Legal Opinion: GMP-0083

Index: 6.425

Subject: Garnishment

June 5, 1992

MEMORANDUM FOR: Hal Morrison

Director of Evaluation and Assistance Division

FROM: Sam Hutchinson, Assistant General Counsel for Personnel

and Ethics Law

SUBJECT: Garnishment

You have requested guidance on the implementation of the

Department\'s present policy on garnishment of HUD employees\'

salaries for satisfaction of commercial debt.

Ordinarily the wages of a federal employee are not subject

to garnishment for commercial debt. This premise is based on the

doctrine of sovereign immunity which provides that the federal

government may not be sued without its express permission.

Buchanan v. Alexander, 45 U.S. 19 (1845). The garnishment

process involves suit against an employer to require payment to

the garnishor, of wages owed an employee.

As you are aware, in 1986, the Department adopted its

current policy of garnishing for commercial debt only when the

employee is an FHA employee. Between 1980 and 1986, however, the

Department had honored commercial garnishments of all HUD

employee\'s salaries as the result of an adverse decision of the

district court of the Northern District of Illinois, General

Office Credit Union v. Bettye C. McNeil and HUD, No. 78 C 4960

(N.D. Ill. 1979). In that case, the court held that HUD had

waived its sovereign immunity by virtue of its incorporation of

the Federal Housing Administration which had been created by the

1934 Housing Act, amended in 1935 to include an express waiver of

sovereign immunity with respect to FHA matters. (12 U.S.C.1702).

Prior to 1980, HUD\'s policy had been to seek the dismissal of all

garnishment orders on the grounds that the HUD Act of 1965

(42 U.S.C 3531) et seq., did not contain a provision waiving

sovereign immunity to suit. Clearly, at various periods of time,

HUD has espoused different policies with respect to garnishment

for commercial debt.

While FHA was a separate entity, FHA employees\' salaries

were subject to garnishment because of the specific consent to

suit in the National Housing Act, 12 U.S.C. 1702. Essentially,

the United States agreed to waive its immunity to suit with

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respect to FHA matters, the same as any commercial entity. FHA

v\. Burr, 309 U.S. 242 (1940).

The current confusion over whose salaries are subject to

garnishment arises because of the absence of a similar waiver of

sovereign immunity in the legislation creating HUD (42 U.S.C.

3531). When Congress provided that the newly created Department

of HUD assume responsibility for the programs of the Federal

Housing Administration, it did not amend the 1935 legislation

regarding the waiver of sovereign immunity. It appears therefore

that the waiver is still effective so far as FHA matters are

concerned. It is much less clear that the surviving waiver

applies to matters of employment, FHA, or otherwise.

Almost immediately after taking office in 1966, the first

Secretary of HUD delegated back to the Federal Housing

Commissioner, the authority to employ FHA personnel. Those

employees retained their separate payroll status, under Title 1

of the National Housing Act, until 1969. In 1969, the Housing

Commissioner\'s authority to hire was revoked and the Assistant

Secretary for Administration was delegated all responsibility for

hiring and personnel matters, Department of HUD Act,

42 U.S.C. 35325(d), Section 7(d). Although there continued to be

separate funding for FHA programs, there was no longer an

exclusive FHA personnel office nor was there any longer separate

funding for the payment of salaries of HUD employees who work on

FHA related matters. The salaries of all HUD employees are now

paid from the general treasury out of the salaries and expense

appropriation for the Department of HUD.

As mentioned above, since 1986, the Department\'s policy

has been to honor garnishment orders issued only against FHA

employees and to move for dismissal of those with respect to any

other HUD employees. Implementation of this policy has been

difficult because there are few, if any, HUD employees,

especially in the field offices, whose position descriptions

cover only tasks that come within the purview of the National

Housing Act, Titles I, II, III, V, VI, VII, VIII, IX, and XI.

Consequently, each time the Department is presented with an order

of garnishment for commercial debt, it is necessary to make a

determination whether that employee engages, to any degree, or

wholly, or substantially, in FHA related work. This also

involves a determination of what percentage constitutes a

substantial portion of one\'s workday. This task has placed the

heavy burden on your staff of garnering sufficient information

about an employee\'s duties from supervisors who often are not

themselves aware of the distinctions between FHA and non-FHA

related programs.

We believe that HUD\'s present policy should be revisited and

that consideration should be given to treating all HUD employees

alike for garnishment purposes. Application of the commercial

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garnishment laws to all federal employees has been the subject of

proposed legislation in the past. Another Bill was introduced

this term and Congressional hearings were held in March, 1992.

The Bill has at least tacit support from the Administration.

Passage of this legislation would dispense with the necessity for

the present case-by-case scenario and would most certainly be

viewed as a more equitable treatment of HUD employees.

