John Meyers, 515 Housing Consultant

Richard Price
Nixon Peabody
Washington, D.C.

John Meyers
Louisville, KY

Moderator: Bob Bates

I'm Bob Bates. I'm with a company called Rural Housing Preservation Associates. We're primarily an acquirer and restructure and refinance company, so we're looking at deals around the states. That's what we do. I've got Richard and John with me today and they are going to talk about the interesting subject of the National Appeals Division (NAD).

As you know, John has been here since Rural Housing was invented. Richard has come along and learned more about it than the rest of us have forgotten over the years. Between the two of them they have a lot of experience, a lot of interest in Rural Housing and a lot of projects and different things they've done throughout the years, helping all of us as developers do our job. They've done some interesting things on the appeals side; they've done some interesting things on the whole process. I know you all know them, so I'm not going into a long discussion about them.

One of the things I'm going to ask them to do today is to discuss: (A) the appeals processes they've been involved in (discuss some of the details, how it went, what happened, why it happened); (B) I'd like them to discuss what's appropriate to take to appeals. In other words, if you're just mad at the guy sitting across the table, is it worth appealing? What types of issues should go forward? And then, how do you take them forward from the point of the bad decision that came down against you? Where is the fight really worth fighting for?

I think that's the important thing on appeals. There are some fights that you're never going to win, so that's not worth taking forward. There are some that are so petty that they're not worth taking forward, other than for ego purposes. There are some real issues here. There are times it works, there are times it doesn't.

Richard Price: After the Dynamic Servicing Panel in the last conference, we talked a little about the National Appeals Division. In all candor, I do a fair amount of appeal work, as does John, so it's helpful to have a couple of technicians kind of go through some experiences and what it is and how how you do it.

I think you hit the nail on the head, Bob. This is not the kind of thing you want to do Thursday. It isn't like, "Oh, I'm angry at those folks"; it all takes time and effort. There is a safety valve in appeals and it should be viewed as that for important issues. It's not going to solve major constitutional problems (wherever those might be); that's not what it's there for, either. But for your project, deal, particular issue, appeals are a safety valve. There is a mediation process that can be available depending upon what state you're in, and I think you can have positive and negative experiences with those, but that goes along with the notion that you're looking for an honest way to solve the problem. If the RD office is also looking for a solution, this can be a positive instead of a negative. Alternatively, if you're having an issue and you need somebody to referee a little bit, again in a businesslike fashion, this can be a positive process.

You don't do this if you're looking for an extra dollar in rent, or something along those lines. It's too time consuming for that.

Let me give you an example of a particular case that I have that was decided; it'll give you some kind of feeling for appeals. There's a little bit of absurdity in the particular fact pattern; it also may strike some people as slightly off-color, I don't mean it that way, but you'll see.

Basically the property is in Puerto Rico is occupied 100% by persons of Hispanic origin. It is in a town that is basically 99+% Hispanic. The town is in a county that is 99+% Hispanic, that is in a Commonwealth that is 99+% Hispanic. The owner applied to prepay under the prepayment process and had tried to get incentives, but they weren't forthcoming, so he decided to prepay and preserve the affordable housing through other programs.

Much to the shock and dismay of the local Puerto Rico RD office, (the Agency e-mails were great with the point that because we have a property in Puerto Rico, we can't allow it to prepay because it is occupied by Hispanic persons and Hispanic persons are minorities in the mainland States. The problem with the analysis was that means no 515 property in Puerto Rico would be allowed to prepay because every 515 property in Puerto Rico will be occupied by Hispanic persons, almost exclusively because it is Puerto Rico. The local RD office did its job and was very professional, they stated the Civil Rights office won't let us do it, we prefer you take it to appeal. Frankly, we won because the standard there was whether there was a material adverse effect on housing opportunities for minority persons. The point was that even if we tossed everyone on the street tomorrow (which we weren't going to do), statistically the persons who would move in would all be Hispanic. So you'd still have the same housing opportunities for that protected minority class.

That's kind of an esoteric issue, but it was very real because there were very big dollars riding on it. There is a real issue of preservation of an old property that can't get incentives out of RD, so it's going to be a real benefit for everybody.

John Meyers: Richard starts with what is basically an adverse decision. The normal pattern is you've asked for something and they say no, and the no is against your interests, of course. It could be a rent increase, or such.

The concept is adverse to your interests; so you get a six-page letter with attachments giving you your appeal rights. The letter has several control points to it. One that I like to use is to meet with the Agency: You have 15 days to request a meeting with the Decision Maker. That's one where, when you have a reasonable case and lay it out reasonably, you should meet. You want to head off an appeal, I'm not in favor of an appeal for the sake of an appeal. There are too many bloodied feelings at the end of it.

