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U.S.A. (Rural Housing Service) v. Wheeler, revised 5-12-99
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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:	1999 ME 54
Docket:	Pen-98-532
on Briefs:	March 12, 1999
Decided:	April 12, 1999


UNITED STATES OF AMERICA acting through the Rural Housing Service v. KENNETH E. WHEELER et al.


	[¶1]  The United States Department of Agriculture, acting through
the Rural Housing Service, formerly known as the Farmers Home
Administration,{1} appeals from a judgment entered in the District Court
(Newport, Hjelm, J.) granting its motion for summary judgment but refusing
to allow it to recapture certain interest subsidies.  On appeal, the
government contends that the court erred when it determined that the
Subsidy Repayment Agreement precludes recapture of interest subsidies in
the event of foreclosure.  We agree and vacate the judgment.
	[¶2]  The facts are undisputed.  On November 17, 1987, Kenneth E.
Wheeler and Kathleen R. Newton obtained two loans from the government,
in the amounts of $43,000 and $5,600.{2}  Each loan was evidenced by a
promissory note and was secured by a mortgage on property owned by
Wheeler and Newton, located in Dixmont, Maine.  In addition to the
promissory notes, the mortgage contract included a "Subsidy Repayment
Agreement," articulating the terms for repayment of government interest
	[¶3]  The interest subsidies were provided to Wheeler and Newton
pursuant to Title V of the Housing Act of 1949, a federal program providing
low interest loans to individuals, primarily in rural areas, "who cannot obtain
credit and are therefore unable to secure decent housing."  Pealo v. Farmers
Home Admin., 562 F.2d 744, 745 (D.C. Cir. 1977).  See also 42 U.S.C.
§ 1471 et. seq. (1988).{3}  Section 521 of the Act authorizes the government,
as part of its assistance program, to provide interest subsidies, whereby a
borrower's interest rate may be set as low as 1% per annum.  See 42 U.S.C.
§ 1490a(a)(1).  Although the loans formally bear the maximum interest rate
set by the government--9.5% per annum in the present case--the actual
interest rate payments paid by the borrower are the lower rates set in
section 521.  The borrower therefore receives a government subsidy in an
amount which reflects the difference between the amount the borrower
would have paid at the maximum interest rate and the amount paid at the
lower rate set by the program.
	[¶4]  Eventually Wheeler and Newton defaulted on the promissory
notes, and the government declared the entire debt due and filed a
complaint seeking foreclosure, pursuant to 14 M.R.S.A. § 6321 (Supp.
1998).  As of June 15, 1998, the government alleged that Wheeler and
Newton owed:  $54,978.53 in principal and advances; $8,504.21 in accrued
interest; and $28,180.64, as an interest subsidy subject to recapture.  In
their answer, Wheeler and Newton contested only the interest recapture.
	[¶5]  The government then filed a motion for summary judgment,
seeking the principal due on both loans, all accrued interest, recapture of
the interest subsidy, per diem interest, and collection costs.  Again, the only
portion of the statement of material facts contested by Wheeler and Newton
was the interest subsidy.  They contended that in the event of foreclosure
the provision of the Subsidy Repayment Agreement that provides for
recapture of the interest subsidy by the government is null and void. 
	[¶6]  The trial court granted a summary judgment in favor of the
government but concluded that the Subsidy Repayment Agreement
precluded the government from recapturing any part of the interest subsidy. 
It determined that paragraph 6(g) of that Agreement "sets out the formula
used to calculate interest subject to recapture.  Paragraph 5, however,
provides that [paragraph] 6 is inapplicable in cases . . . of foreclosure.  The
effect of [paragraph] 5, therefore, is to remove the contractual basis under
which the government would otherwise . . . be entitled to seek recovery for
interest subject to recapture."  In essence, the court determined that
paragraph 6 contained the exclusive method for recapture of the interest
subsidy and concluded that, because paragraph 6 is inapplicable in the event
of foreclosure, the government was not entitled to recapture the interest
	[¶7]  The government appealed directly to this Court, pursuant to 14
M.R.S.A. § 1901(2)(A), from the summary judgment entered by the District
Court challenging only the court's determination that the government may
not recapture the interest subsidies. 
	[¶8]  The Subsidy Repayment Agreement provides, in paragraph 3,
that Wheeler and Newton pledge their property as security for repayment of
the interest subsidy they received from the government and provides that
"the subsidy is due and payable upon the transfer of title or non-occupancy
of the property by me (us)."  Paragraph 4 provides that the "amount of
subsidy to be repaid will be determined when the principal and interest
balance is paid."  In the event that the debt is satisfied in a manner other
than the voluntary conveyance of the property to the government or a
foreclosure, paragraph 6 prioritizes the distribution of sale proceeds, and
provides the method of calculation for repayment of the interest subsidy
after a sale.  Paragraph 5 reiterates the parties' agreement that paragraph 6
is inapplicable when the property is voluntarily conveyed to the government
or "liquidated by foreclosure."
	[¶9]  The interpretation of an unambiguous contract is a question of
law, see Fleet Bank of Maine v. Harriman, 1998 ME 275, ¶ 4, 721 A.2d 658,
whereas interpretation of an ambiguous contract involves questions of fact,
see Town of Lisbon v. Thayer Corp., 675 A.2d 514, 516 (Me. 1996).  The
court did not consider extrinsic evidence when interpreting the contract,
nor do the parties suggest that extrinsic evidence would assist the court in
its interpretation of the contract.  "Because the trial court interpreted the
contract from the language of the document alone, we review the court's
interpretation de novo."  Alexander v. Fairway Villas, Inc., 1998 ME 226,
¶ 11, 719 A.2d 103.
	[¶10]  The court correctly determined that paragraph 6 is
inapplicable when the government forecloses on the property.  In the
absence of foreclosure or voluntary conveyance of the property to the
government, paragraph 6 establishes the priority by which proceeds from
sale of the property are distributed and establishes a special formula for
calculating the amount that must be repaid on the interest subsidy.  The
provisions of that paragraph, however, are tailored to circumstances where
the borrower sells the property.  For example, 6(c) states that the borrower
may recover, from the sale proceeds, expenses incurred when selling the
property, including sales commission, advertising costs, appraisal fees, and
legal and related costs.  The paragraph also contains a calculation intended
to encourage compliance with the repayment provisions of the contract and
to encourage the borrowers to maintain the property in good condition.{4} 
The result is that a borrower who maintains the property in marketable
condition, timely pays the loan, and disposes of the property through
voluntary sale may ultimately be relieved of repaying part, or all, of the
	[¶11]  Nothing in the contract, however, relieves individuals who
default on their loan from the obligation of repaying the interest subsidy. 
Contrary to the court's conclusions, paragraph 6 is not the only section of
the Agreement obligating Wheeler and Newton to repay the interest subsidy. 
Paragraphs 2, 3, and 4 provide an unambiguous contractual basis for
repayment of the entire subsidy in the event of foreclosure.  Paragraph 2
specifically states that Wheeler and Newton "agree to the conditions set
forth in this agreement for the repayment of the subsidy granted me (us) in
the form of interest credits."  Paragraph 3 provides that "the subsidy is due
and payable upon the transfer of title or non-occupancy of the property" by
Wheeler and Newton.  The transfer to the government of equitable title,
formerly held by Wheeler and Newton, will occur upon completion of the
foreclosure, triggering the obligation to repay the subsidy set forth in
paragraph 3.{6}  No other provision of the Agreement negates the obligation to
repay the subsidy upon the transfer of the title.  
	[¶12]  Moreover, paragraph 4 provides that repayment of the subsidy
may only be deferred until title of the property is transferred or the
property is not occupied.  If the borrower defers repayment, "the amount of
subsidy to be repaid will be determined when the principal and interest
balance is paid."  Accordingly, the entire interest subsidy is due immediately
upon final foreclosure or voluntary conveyance of the property to the
	[¶13]  The government, however, is only entitled to recapture the
interest subsidy to the extent that the amount of the subsidy does not
exceed the remaining value of the property.  When the subsidy recapture
obligation cannot be fully satisfied from the value of the property, paragraph
3 of the Agreement precludes the government from requiring Wheeler and
Newton "to repay any of the subsidy from other than the value (as
determined by the Government) of the real estate."
	[¶14]  Accordingly, we vacate the judgment of the District Court to
the extent that it precluded the government from recapturing any of the
interest subsidy and remand the matter for calculation of the amount due to
the government upon completion of the foreclosure proceeding.
	The entry is
Judgment vacated in part.  Remanded to the
District Court for further proceedings
consistent with this opinion.

