1Because Brook Village’s claim against Alphonso Jackson is

brought in his official capacity, HUD rather than Jackson is

deemed to be the defendant. 

UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF NEW HAMPSHIRE

Brook Village North Associates

v. Civil No. 06-cv-046-JD

Opinion No. 2006 DNH 126

Alphonso Jackson, Secretary, 

United States Department of

Housing and Urban Development,

and Federal National Mortgage 

Association

O R D E R

Brook Village North Associates (“Brook Village”) brought

suit seeking a declaratory judgment that it is entitled to prepay

its mortgage loan held by the Federal National Mortgage

Association (“Fannie Mae”) and that the United States Department

of Housing and Urban Development (“HUD”) lacks authority to

interfere with Brook Village’s prepayment of the balance on the

loan.1 Brook Village also claims that Fannie Mae breached the

loan agreement by failing to accept prepayment. HUD and Fannie

Mae each move to dismiss the claims against them, and Brook

Village objects to their motions.

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 1 of 16
2

Background

Brook Village owns Brook Village North Apartments, which is

a 160-unit rental housing project in Nashua, New Hampshire, (the

“Project”). The Project was built with financing authorized by

12 U.S.C. § 1715z-1, known as Section 236 of the National Housing

Act. Under that program, HUD insured the loan and made mortgage

interest reduction payments, and Brook Village was obligated to

provide affordable housing for eligible tenants. In addition,

HUD and Brook Village entered into a Rent Supplement Program

agreement, under 12 U.S.C. § 1701s, which provides for rent

subsidies on behalf of qualified tenants. 

Brook Village’s Section 236 mortgage note, for $3,446,500

and dated November 4, 1971, was made with the National Shawmut

Bank of Boston with a due date of March 1, 2013. “Rider A” that

is incorporated into the Section 236 mortgage note provides, in

pertinent part, that the loan cannot be prepaid “without the

prior written approval of the Federal Housing Commissioner except

where: . . . (2) the maker is a limited dividend entity which is

not receiving payments from the Commissioner under a rent

supplement contract . . . and the prepayment occurs after the

expiration of twenty (20) years from the date of final

endorsement . . . .” Fannie Mae is the current holder of the

note. 

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3

 Since Brook Village financed the Project, federal law

applicable to prepayment of Section 236 loans has changed several

times but continues to impose restrictions on a mortgagor’s right

to prepay a loan without HUD approval. See, e.g., Independence

Park Apartments v. United States, 449 F.3d 1235, 1237 (Fed. Cir.

2006) (reviewing history); Aspenwood Inv. Co. v. Martinez, 355

F.3d 1256, 1257 (10th Cir. 2004) (same); Forest Park II v.

Hadley, 336 F.3d 724, 729 (8th Cir. 2003) (same). 

Brook Village is a limited dividend entity. It has not

received any payments under the Rent Supplement Contract since

1998. In 2000, which was more than twenty years after the final

endorsement on the mortgage note, Brook Village consulted with

New Hampshire HUD officials to confirm that it had not received

any payments under the Rent Supplement Contract since 1998. 

Cecile Chabot, of the New Hampshire HUD office, confirmed that

Brook Village was eligible to prepay the Section 236 loan without

HUD approval. Brook Village then gave the notices required under

federal law for prepayment of the loan. In January of 2001, just

before scheduled prepayment, HUD notified Fannie Mae that it

would not approve prepayment. Fannie Mae notified Brook Village

that it would not accept prepayment.

Between January of 2001 and June of 2005, Brook Village

attempted to convince HUD that it was eligible to prepay the loan

without HUD approval. In August of 2005, Brook Village again

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 3 of 16
4

gave the notices required for prepayment. On January 11, 2006,

Brook Village attempted to pay off the loan by tendering a check

in the amount remaining on the loan to GMAC Commercial Mortgage

Company, which serviced the loan for Fannie Mae. GMAC rejected

the payment the next day because HUD denied approval for

prepayment.

