs,
alterations, payment of taxes, default, reserves, delinquency
charges, foreclosure proceedings . . . and other matters as the
Secretary may in his discretion prescribe." Id. § 1709(b)(7).
Once HUD has approved an application for insurance, "a
commitment shall be issued by the Commissioner setting forth the
terms and conditions upon which the mortgage will be insured."
24 C.F.R. § 200.46. Before HUD issues insurance coverage, the
mortgagee "shall certify to the Commissioner that it will conform
with terms and conditions established by the Commissioner for the
mortgagee's control of project funds." Id. § 200.51. HUD then
"indicate[s] the insurance of the mortgage by endorsing the
original credit instrument and identifying the section of the
[NHA] and the regulations under which the mortgage is insured and
the date of insurance." Id. § 200.100(a). This step is referred
to as `initial endorsement,' as opposed to `final endorsement,'
which occurs only "[w]hen all advances of mortgage proceeds have
been made and all the terms and conditions of the commitment to
the Commissioner's satisfaction," at which point HUD again
endorses the credit instrument. Id. § 200.100(b). Both HUD and
the lender are "bound from the date of initial endorsement . . .
by the provisions of the Contract Rights and Obligations" set
forth in 24 C.F.R. pt. 232. Id. § 200.100(c).
Mortgage lenders may opt to sell or retain loans they
originate. If a lender retains a loan, it must "service or
arrange for servicing of the loan." Id. § 202.5(e). Lenders
must "service loans in accordance with accepted practices of
prudent lending institutions"; must "have adequate facilities for contacting the borrower in the event of
default, and shall otherwise exercise diligence in collecting the
amount due"; and "remain responsible to [HUD] for proper
collection efforts, even though actual loan servicing and
collection may be performed by an agent of the lender." Id. §
201.41(a). Additionally, a lender receiving HUD mortgage
insurance may also issue securities in the amount of the mortgage
and then sell them to investors. Another component of HUD, the
Government National Mortgage Association ("GNMA"),
12 U.S.C. § 1717(a)(2)(A), is authorized to "guarantee the timely payment of
principal of and interest on such trust certificates or other
securities" that the lender may issue. Id. § 1721(g)(1).
A default on the mortgage occurs upon the "failure of the
mortgagor to make any payment due under or provided to be paid by
the terms of a mortgage insured under [the NHA]," Id. §
1713(g); see also 24 C.F.R. § 232.830(a). If the default
continues for a period of 30 days, the lender becomes entitled to
receive the benefits of the mortgage insurance.
12 U.S.C. § 1713(g); 24 C.F.R. § 232.830(c). If the borrower's default is not
cured within the 30-day grace period, the lender must then notify
the FHA Commissioner of the default in writing, within an
additional 30-day period. Id. § 232.850.
Upon the continuation of a default for 30 days, the lender has
the option of either assigning the mortgage to HUD, or else
proceeding to foreclosure. 12 U.S.C. § 1713(g);
24 C.F.R. § 232.865. If electing assignment, "the mortgagee shall be entitled
to receive the benefits of the insurance . . . upon assignment,
transfer, and delivery to the Secretary" of rights and interests
arising out of the mortgage; claims of the lender arising out of
the mortgage transactions; "all policies of title or other
insurance or surety bonds or other guaranties and any and all
claims thereunder"; any remaining balance on the mortgage loan
not advanced to the borrower; cash or property held by the lender as deposits made by
the borrower; and records relating to the mortgage transactions.
12 U.S.C. § 1713(g). The lender may alternately "proceed to
foreclosure on and obtain possession of" the mortgaged property,
and receive benefits of the insurance upon the "prompt conveyance
to the Secretary of title to the property"; and assignment to the
Secretary of all claims of the lender arising out of the mortgage
transaction or foreclosure proceedings, "except such claims as
may have been released with the consent of the Secretary." Id.
If the lender intends to file a claim for the benefits of the
loan insurance, it must file a claim "within 45 days after the
lender becomes eligible for the benefits of the loan insurance,
or within such later time as may be agreed upon by the
Commissioner in writing." 24 C.F.R. § 232.875.
Finally, the NHA provides that once the lender files a claim
according to the specified procedures and within the requisite
deadlines, HUD in most cases must accept the election of
any contract of insurance . . . executed by the
Secretary under this subchapter shall be conclusive
evidence of the eligibility of the loan or mortgage
for insurance, and the validity of any contract of
insurance so executed shall be incontestable in the
hands of an approved financial institution or an
approved mortgagee from the date of the execution of
such contract, except for fraud or material
misrepresentation on the part of such approved
financial institution or approved mortgagee.
12 U.S.C. § 1709(e) (emphasis added).
Suburban sought to originate a mortgage loan in the amount of
$12,979,300 to Hillside Health Care Associates ("Hillside
Associates")*fn4 to fund the purchase and rehabilitation of
the former Jewish Home for the Aged in Providence, Rhode Island. Am.
Compl. ¶ 12. Suburban applied to HUD for insurance coverage on
the loan on December 10, 1997. Defs.' Mot. to Dismiss/Opp'n to
Prelim. Inj. ("Mot. to Dismiss"), Ex. D ("Crisafulli Decl.") ¶ 4.
HUD committed to insure the loan on June 29, 1998, id., and the
loan went to initial endorsement on August 19, 1998. Am. Compl. ¶
12. Suburban used the loan to issue a GNMA mortgage-backed
security, which it then sold to an investor. Id. ¶ 12. Suburban
also elected to retain and service the Hillside mortgage.
Crisafulli Decl. ¶ 7.
Prior to the loan closing, Suburban executed a Mortgagee's
Certificate setting forth its responsibilities, including a
provision that upon amortization of the principal, it would
require Hillside Associates to make monthly deposits into a
"Reserve Fund for Replacements." Withdrawals from this fund
required written permission from HUD, which also mandated
"[n]otices of any failure to receive the required deposits"
within 60 days. Defs.' Mot. to Dismiss, Ex. G, Attach. 7
("Mortgagee's Certificate"). In addition to requiring Hillside
Associates to make interest and principal payments, HUD also
required Suburban to provide for "[e]qual monthly payments as
will amortize the ground rents, if any, and the estimated amount
of all taxes, water charges, special assessments, and fire and
other hazard insurance premiums." 24 C.F.R. § 200.84(b)(3). Under the terms of the mortgage note executed between Suburban
and Hillside Associates on August 19, 1998, Hillside would pay
interest only from September 1, 1998 through July 1, 1999. On
August 1, 1999, Hillside Associates would begin paying
installments of both ...