Attorney for plaintiff: Richard H. Broderick Jr., Esq. Broderick & Broderick, P.A. P O Box 5 Lincoln, ME 04457 Attorney for defendants: Gary J. Norton, Esq. Norton & Weeks 900 Hammond St., suite 907 Bangor, ME 04401
FOOTNOTES******************************** {1} . For simplicity, we refer to the appellant as "the government." {2} . Although the original debt was $48,600, the amount was subsequently increased through two separate refinancings of the notes. Wheeler and Newton do not dispute the amounts owed. {3} . Because the 1988 version of the Housing Act of 1949 was in effect at the time the parties entered into the Subsidy Repayment Agreement, we reference that version of the Act throughout. For purposes of this appeal, no significant changes have been made to the Act between 1988 and the present. {4} . The balance remaining after the initial distribution of the sale proceeds is called "value appreciation." The formula enumerated in 6(g) is designed in part as a benefit to borrowers in good standing by providing that the borrower must pay the lesser of "(1) the full amount of the subsidy or (2) an amount determined by multiplying the 'value appreciation' by the appropriate factor." The longer the borrower in good standing owns the property, the lower the multiple factor and the greater the possibility that the borrower will repay an amount less than the total interest subsidy. {5} . Although we interpret the contract solely from the language of the document, the federal statutes and regulations empowering the government to grant interest subsidies evidence both an intention to recapture all or a portion of the subsidy and an intention to create an incentive for borrowers to maintain the property in marketable condition and timely pay their mortgage. The regulations interpreting 42 U.S.C. § 1490a provide that "[t]he policy of the Farmers Home Administration is to recapture all or a portion of the interest credit . . . granted." 7 C.F.R. § 1951.402 (1988). Moreover, 42 U.S.C. § 1490a(1)(D) provides that the government "shall provide for the recapture of all or a portion of such assistance rendered upon the disposition or non-occupancy of the property by the borrower. . . . [It] shall make provisions for incentives for the borrower to maintain the property in a marketable condition." {6} . "Under Maine law, a mortgage on real property is a conditional conveyance with legal title vested in the mortgagee." Duprey v. Eagle Lake Water and Sewer Dist., 615 A.2d 600, 602 (Me. 1992). "The mortgagor retains only the right to possess the premises and the equity right of redemption." Id. Upon foreclosure, both legal and equitable title vest absolutely in the mortgagee. See Atlantic Oceanic Kampgrounds, Inc. v. Camden Nat'l Bank, 473 A.2d 884, 888 (Me. 1984) (Glassman, J., concurring).