Discussion

Brook Village seeks to prepay the Section 236 loan to

terminate its participation in the federally subsidized housing

program. After its attempts to prepay failed, Brook Village

brought suit on February 6, 2006, seeking a declaratory judgment

that it is entitled to prepay the Section 236 loan and that HUD

lacks authority to instruct Fannie Mae or its agent, GMAC, to

reject that payment. Brook Village also brought a claim against

Fannie Mae for breach of the terms of the mortgage note. HUD

moves to dismiss the declaratory judgment action, and Fannie Mae

moves to dismiss the breach of contract claim. 

Standard of Review

In considering a motion to dismiss, pursuant to Federal Rule

of Civil Procedure 12(b)(6), the court accepts the facts alleged

in the complaint as true and draws all reasonable inferences in

favor of the plaintiff. Edes v. Verizon Comms., 417 F.3d 133,

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 4 of 16
2HUD represents that 24 C.F.R. § 236.30 is no longer

reprinted in the Code of Federal Regulations. The regulation

does not appear to be available through the CFR database in

Westlaw. The parties agree as to the language of the regulation,

although they dispute its meaning.

5

137 (1st Cir. 2005). The court must determine whether the

complaint, construed in the proper light, “alleges facts

sufficient to make out a cognizable claim.” Carroll v. Xerox

Corp., 294 F.3d 231, 241 (1st Cir. 2002). “The standard for

granting a motion to dismiss is an exacting one: ‘a complaint

should not be dismissed for failure to state a claim unless it

appears beyond doubt that the plaintiff can prove no set of facts

in support of [her] claim which would entitle [her] to relief.’”

McLaughlin v. Boston Harbor Cruise Lines, Inc., 419 F.3d 47, 50

(1st Cir. 2005) (quoting Conley v. Gibson, 355 U.S. 41, 46

(1957)).

I. HUD’s Motion to Dismiss

HUD contends that under its interpretation of its regulation

applicable to Section 236 loans, 24 C.F.R. § 236.30(a)(1), Brook

Village is not entitled to prepay the note without HUD approval.2

Brook Village responds that § 236.30(a)(1) imposes the same

conditions as the mortgage note and that it has satisfied those

conditions for prepayment without HUD approval. The First

Circuit has not addressed claims for prepayment under the HUD

regulation at issue here, § 236.30, or the prepayment provision

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 5 of 16
3In fact, HUD acknowledges that its own employee told Brook

Village in 2000 that it could prepay the Section 236 mortgage and

that other HUD employees told Brook Village in 2005 that the Rent

Supplement Contract did not require project owners to rent to

low-income tenants. HUD, however, disclaims those representations by its employees as errors and as not expressing official

HUD policy.

4Congress “clarified” the conditions required for prepayment

in the Departments of Veterans Affairs and Housing and Urban

Development, and Independent Agencies Appropriations Act, Pub.L.

No. 105-276, § 219, 112 Stat. 2461 , 2487-88 (Oct. 21, 1998). 

See Forest Park II v. Hadley, 336 F.3d 724, 729 (8th Cir. 2003). 

Brook Village asserts that it has satisfied all the prepayment

conditions imposed by Section 219. HUD has not addressed Section

219. 

6

in Section 236 mortgage loan notes. Other courts have

interpreted these issues differently.3 

A. Prepayment Provisions

To be eligible for prepayment of a Section 236 loan without

HUD approval under the HUD regulation, a Section 236 mortgagor

must be a limited distribution entity who is not receiving

payments under a HUD rent supplement contract and more than

twenty years must have passed since HUD endorsed the mortgage

loan.4 24 C.F.R. § 236.30(a)(1). Brook Village’s mortgage loan

note includes Rider A, which incorporates the same conditions for

prepayment. The disputed phrase in the regulation and the note

is: “‘the mortgagor is not receiving payments . . . under a rent

supplement contract.’” HUD’s Mem. (doc. no. 25) at 12 (quoting §

236.30(a)(1)). 