That's one way to get to an appeal. Another way is when you receive an adverse decision without appeal rights being given. I had a recent case where the Inspector General did an audit of my guy saying he'd taken $150,000 as a management company and to repay it. This was conveyed through the Agency, so it's a letter from the Servicing Office saying "please send us $150,000, thank you." In this case we had to request appeal rights, which you're free to do generally within 30 days of receiving an adverse decision.

We tried to have a meeting, but didn't. We did get the appeal; we did a whole bunch of dancing beforehand that this is a third-party management company that is being accused of mismanagement. The way it works is that you have an appeal hearing with a NAD Hearing Officer; if you lose, you can appeal to the NAD Director. Of course, we lost on the issue in the Hearing level and Director review.

Our argument was that we were a Participant in the program and deserved a Hearing on the OIG demands. The Agency had every chance to agree with us, but they didn't. Thus, the Agency policy is that if you're a third-party management company, you have no appeal rights in any situation; the appeal rights reside in the owner. Similarly, you can't have an adverse decision against you, such as repaying the money; that goes to the owner. So, you have identity of interest management companies with appeal rights and standing as a participant, and you have third-party management companies with no appeal rights because they are not participants.

Richard Price: I think this hits an important point. Let me repeat a couple of things, because it's part of the essential process. You get a bad letter, you want to appeal; you get a notice which basically says you have an opportunity for an informal meeting, and/or mediation, and/or actually appealing. Or you get an adverse letter, you don't like it, and you basically say you want to have appeal rights, and there is a process called an appealability review where you can ask NAD to determine that you can actually appeal. If you have an adverse decision, you think it's adverse, but the Agency doesn't think you deserve appeal rights, you can still apply to NAD.

The interesting thing about this appealability is that different offices do different things. Some will hear the issue of appealability, and you'll have a hearing on that. Some will try to make you do the whole case together, and that's part of it. The difference in the three NAD regions is they'll have you do different things at different times. All of it works, though.

In John's case, and John talked about this, it's very interesting that on one hand you'll find some authorities that management agents have been given appeal rights. On the other hand, you have the situation that third-party management agents have dealt with head on. His recent experience is up on the website, that essentially if you're a third party management agent you don't have appeal rights. I'm not willing to fully concede that point, but that's clearly what they said. But that gives you a defense. This is an administrative process; if you're not going to give me access, you can't talk to me.

In other words, I'm not participating in your program, according to your definition. I'm not participating in your program to be beaten up on, nor am I participating to get a benefit. I would personally say the management agent is participating in the program because you're getting management fees that everyone knows about and you were approved. If RD wants to take an extreme position that somehow you're a pixie and don't actually exist, then they can't actually pursue any legal rights against you.

Question: So, in John's case they can't ask the management company to put the money back; they have to go back to the owner?

Richard Price: RD can only pursue a participant. USDA can talk with the Department of Justice. The Justice Department can decide whether or not to pursue a civil action. Two or three years from now, you might get a letter or not. It seems nearsighted to take that position, but we are doing that. But that gets resolved in the first step on the issue of appealability. I find it very helpful, more helpful than some of the things they're doing at HUD.

At HUD, we have a situation where we're trying to get a grant program. HUD says no. You're out of luck, you can sit there or you get to go to court to sue them. With NAD, you have a safety valve: Hey, I think this is actually important and I think I'm a participant and I think it's appealable. So you have that safety valve, which I think is a plus. Now, you haven't always had this NAD process; it came in around 1994. It's gone through a few evolutions internally, but at this point it is a fairly stable process with a stable set of requirements. It does provide that sort of safety valve. Let me jump to the steps so you can file an appeal.

John Meyers: The NAD regulations are an attachment in each 3560 handbook, and on the NAD website. They are fairly specific about who does what to whom and in what order. You start with a request for an appeal; it comes back in a few weeks. The regional NAD office proposes a pre-hearing teleconference in a few weeks. At this teleconference, it is a just matter of business -- when is the hearing going to be, who's going to produce what documents on what schedule, who's going to trade documents?

It is very much a document-oriented process. The first part is that the Agency has its file, that presumably when they issued the adverse decision letter, they pretty much started the work of assembling a file that documents what a bad borrower you are and how badly you should be treated and all the penalties. You get the file and realize that they didn't include everything; I like to include all correspondence (Richard talked about the e-mails he got in the Puerto Rico file). They don't always regard that as pertinent. I like to get the running record, a day-to-day diary of correspondence with the owner, phone calls with the owner and management company corresponding to that project. I'm not sure what else I would get.