In the interim, the Department has several options

available: We could honor all garnishment orders on the theory

that because the 1935 statute was enveloped into the HUD enabling

statute, its provisions, including the waiver of sovereign

immunity, pertain to all HUD transactions, including the payment

of employees\' salaries. Although there appears to have been

ample authority to the contrary, Johnson v. Secretary of HUD, 710

F2d 1130 (1983), this was the position the Department adhered to

between 1981 and 1986, a policy structured on the U.S. Attorney\'s

refusal, as a result of the McNeil case, to defend against

Illinois State court garnishment orders. On the other hand, the

Department could take the position that although Congress did not

specifically repeal the sue and be sued clause of Section l702 of

the 1935 Act when it created HUD, it was Congress\' intent that

all the functions of the FHA be performed by HUD employees in

accordance with the HUD Act. Since the statute creating HUD does

not contain a waiver of sovereign immunity, the waiver provision

of the 1935 act is rendered moot with respect to employment and

any other non-FHA matter. This was HUD\'s position prior to 1980.

Nevertheless, we presently operate under the policy adopted

in 1986 and you have requested that we provide you with some

guidelines to be followed in determining who is, and who is not,

an FHA employee for garnishment purposes.

In the recent past, we have advised that only garnishment

orders relating to HUD employees whose payroll codes are within

the Housing Organization will be honored and then only after

confirmation by the Administrative Officer in the appropriate

office, that a substantial portion of the employee\'s duties are

related to FHA programs. We recognize that this procedure can be

confusing for those who are not familiar with the distinction

between FHA and other HUD programs.

The Federal Housing Act of 1935 created the Federal Housing

Authority and authorized it to establish an insurance program to

enable the public to purchase affordable housing. Thus, any

function that relates to the insurance programs of HUD would be a

position subject to garnishment procedures. The insurance

programs created by the Housing Act and subsequent amendments

include: Mortgage insurance on single and multi-family loans,

renovation and modernization loans, rental housing loan

insurance, manufactured housing loan insurance, loans for housing

for the elderly, insurance on rehabilitation loans for 1-4 family

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residences and rehabilitation of multi-family rental projects in

blighted areas, moderate income housing loan insurance, insurance

on loans to servicemen, insurance on loans for critical defense

housing, insurance on loans to refinance existing hospitals and

nursing homes, insurance on investment rental housing, rental

housing for the elderly and rental housing for low income

families with children, loan insurance for the construction of

nursing homes and intermediate care facilities, loan insurance

for experimental housing using advanced technology, condominium

mortgage insurance, insurance on loans to lower income families

unable to meet usual credit requirements for home ownership,

rental assistance for lower income families (Section 235 and

236), insurance on loans for the construction or purchase of

hospitals, assistance payments for middle income families through

interest subsidy payments to FNMA (Federal National Mortgage

Association) or FHLMC (Federal Home Loan Mortgage Corporation),

co-insurance loans for which a mortgagee assumes part of the

risk, insurance on variable rate mortgages, insurance on loans

for cooperative housing developed from the sale of existing

multifamily units to non-profit corporations, insurance on

single-family residences located on Indian Reservations,

insurance on shared appreciation mortgages, and insurance on home

equity conversions for elderly homeowners. This list may not be

exhaustive.

Unfortunately, not all of these functions are performed

within the Office of Housing. For example, we have recently been

informed that the Section 8 Moderate Rehabilitation program has

been transferred to the Office of Public and Indian Housing.

Additionally, we must be aware that there are employees in the

Office of Financing and Accounting (OFA), within the Office of

Administration, whose workload is substantially related to FHA.

Within the General Counsel\'s Office, the Office of Insured

Housing and Finance as well as the Office of Assisted Housing

often perform legal work related to FHA programs. The Office of

Program Enforcement, OGC, also engages in FHA related work before

the Mortgagee Board. Additionally, employees in the Government

National Mortgage Association (GNMA), frequently deal with FHA

insured properties. Finally, the courts have held that programs

that are \"piggybacked\" onto the FHA programs specifically

enumerated in Section 1702 of the National Housing Act, also fall

within the purview of the waiver of immunity to suit. Thomas v.

Pierce, 662 F.Supp. 519 (D.Kan. 1987).

In the past, we have confined our inquiries relating to FHA

duties to employees who work in the Office of Housing. Clearly,

this procedure is no longer adequate (and perhaps never was). In

view of this analysis, we recommend that, until such time as

Congress relieves the Department of dual categories of employees

for garnishment purposes, the Department investigate the essence

of the work performed by every HUD employee against whom a State

court order of garnishment for commercial debt has been issued.

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We recognize that implementation of this recommendation

will add substantially to an already heavy burden on your staff.

Therefore, I suggest that you educate all Administrative

Officers, in Headquarters, as well as in the Regional and Field

Offices as to the programs authorized by the National Housing

Act, listed above, and direct that they make an expedited

determination about the nature of an individual\'s duties and

forward that determination to you on a priority basis

once an order for garnishment has been served on the Department.

This recommendation does not apply to orders issued by the

Illinois Courts. We should continue to honor Illinois State

garnishment orders regardless of the employee\'s status, i.e.,

FHA, until such time as the U. S. Attorney agrees to challenge

the McNeil decision.