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 6 of 16
7

HUD contends that the regulation controls Brook Village’s

right to prepay without its approval and interprets the disputed

phrase to mean that a mortgagor is receiving payments if funds

are available to make payments under a rent supplement contract

whether or not HUD is making such payments at the time in

question. HUD further contends that deference is due its

interpretation of § 236.30(a)(i). Brook Village asserts that HUD

is bound by the terms of the Section 236 mortgage loan note,

which governs its right to prepay, and that no deference should

be given to HUD’s interpretation of language in the note. 

Similar issues have been addressed by the Federal Circuit and the

Tenth Circuit. 

B. Cienega Gardens

In Cienega Gardens v. United States, 194 F.3d 1231, 1233

(Fed. Cir. 1998), the plaintiffs, Section 236 mortgagors, argued

that the Emergency Low Income Housing Preservation Act of 1987

(“ELIHPA”) and the Low-Income Housing Preservation and Resident

Homeownership Act of 1990 (“LIHPRHA”), which added restrictions

for prepayment of Section 236 loans without HUD approval,

breached contracts between them and HUD. A majority of the

Federal Circuit panel concluded that the mortgage loan note did

not bind HUD because the various contracts that constituted the

transaction with the plaintiffs for construction, financing, and

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 7 of 16
5HUD’s success on appeal became a Pyrrhic victory when the

plaintiffs later prevailed on their claims that ELIHPA and

LIHPRHA effected temporary regulatory takings of their

properties. See Independence Park Apartments v. United States, -

-- F.3d ---, 2006 WL 2661058 (Fed. Cir. Sept. 15, 2006);

Independence Park Apartments v. United States, 449 F.3d 1235,

1238 (Fed. Cir. 2006). 

8

regulation of low-income housing each stood alone and HUD was not

in privity of contract with the mortgagors on the notes.5 Id. at

1241-43. The majority also concluded that because § 236.30,

along with other HUD regulations, were subject to amendment, HUD

would not have entered into an agreement that fixed the

mortgagor’s right to prepay when HUD had the right to amend the

applicable regulations, thereby changing the terms for

prepayment. Id. at 1244. 

The dissenting judge concluded that HUD intended to and did

bind itself to the prepayment provisions in the mortgage note and

that the HUD regulations, in effect when HUD agreed to the

transaction, governed the mortgagors’ right to repay without HUD

approval. Id. at 1247-50. In addition, the dissent stated,

“[i]t is undisputed that the regulations referred to in these

documents expressly permitted Owners to prepay their mortgage

notes after twenty years without HUD’s consent and thereby be

relieved of restrictions on rentals and profits.” Id. at 1250.

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9

C. Aspenwood

In Aspenwood Investment Co. v. Martinez, 355 F.3d 1256, 1258

(10th Cir. 2004), the plaintiff sought a declaratory judgment

that it was entitled to prepay its Section 236 loan without HUD

approval based on the provisions of Rider A to its mortgage loan

note. The district court held that HUD’s regulation, § 236.30,

rather than the terms of the mortgage note, controlled the

plaintiff’s right of repayment and deferred to HUD’s

interpretation of the regulation. Id. at 1259. On appeal, the

Tenth Circuit disagreed with the district court and the

majority’s reasoning in Cienega Gardens and found “the analysis

of the dissent, which followed that of the Court of Federal

Claims in the decision appealed from, more persuasive than that

of the majority.” Aspenwood, 355 F.3d at 1260.

The court noted HUD’s control over and involvement in all

aspects of the various agreements that constituted the

transaction for financing, construction, and regulation of the

plaintiff’s housing project. Id. The court also noted HUD’s

close regulation of the operation of the project once it was

built. Id. The court concluded “that the manifest intent of the

parties was to enter into a transaction in which each part, as

represented by the various documents, was an essential element of

the whole; the meaning of each element can be understood only in

the context of all of the other elements.” Id. The court

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10

further held “that it was the demonstrated intent of HUD (and of

plaintiff and of the lender) to be bound by the terms of all of

the parts of the transaction.” Id.

