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Washington State Housing Finance Commission v. National Homebuyers Fund, Inc.

Supreme Court of Washington, En Banc

July 25, 2019

WASHINGTON STATE HOUSING FINANCE COMMISSION, a public body Corporate and politic of the State of Washington, Petitioner,
NATIONAL HOMEBUYERS FUND, INC., f/k/a Homebuyers Fund, Incorporated, a California nonprofit corporation; GOLDEN STATE FINANCE AUTHORITY, f/k/a California Home Finance Authority, f/k/a/ California Rural Home Mortgage Finance Authority, a California joint powers authority; RURAL COUNTY REPRESENTATIVES OF CALIFORNIA, f/k/a Regional Council of Rural Counties, f/k/a Mountain Counties Water Resources Association, a California nonprofit corporation, Respondents.

          YU, J.

         This case asks us to review whether petitioner Washington State Housing Finance Commission (Commission) has standing to challenge respondent National Homebuyers Fund's (NHF)[1] authority to provide down payment assistance to Washington residents in conjunction with federally insured mortgages. The Commission is a Washington public body with delegated authority to provide down payment assistance within the state in a governmental capacity. NHF is a California nonprofit corporation established by several California counties to offer down payment assistance to home buyers nationwide. The Commission alleges that NHF is falsely claiming governmental authority when it provides down payment assistance in Washington, thus its activities impermissibly compete with the Commission's own activities. The Commission brought this suit to challenge NHF's alleged lack of authority to operate in this state.

         The Court of Appeals reversed the trial court's summary judgment in favor of the Commission on the basis that the Commission lacked standing. We reverse and hold that the Commission has standing to bring this action. In doing so, we express no opinion on the merits of the Commission's claims.

         Factual Background and Procedural History

         The legislature, in response to a serious shortage of affordable housing, established the Commission in 1983 for the purpose of making "additional funds available at affordable rates to help provide housing throughout the state." Laws of 1983, ch. 161, § 1; RCW 43.180.010. The Commission accomplishes this mission without using public funds or lending the credit of the state through bond issuances and revenue it generates from its housing programs. One of these programs assists low-income and first-time home buyers qualify for a mortgage by lending them funds for the required down payment. These are low or no interest loans that do not need to be paid back until either the primary mortgage is paid or the home is sold.

         NHF is a California nonprofit public benefit corporation formed by Rural County Representatives of California (RCRC) and Golden State Finance Authority (GSFA). RCRC is a California nonprofit mutual benefit corporation founded by several counties in California to provide services to those counties and advocate on their behalf. GSFA is a joint powers authority created by these same counties to offer home ownership assistance to their residents. NHF was formed for the purpose of providing down payment assistance to low- and moderate-income home buyers throughout the United States. The assistance comes in the form of a gift (which NHF also calls a grant) of up to five percent of the purchase price, which the home buyer does not need to repay.

         Both the Commission and NHF offer their programs in conjunction with primary mortgages that are insured through the Federal Housing Administration's (FHA) mortgage insurance program. Each partners with participating lenders that provide the primary mortgage. These insured loans are then purchased, bundled into mortgage backed securities, and sold for a profit on the open market. The Commission reinvests these proceeds into its housing programs that benefit Washington residents. NHF also uses a portion of its proceeds to expand its housing programs nationwide and distributes excess funds to RCRC to benefit its member counties.

         The FHA, a part of the United States Department of Housing and Urban Development (HUD), promotes home ownership for those who may not qualify for a conventional mortgage by protecting lenders against losses in the event the borrower defaults on the loan. These loans are made by FHA approved lenders, who must ensure the loans comply with detailed underwriting guidelines published by HUD.[2] One such requirement is that the home buyer pay a minimum 3.5 percent down payment. See 12 U.S.C. § 1709(b)(9)(A).

         FHA restricts where the funds for this minimum down payment can come from. Borrowers may receive gifts from certain sources, such as family members, charitable organizations, and government housing programs. But no part of the minimum down payment can come from a "person or entity that financially benefits from the transaction." 12 U.S.C. § 1709(b)(9)(C)(i). This restriction does not apply to gifts or secondary loans made by a government entity acting in its governmental capacity within its jurisdiction. Federal Housing Administration: Prohibited Sources of Minimum Cash Investment Under the National Housing Act-Interpretive Rule, 77 Fed. Reg. 72, 219, 72, 220 (Dec. 5, 2012).

         These requirements are at the center of the dispute between the parties. The Commission is an "instrumentality of the state exercising essential government functions." RCW 43.180.040(1). The legislature has authorized the Commission to "secure to itself and the people of the state the benefits" of federal housing programs by making loans for down payment assistance. RCW 43.180.050(1)(d)-(e). The Commission alleges that NHF is falsely asserting the same governmental authority in Washington by providing funds that only authorized government entities can provide and marketing itself as governmental.

         NHF disputes these allegations. It asserts that while it meets HUD's definition of a government entity (because it is exempt from federal taxation pursuant to section 115 of the Internal Revenue Code), it is acting in a proprietary, rather than governmental, capacity when it gifts funds to borrowers in Washington. In NHF's view, it is not an "entity that financially benefits from the transaction" within the meaning of 12 U.S.C. § 1709(b)(9)(C) because it receives revenue only from the sale of mortgage backed securities, not from the individual loan transactions. Consequently, it does not need to invoke the exception for government entities acting in their governmental capacity.

         The Commission filed this lawsuit in 2015, arguing that NHF was unlawfully invoking governmental authority in this state and interfering with the Commission's mission and programs. The Commission sought a declaratory judgment that NHF's ongoing activities in Washington are unauthorized and may not continue. The Commission also sought an injunction prohibiting NHF from any further provision of homeownership financing services in Washington.

         The parties filed cross motions for summary judgment based on these arguments, both of which were denied. On reconsideration, the trial court granted the Commission's request for declaratory relief and declared that NHF's "housing activities in the State of Washington are prohibited by law." Clerk's Papers (CP) at 1287 (footnote omitted).

         NHF appealed this decision and claimed that the Commission lacked standing to bring the lawsuit.[3] The Court of Appeals held that the Commission lacked standing because it did not show that it was within the zone of interests that a statute was intended to protect and it had not demonstrated sufficient economic injury. The Court of Appeals did not reach the other issues and, instead, reversed and remanded with directions to dismiss. Wash. State Hous. Fin. Comm'n v. Nat'l Homebuyers Fund, Inc., No. 76510-8-1, slip op. at 10 (Wash.Ct.App. June 11, 2018) (unpublished), The Commission petitioned for review, which we granted.


         Whether the Commission has standing to bring this declaratory judgment action.


         Standing generally refers to a particular party's right to bring a legal claim. When declaratory relief is sought, the Uniform Declaratory Judgments Act (UDJA), chapter 7.24 RCW, provides that "[a] person . . . whose rights, status or other legal relations are affected by a statute . . . may have determined any question of construction or validity arising under the . . . statute . . . and obtain a declaration of rights, status or other legal relations thereunder." RCW 7.24.020. We utilize the common law doctrine of standing to clarify the boundaries of this broad statutory right.[4]Grant County Fire Prot. Dist. No. 5 v. City of Moses Lake,150 ...

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