Property Owner May Not End Her Obligation To Provide Low-Income Housing By Prepaying Balance Of Federal Loan

In Schroeder v. United States of America, (— F.3d —-, C.A.9 (Or.), June 22, 2009), the United States Court of Appeals considered whether a property owner, obligated to provide low-income rental housing on her property under the terms of her acceptance of a low-cost federal loan, could escape that obligation by prepaying the balance of the loan prior to the maturation date of the loan. The court ruled that the terms of the loan, along with the Emergency Low Income Housing Preservation Act of 1987 (“ELIHPA”), committed the owner to provide low-income housing on the property through the agreed-upon maturity date of the loans, and that she could not escape that obligation by paying off the loans earlier.


In 1984, Alberta Schroeder purchased the Willow View Apartments housing project in Heppner, Oregon. The previous owner had purchased the property in 1975 using a 40-year, $170,300 loan from the Farmers Home Administration (“FmHA”), under Section 515 of the Housing Act of 1949, the terms of which required low-income housing on the property for the duration of the loan, due to mature in 2015. With the government’s consent, Schroeder assumed that loan and executed another 50-year, $3,500, Section 515 Loan, to mature in 2034.

In 1987, Congress enacted ELIHPA, intended to make it more difficult for property owners with FmHA or Rural Housing Service (“RHS”) loans to escape their obligations by prepaying their loans, by imposing “elaborate requirements” on the property owner in order to do so.

The deed of trust associated with Schroeder’s 1984 loan also stipulated that the property would be used for low-income housing for a 20-year period beginning in 1984. When that 20-year period ended in 2004, Schroeder immediately sought to pay the full amount outstanding on both the 1975 and 1984 loans and cease providing low-income housing on the property. RHS refused to allow Schroeder to prepay the remaining debt on the loans, stating that she had not complied with the “elaborate requirements,” that the owner give notice of intent to prepay, that the government offer a financial incentive to remain in the program, and that the owner attempt to sell the property to a non-profit organization or public agency at fair market value.

Schroeder filed suit seeking to compel the government to accept her full payment of the loans and to quiet title to her property. The district court held that Schroeder was not entitled to quiet title to her property and Schroeder appealed.


In interpreting contractual terms under federal common law, the court said, the parties’ intentions, ascertained from the terms themselves, determine the outcome. Here, the maturity dates outlined in the loan documents provide evidence that the parties to the two loans intended their terms to apply until 2015 and 2034. At the time of the notes’ execution, those horizon dates were the only dates certainly known, the court said. The dates that the principal amounts would ultimately be satisfied could not have been known at that time, because they were subject to unknowable factors such as rents received and interest rates. Therefore, the court found the parties could not have intended for any other dates than the 2015 and 2034 maturity dates to apply to the conditions of the loans.

Further, the court said, it was undisputed that Schroeder had not completed the procedures outlined in ELIHPA. Until she did so, or her loan period expired, ELIHPA and the terms of her loan remained bound by the loan requirements until the expiration of the final loan in 2034. The court noted the district court’s finding that the ELIHPA goal of preserving low-income housing outweighed any burden on Schroeder to continue complying with it. The court affirmed the district court’s ruling.


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