With those issues resolved, the case focused on the meaning

of the phrase “‘is not receiving payments . . . under a rent

supplement contract,’” as part of the prepayment provision of

Rider A to the mortgage loan note. Id. The court found “the

term is not ambiguous but has a plain and ordinary meaning.” Id.

The court further found that HUD’s interpretation of the phrase,

“that the debtor ‘is not a party to a rent supplement contract

for which adequate funding from HUD is available, so that upon

the event of an eligible tenant commencing to reside in the

project, payments under the rent supplement contract would be

made’ . . . would torture the actual language of the contract,

which is quite clear.” Id. at 1261. 

Alternatively, the court considered HUD’s interpretation of

§ 236.30 under the deferential standard that “[a]n agency’s

interpretation of its own regulations should be upheld unless it

is plainly erroneous or inconsistent with the regulation.” Id.

(citing Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512-13

(1994)). The court held that the phrase “‘is not receiving

payments,’ as used in the regulation . . . is not ambiguous, as

HUD contends, but rather is plain, simple and easily understood.” 

Aspenwood, 355 F.3d at 1261. The court stated that “[t]he plain

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 10 of 16
11

language of the regulation does not permit HUD’s interpretation,

and we reject the invitation to disfigure the language in order

to achieve such a result.” Id.

D. Conclusion

The Tenth Circuit’s analysis of the relationship among the

agreements and the entities, including HUD, that are involved in 

a transaction for low-income housing under the Fair Housing Act

is persuasive. Based on the allegations in the complaint in this

case, HUD acted as if it were a party to the mortgage loan by

instructing Fannie Mae not to accept payment of the balance on

the loan from Brook Village. Whether the prepayment provision in

Rider A to the mortgage loan note or HUD’s regulation, § 236.30,

governs Brook Village’s right to prepay its mortgage loan without

HUD approval, the result is the same for purposes of the present

motion to dismiss. Therefore, it is not now necessary to decide

whether HUD is bound by the terms of the mortgage loan note.

24 C.F.R. § 236.30 is a HUD regulation for implementation of

the Fair Housing Act, and Congress delegated authority to HUD to

promulgate such regulations. See 12 U.S.C. § 1715z-1(h). An

agency’s reasonable interpretation of its own regulation is

entitled to substantial deference. United States v. Cleveland

Indians Baseball Co., 532 U.S. 200, 219 (2001). Nevertheless,

“deference is due to the [agency’s] interpretation of a

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 11 of 16
12

particular regulation only when the language of the regulation

either (1) compels that interpretation or (2) admits of differing

interpretations, and the [agency] chooses reasonably among them.” 

S. Shore Hosp. v. Thompson, 308 F.3d 91, 97 (1st Cir. 2002).

To reiterate, the disputed phrase from § 236.30, which also

appears in the note, is: “the mortgagor is not receiving

payments . . . under a rent supplement contract.” HUD argues

that the phrase is ambiguous and is properly interpreted to mean

that a mortgagor is receiving payments if funds are available to

make payments under a rent supplement contract whether or not HUD

is making such payments at the time in question. Brook Village

asserts that the phrase means that if the mortgagor is not then

receiving payments that condition is satisfied regardless of

whether money would be available to make payments. 

As the Tenth Circuit held in Aspenwood, the part of § 236.30

pertaining to prepayment and the similar provision in Rider A to

the mortgage note are not ambiguous and have a plain and ordinary

meaning. The regulation and note provision mean what they say:

the condition is satisfied if the mortgagor is not receiving

payments under a rent supplement contract. HUD’s interpretation,

which adds a different standard based on whether funds are

available, is not a reasonable interpretation of that language. 

Therefore, based on the plain meaning of “not receiving

payments,” Brook Village has stated a declaratory judgment claim,

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 12 of 16
13

even if the regulation rather than the terms of the mortgage loan

note govern its right to prepay the note without HUD approval.

