Opinion of the Court
or subdivision. See 24 CFR § 203.42(a) (1992).4 Under Garvin's plan, a person seeking financing would use straw purchasers as mortgage insurance applicants. Once the loans were closed, the straw purchasers would transfer title back to the development company. Because no single purchaser at the time of purchase would own more than seven rental properties within the same project, the Rule of Seven appeared not to be violated. HUD employees in South Carolina apparently assured Garvin that his plan was lawful and that he thereby would avoid the limitation of the Rule of Seven.
Darby obtained financing for three separate multiunit projects, and, through Garvin's plan, Darby obtained single-family mortgage insurance from HUD. Although Darby successfully rented the units, a combination of low rents, falling interest rates, and a generally depressed rental market forced him into default in 1988. HUD became responsible for the payment of over $6.6 million in insurance claims.
HUD had become suspicious of Garvin's financing plan as far back as 1983. In 1986, HUD initiated an audit but concluded that neither Darby nor Garvin had done anything wrong or misled HUD personnel. Nevertheless, in June 1989, HUD issued a limited denial of participation (LDP) that prohibited petitioners for one year from participating in any program in South Carolina administered by respondent Assistant Secretary of Housing.5 Two months later, the Assistant Secretary notified petitioners that HUD was also proposing to debar them from further participation in all HUD
4 Prior to August 31, 1955, the Rule of Seven apparently had been the Rule of Eleven. See 24 CFR § 203.42 (1982) and 56 Fed. Reg. 27692 (1991).
5 An LDP precludes its recipient from participating in any HUD "program," which includes "receipt of any benefit or financial assistance through grants or contractual arrangements; benefits or assistance in the form of loan guarantees or insurance; and awards of procurement contracts, notwithstanding any quid pro quo given and whether [HUD] gives anything in return." 24 CFR § 24.710(a)(2) (1992).Page: Index Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: October 4, 2007