Opinion ID: 405399
Heading Depth: 2
Heading Rank: 1

Heading: First Federal Savings & Loan Association v. Anderson

Text: 6 The due-on-sale clause in this case was contained in a mortgage held by Delwyn and Lorraine Anderson and William and Shirley Brandt. The mortgage was executed in November 1974, on property in Bella Vista, Arkansas. It was issued by First Federal Savings & Loan Association of Harrison, Arkansas, and secured a $30,000 loan. The interest rate was nine and one-half percent per annum. The due-on-sale clause was substantially the same as the general description given above. 1 7 In November 1980, the Andersons and Brandts sold the property on contract to Eugene and Eulalia Kennedy. The sellers did not seek First Federal's consent prior to the sale. At this time, the mortgagors, the Andersons and Brandts, were current in their payments. After First Federal learned of the transfer, it made a demand for the principal amount due, $25,931.65, interest, late charges and reasonable attorney's fees. The Andersons and Brandts have continued to tender the monthly payments but First Federal has refused to accept. 8 In February 1981, First Federal filed suit in federal district court. The filing is entitled complaint for foreclosure. The complaint sought judgment for the amount due on the loan and foreclosure of its mortgage as a first lien on the property. 2 By later amendment, the plaintiff asked the court, in the alternative, for a declaratory judgment stating that federal law preempts state law concerning due-on-sale clauses and that First Federal has a right to include such clauses. See 28 U.S.C. § 2201. 9 The underlying legal dispute in this case concerns a 1972 Arkansas Supreme Court decision which apparently held due-on-sale clauses unenforceable unless the sale jeopardizes the mortgagee's security. See Tucker v. Pulaski Federal Savings & Loan Association, 252 Ark. 849, 481 S.W.2d 725, 728-31 (1972). 3 The plaintiff savings and loan maintains that state law is preempted by federal regulations which prior to June 8, 1976, implicitly authorized due-on-sale clauses and after that date expressly did so. 10 The regulations in question here were promulgated pursuant to Home Owners Loan Act of 1933. 12 U.S.C. §§ 1461 et seq. Since 1948, the Federal Home Loan Bank Board, which is responsible for chartering and regulating federal savings and loan associations, had a regulation which specifically required that each loan contract of a federal savings and loan association shall provide for full protection to the federal association. 12 C.F.R. § 545.6-11 (1975) (emphasis added). See Glendale Federal Savings & Loan Association v. Fox, 459 F.Supp. 903, 906-07 (C.D.Cal.1978). In 1976, the Bank Board amended the regulations to expressly authorize due-on-sale clauses. The new regulation stated, in an apparent attempt to suggest that such clauses have always been enforceable, that an association continues to have the power to include due-on-sale clauses. See 12 C.F.R. § 545.8-3(f) (1981) (emphasis added). The Bank Board expressly stated, when it promulgated this regulation, that it was intended to preempt state law in this area. Preamble to Bank Board Resolution No. 76-296, dated April 28, 1976. 11 The defendants in this case filed a motion to dismiss claiming that the court lacked subject matter jurisdiction. The district court 4 exhaustively examined the relevant precedents and granted the motion stating: 12 We hold that we do not have subject matter jurisdiction of plaintiff's action for foreclosure as it relies on federal law only as it anticipates the mortgagors' defense and seeks to avoid the defense by asserting federal preemption of state law. We hold that we do not have subject matter jurisdiction over plaintiff's action for a declaratory judgment because we would not have jurisdiction of any underlying action, federal law entering such action only in anticipation and avoidance of mortgagors' defense based upon Tucker v. Pulaski Federal Savings & Loan Assoc., 252 Ark. 849, 481 S.W.2d 725. 13 First Federal Savings & Loan Association v. Anderson, et al., slip op. at 7, Civil No. 81-5015 (W.D.Ark. Oct. 6, 1981). 14