II. Fannie Mae’s Motion to Dismiss

Fannie Mae moves to dismiss Brook Village’s breach of

contract claim on the grounds that the claim is barred by the

statute of limitations and that Brook Village has not alleged a

breach of the mortgage loan note. Brook Village responds that

Fannie Mae breached the prepayment provision in the mortgage note

in 2006 so that the breach of contract claim is not time barred. 

Brook Village also contends that it has alleged breach of the

note based on its interpretation of the disputed language.

A. Statute of Limitations

The parties agree that New Hampshire’s three year statute of

limitations governs the breach of contract claim. See N.H. Rev.

Stat. Ann. § 508:4, I. “‘A breach of contract occurs when there

is a failure without legal excuse, to perform any promise which

forms the whole or part of a contract.’” W. Gate Village Ass’n

v. Dubois, 145 N.H. 293, 298 (2000) (quoting Bronstein v. GZA

GeoEnvtl., 140 N.H. 253, 355 (1995)). “An anticipatory breach of

a contract occurs when a promising party repudiates his

obligations either through words or by voluntarily disabling

himself from performing them before the time for performance.” 

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 13 of 16
14

LeTarte v. W. Side Dev., LLC, 151 N.H. 291, 294 (2004). The nonbreaching party has the option of bringing suit immediately when

an anticipatory breach or a breach of a continuing contract

occurs but is not required to do so. Id.

In this case, Brook Village alleges that under the terms of

the mortgage loan note, it is entitled to prepay the loan. It

alleges that it attempted to repay the loan by tendering a check

for the balance due on January 11, 2006. GMAC, on behalf of

Fannie Mae, rejected Brook Village’s tendered payment on January

12, 2006, because HUD had denied approval for the prepayment. 

Brook Village alleges that Fannie Mae’s rejection of its

prepayment breached the loan agreement. 

Fannie Mae contends that the alleged breach occurred in 2001

when Fannie Mae notified Brook Village that it would not accept

prepayment of the loan based on HUD’s notification that it would

not approve prepayment. Brook Village responds that the events

in 2001 constituted a repudiation, not a breach of the agreement. 

Brook Village maintains that the actual breach occurred in 2006

when Fannie Mae rejected the tendered payment.

Whether Brook Village could have brought suit based upon

Fannie Mae’s notification in January of 2001 is not an issue in

this case. Even if an anticipatory breach occurred at that time,

Brook Village retained the option to wait for an actual breach,

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 14 of 16
15

which it alleges occurred in January of 2006. Brook Village is

limited to claiming damages caused by the alleged 2006 breach.

B. Stating a Claim of Breach of Contract

Fannie Mae also contends that Brook Village failed to allege

that it satisfied the three requirements for prepayment provided

in Rider A to the mortgage loan note, which are conditions

precedent to Fannie Mae’s obligation to accept prepayment without

HUD approval. Brook Village alleges that it is a limited

dividend entity and that more than twenty years have passed since

HUD endorsed the note. Those elements are not disputed. 

With respect to the disputed requirement, that it “is not

receiving payments from the Commissioner under a rent supplement

contract,” Brook Village alleges that it “has not received any

payments from HUD under the Rent Supplement Contract since

February 1998.” Compl. ¶ 16. Fannie Mae argues that the

complaint is insufficient to state a breach of contract claim

because Brook Village also alleges that HUD informed Fannie Mae

that it would not approve prepayment and because HUD disputes

Brook Village’s claim that it has not received rent supplement

payments since 1998. Because Brook Village need only allege

facts to support its claim and does not carry the burden of

proving those facts at this stage, the complaint states a claim

for breach of contract.

Case 1:06-cv-00046-JD Document 38 Filed 11/01/06 Page 15 of 16
16

Conclusion

For the foregoing reasons, the defendants’ motions to

dismiss (documents nos. 11 and 12) are denied.

SO ORDERED.

____________________________

Joseph A. DiClerico, Jr.

United States District Judge

November 1, 2006

cc: Elliott Berry, Esquire

Michael g. Perez, Esquire

T. David Plourde, Esquire

Andrew W. Serell, Esquire

Jonathan M. Shirley, Esquire

Daniel E. Will, Esquire

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