Richard Price: It depends upon the case. What's interesting about the documents is they're key. Following the teleconference, the Agency submits its record, you submit yours. The Agency record in theory should be everything. You shouldn't need to submit anything. In reality, the system recognizes that what you may think is important may be different from what the Agency thinks is important. So the Agency submits their record and you get a chance to submit what is not in there that you think is important. Truthfully, I've found they'll take anything you submit; they're pretty generous about that. You don't want to abuse it, because you don't want to spend an extra how many hours copying stuff, numbering pages, etc.

If they're doing a decent job putting it together, that's fine. Sometimes I've found offices don't submit everything, or everything we anticipated; they just view it differently from the way we do. So we ask for an opportunity to review the file and that's where you get the running record. And offices are typically accommodating about that. It's just a process, nothing personal -- that kind of thing.

In the process of discovery, we would normally send a lawyer or paralegal to read the file. This isn't so that we have someone that is authorized to just copy the file, just copy the whole thing and take it back. Maybe we will submit it, submit part of it. I have had a circumstance in the last year where the Agency was very difficult with a lot of tension and fighting; so we did a Freedom of Information Act request. I've done that more than once. You couple that with the appeal and we force the Agency to expedite the FOIA request and to waive any fees because they should be producing the same exact FOIA documents as they should in the record.

The difference is that you have a FOIA person in a different office with a different set of interests, and that FOIA person wants to make sure that is done correctly or else they get in trouble with someone else.

John Meyers: At the same time you send the FOIA request, don't you waive the rights under the Privacy Act?

Richard Price: Yes, it depends upon what rights. You're basically asking for your information, so the argument would be there's no Privacy Act because you're asking for your own file. You've got three basic administrative-law Laws out there: Administrative Procedures Act, FOIA, and the Privacy Act. They're kissing cousins that were all adopted in the early seventies at about the same time. In this case, the Privacy Act is supposed to protect people's personal information, but if you're submitting a FOIA request for your own information, it make that a lot easier. In theory, that's what you should be doing, because you're appealing your own case. Yes, the Privacy Act should preclude any proposed refusal to give you your own Social Security number; you can explain to them I've already given that to you, I know what it is. It doesn't come up too often, but I have had an office do stuff like that.

John Meyers: So we're to the point that we've exchanged documents, identified any further holes in the Agency documents, and I find you can always come back with an additional request. The Hearing Officers are always very amenable to that, because they aren't trying to shut you down, but to get the information out on the table for the hearing. At this point, you have the adverse decision letter, you may go for a meeting. If you're turned down in the meeting, you get a new adverse decision letter that gives you thirty days to go to mediation or directly to an appeal. Mediation, in my experience, has been a totally frustrating waste of time. I've been in the situation where the Agency comes in and says: That's the way it is. We're not going to listen to anything. The mediator can't do anything, even though the mediation rules say they should come in all attuned to working it out, being positive and friendly.

Richard Price: I've had the same experience, and I've also had positive experiences. There are three factors: your willingness to bend a bit, the Agency is willing to listen and keep an open mind, and the third is the mediator. I had one situation where it was more rural business than housing where he was very collegial with the Agency. There was real adversity in the hearing, but it was always collegiality and professionalism there. I had another where we tried to do a mediator because we all wanted to try to work it out, but this mediator was awful; he was a professor at a university; he was the worst. You couldn't find him when he was there; he was unprepared and didn't know what we were talking about. We both agreed to can the mediation; it was a good thought, and move forward. So sometimes it's the mediator. USDA selects a mediation service in different states. In another life, I've trained mediators; I've had a mediation staff.

You never know what you're going to get. A great mediator is worth their weight in gold because they can really get the parties to think about things. To go on a little tangent, a good mediator will listen to both parties, pull you aside whether in phone or person, listen to each party and basically nicely threaten each party with the other party's good points. It'll get you to move toward the middle and then bring you back together; you'll be closer than when you started. There's a skill to it, you need to do it without intimidating people. It's a talent and training that a lot of people don't have.

John Meyers: You're taking a risk, in my view, in choosing to forgo mediation or the mediator. In your case, it was forgoing the mediator. Because you have only so many days from the end of mediation to request a hearing, and it's the mediator that declares the end of mediation.

