Summary of a Recent
Judicial Development in
Finance and Credit

Government Wins Summary Judgment in
FSA Judicial Foreclosure Action

Sean Brister
National AgLaw Center Graduate Assistant

In an action brought by the government against two mortgagors to foreclose on several real property mortgages that were used to secure three Farm Service Agency (FSA) loans, the United States District Court for the Western District of New York has granted summary judgment in favor of the government, ruling that proof that the loans existed, that the mortgagors defaulted on those loans, and that the loans were secured by mortgages entitled the government to foreclosure. U.S. v. Fugle, No. 00-CV-0540E(SR), 2003 WL 251948 (W.D.N.Y. Jan. 25, 2003).

Lawrence and Denise Fugle obtained three loans from the FSA. See id. at *1. Each of these loans was secured with a mortgage on real property and properly executed promissory notes. See id. at *2. The loans were as follows: (1) $180,000.00 on April 15, 1985; (2) $23,000.00 on April 3, 1986; and (3) $27,500.00 on May 20, 1987. See id. n.3. The Fugles defaulted on the mortgage payments to the FSA. See id. at *2. On May 3, 1991, the Fugles mortgaged interests in the same real property to Reisdorf Bros., Inc. (Reisdorf) for $38,187.00. See id. n.4.

On June 22, 2000, the government filed an action against the Fugles to foreclose on the Fugles' mortgage to the FSA. See id. at *1. The complaint also listed Reisdorf, Gordon Heineman, and John Doe, Mary Roe, and XYZ Corporation (Doe, Roe, and XYZ) as defendants. See id. Reisdorf was named as a defendant due to an alleged junior interest that it held in the Fugles' property. See id. Heineman was named a defendant due to an alleged lease agreement with the Fugles. See id. The defendants Doe, Roe, and XYZ "were named as unknown 'tenants, occupants or other persons, if any, having or claiming any estate or interest' in the Fugles' property." Id. (citation omitted).

The Fugles filed a response on October 6, 2000, "and admitted the existence of the three FSA loans and corresponding mortgages, but denied that they had ever defaulted on their obligations." Id. (citation omitted). On January 26, 2001, the government appeared at a hearing to show cause why the action against Reisendorf, Heineman, and Doe, Roe and XYZ should not be dismissed. See id. On February 1, 2001, a default judgment was entered against Reisendorf and Heineman for failure to appear or otherwise defend. See id. Doe, Roe and XYZ were dismissed from the action on February 2, 2001. Id.

On October 15, 2000, the court issued an order that Reisendorf and Heineman should not be dismissed because they each held an interest in the property. See id. On May 8, 2002, the government filed its motion for summary judgment. See id. Shortly thereafter, the parties were informed that the date for this hearing had been set for June 7, 2002. See id. Only the government appeared at the hearing. See id.

The Fugles' attorney faxed a letter to the court on June 25, 2002, requesting an extension so that they could oppose the motion due to the fact that the Fugles were seeking different counsel. See id. The court determined that the request was not justified because it came eighteen days after the hearing and six weeks after the notice of hearing. See id.

The court stated that a plaintiff's summary judgment motion may be granted in a foreclosure action if there was "'proof of the existence of an obligation secured by a mortgage, and a default on that obligation.'" Id. at *2 (quoting U.S. v. Freidus, 769 F.Supp. 1266, 1277 (S.D.N.Y. 1991). Only an affirmative showing by the defendant can overcome that proof. See id. (citing Freidus, 769 F.Supp. at 1277). The court explained that

[I]n this case, plaintiff has conclusively established that it provided three separate loans to the Fugles and that each such loan was secured by a mortgage. It is undisputed that the Fugles executed and delivered to plaintiff three promissory notes and corresponding mortgages and agreed to pay principal and interest to plaintiff pursuant to the terms contained therein. In addition, plaintiff has established that the Fugles defaulted on their loan obligations.

Id. (citations omitted).

The court noted that while the Fugles denied that they defaulted on the loans, they did not provide any evidence to substantiate its claim. See id. The court determined that the government "has therefore met its initial burden and is presumptively entitled to foreclosure unless the Fugles can demonstrate some other defense." Id. The court added that "[t]he Fugles have not demonstrated any valid defenses as each of the eleven affirmative defenses contained in their Answer is without merit." Id.

The court granted the government's motion for summary judgment and ordered that the mortgaged premises be sold by public auction under the direction of the U.S. Marshall. See id. at *3. It also ordered the Fugles to pay any deficiency that resulted from the sale of the property. See id. at *5.

The case was decided on January 25, 2003; this summary was posted in April, 2003. 2003