Richard Price: You have to count the days. You get 30 days, not 31. If you take 10 days because you want to have your informal meeting, you've eaten up 10 days. Some offices will then restart the 30-day clock, some won't. Rather than getting into a fight over those 10 days, it's better to keep the 30-day clock in your head. Then you ask for mediation, you go to the informal meeting and say you get the decision back, now you've taken two days (because the clock stops) for a total of twelve; finally the mediator says comes back and says he can't mediate or the parties won't mediate, then there are 18 days, in my example, left for requesting an appeal hearing. You go over the time of 30 days, you're out of luck.

John Meyers: When the mediator says it's all over or no mediation is possible, if you requested mediation on the twelfth day, you have eighteen days from the mediator's decision to request a hearing. You want to keep a close eye on the clock. One thing I like to do is to discuss the issues before we start running the clock down very much. If it's really complex and will be a pain in the ass, then suddenly when you have to schedule the prehearing teleconference question, even if you're the Appellant's Representative and don't need the owner, you start dancing for extra time. Since you're trying to coordinate three parties, you can chew up the calendar to some extent. The same applies to hearing dates.

I jokingly say that, from the start of an appeal to the end, I can pretty much offer quite a long time, longer than the 45 days for an appeal hearing and appeals.

Richard Price: Conversely, you have the 45-day right to a hearing, so you can accelerate the process as well, if you want to push things through. The process is flexible in that it is to accommodate you, the complainant. If you think you have an adverse decision but don't have appeal rights, you still want to have the 30 day clock to get that appealability request into NAD. So the 30 days is important; in a lot of circumstances, this may not be that important because it is a recurring issue. I remember a case where the Agency didn't like the group's budget, and other issues tied up in the budget; and so there was an appeal over the budget, but it wasn't just the budget. If we didn't appeal at that time, we'd appeal after the next servicing letter and have another shot because of the way the Agency was behaving. You may have the ability to have a couple of bites at the apple, but frankly it's not a lot of fun.

You do want to do it the the first time through the system. I suppose if you're being foreclosed on and need time to develop your facts, more time is helpful. But if you also want to get to the bottom line, or you have a good set of evidence and you want to roll those dice, you do have a right to a hearing within 45 days of the request for a hearing.

It is and isn't a crap shoot on winning. Like any time you invest someone else to make a decision, you give that person the power and the authority, and that person may completely disagree with you. Sometimes a Hearing Officer comes up with their own very interesting arguments, jurisdictional arguments out of left field, and you basically then are stuck with that. But as John was saying, you do have a second level of appeal to the NAD Director. It's not a lot of fun to go through a hearing officer and then the director, but in the olden days we didn't do that much, frankly, because the Director's office didn't do that much.

The Director's Office has been through three cycles. The first cycle was 1994-2000 when the office was staffed by the original corps of folks that were really focussed on legalities and technicalities; they were active. In that time period I won some and lost some. Then 2000-2006 the staff was replaced by non-attorney program folks; I'm not quite sure why it was done, but it was done. Typically their response was I'll agree with whichever agency. Roughly 2006-2007 they restaffed; this group is very independent minded; there seems to be a lot of legal talent there, but more that that, they are very precise. So they do take a while to direct decisions by beating up everyone to try to get down to the details. I think this is a very good group. I'm typically winning, but it's not because they like me, but we try to be precise by the time we get there. It's not to say you win everything. You don't. If you take that kind of attitude, you're probably going to lose. The point is they appreciate precision in the program, precision in the regulations.

Bob Bates: The time when you finally decide to go to the Hearing Officer, what kind of timeline do you expect the decision to be made in? Are you looking at 30 days? 90 days? Typically?

Richard Price: I would say it runs the gamut. The Hearing Officer will typically within 30 days get back to you with a decision. They try to be prompt because they're not judges. In the world of administrative law, you've got administrative judges, administrative law judges (there is a difference, I'm not sure what it is). One is contract appeals and the other is the statute. Basically they're very similar.

Then you have Hearing Officers. They are all different posts. NAD Hearing Officers work closer with Supervisors than administrative judges. Their supervision isn't as much, What do you rule on? as it is, Did you get that done within the time limits?

Bob Bates: Secondly, let's take this to the extreme: You've finished everything and you still have an adverse decision. What rights do you have? Can you take it to court?

Richard Price: It's an open question. There is a court case, there may be two now, that basically says you must complete this process before you can exhaust your administrative remedies. Just because it's spelled out in the NAD regulations doesn't mean a judge will agree with it. Let me give a case I had a lot of years ago where we had been on the HUD side with a similar thing and we just said that's a possibility that what we're asking for the Agency cannot provide, therefore we don't have to go to extreme remedies.

For example, if you believe the Agency violated your constitutional rights (I don't know what I'm talking about; I'm just saying, ok?) I would submit to you you don't have to go through the appeal process. You can go directly to Federal District Court. The judge may disagree with what I said. Let's say you go to the Hearing Officer and you lose, my thought process is unless there's an emergency, where you have to go to court to get a restraining order in some form, you go to the Director. Why? You know, we've been talking that NAD seems to be efficient, effective and they will probably be time-effective over going to Federal court. The other thing is if you have a Hearing Officer and you win, and let's say the Agency doesn't want to implement it; under the regulations, the Agency is supposed to implement in 10 days.

John Meyers: Actually, the Agency has an opportunity to appeal your win by themselves appealing.

Richard Price: If they don't do, that they are required to implement in 30 days, and if they don't do that, you go to court.

Bob Bates: Most of us have more than one issue with RD, we have more than one property, we work in more that one state, and as you go forward, if you take an appeal and lose, everyone likes you in the RD office. If you go forward and win, what's the reaction from staff and other people?

Richard Price: I see the reaction of, Let's move on from here. While you can get personal reactions and so forth, I think the argument is that if you're basically behaving in a professional manner, they'll behave in a professional manner.

John Meyers: I think we've covered procedural questions of an overview going from point A to B to C, etc., but I think the real issue in an appeal is what standard of proof or evidence applies. The Appeal standard is that you have to prove that the Agency was wrong, was in error to have done what it did. Not that it exercised poor judgment, although it does that every so often, but that it was actually in error. So you need to go through the regulations, through the preamble to the regulations, looking for any hint, looking through all the policies and procedures that existed over the years, especially since 3560 has been around, and handbooks and any previous NAD decisions.

Richard Price: If there's a doubt, the Agency gets the benefit of the doubt. That's not just coming from the regulations, but from the Administrative Procedures Act. The point is the Agency, any agency, cannot be arbitrary and capricious, a basic standard. As long as there's a reasonable basis to make that decision. So the way that gets translated into the regulations is the way John is describing it. Maybe I wouldn't think that's the best way to do it, but that was a way to do it, that's what it is. The Agency gets that benefit. You don't want to spin your wheels and antagonize people unnecessarily, but you don't want to pick a fight you won't win. I would head off a fight and say this is a stupid way to review the budget, I don't believe they did it. Too bad.

John Meyers: I've got an issue like that on Return to Owner. I can't quite figure out why it's an issue. I'm concerned it's resulting from staff turnover. So in 2010 you had a good year and you took the RTO in 2011, it was approved in the budget. 2011 was a bad year, you didn't earn enough to pay a RTO. The technician writes a letter that says please return the RTO for 2010 because you didn't earn it in 2011. I almost can't explain it in English.

Richard Price: That's another thing in putting together a case. You have to remember that the Hearing Officer doesn't know anything about it; or they may have had some cases, experience and exposure with 515. You have to assume they don't have any because the NAD is for nearly the entire USDA, there are some Agencies that don't quite fall into it. That's an oddness that was done in 1994. I like to say they'll have wild dogs or pigs one day, affordable housing another day. That's probably close to the truth. So you have to explain it -- this is the way the program works, this is when it was created, this is how it runs, this is what we're supposed to be doing. You have to give them the background.

Lay a foundation in the hearing. In the hearing you want to show the Hearing Officer what it is you're talking about, explain the context. The hearing officer, using John's example, says you didn't have cash in 2011 to pay it. You explain, no, no, it was assessed in 2010, it's paid in 2011. In theory you never reach that, because you can explain it to RD staff. But, I've had a couple over time where the number gets big enough, and the practices go on long enough it's an egregious number.

Basically at the hearing, you can have it in person, on the phone, or in writing. I've never had it in writing because that's expressive enough. It's based on the Agency case record and any documents you provide. I think sometimes it's better to have it in person, sometimes on the phone. Some of that is logistics and some of that doesn't matter.

It's a pretty clear factual matter and you're arguing over policy interpretations such as what different regs say. The process is meant to be pretty approachable. You don't need a lawyer; you can do it yourself. The point of the process, while it's less approachable than originally intended, so having everyone in one room is usually helpful, but it's something you have to weigh. The main question in whatever format you pick is if that is sufficient for you to communicate your points with the hearing officer.

They try to set the hearing so it's convenient to you. So the Puerto Rico hearing we had in a Federal building in Frederick, MD.

When you get to the hearing, it is a hearing. You don't have Federal Rules of Evidence, but you have basic evidentiary rules. You get sworn in, kind of like a court in the old West: everyone raises their hands all at once, everyone says yes, we will all tell the truth. So there are informalities. You're going to be giving testimony, you can be cross-examined, and the hearing officer's job is to referee.

Thank you.