LLC v. Carol Schifferling (2013)

MEMORANDUM OF DECISION TRIAL

This is a summary process action, based on non-payment of rent, for immediate possession of the subject premises at 465 Middle Road, # 46, Farmington, Connecticut (hereafter the “premises”).   On November 9, 2012, the parties appeared before this Court for trial on the one-count complaint, with the court taking evidence and hearing testimony.   Counsel subsequently filed post-trial briefs on December 14, 2012.

SUMMARY PROCESS IN GENERAL

Connecticut courts have consistently held that “[s]ummary process is a special statutory procedure designed to provide an expeditious remedy.”  (Internal quotation marks omitted.)  Bristol v. Ocean State Job Lot Stores of Connecticut, 284 Conn. 1, 5 (2007).  “Summary process statutes provide a prompt hearing and final determination ․” Id., at 5–6.  “Summary process is intended to ․ provide an expeditious remedy to the landlord seeking possession.”  HUD/Barbour–Waverly v. Wilson, 235 Conn. 650, 658 (1995).   “The ultimate issue in a summary process action is the right to possession.”   (Internal quotation marks omitted.)  Tinaco Plaza, LLC. v. Freebob's, Inc., 74 Conn.App. 760, 766–67 (2003).

“Summary process ․ enables landlords to obtain possession of leased premises without suffering the delay, loss and expense to which, under the common-law actions, they might be subjected by tenants wrongfully holding over their terms ․ Summary process statutes secure a prompt hearing and a final determination ․ Therefore, the statutes relating to summary process must be narrowly construed and strictly followed.”  (Citations omitted;  internal quotation marks omitted.)  St. Paul's Flax Hill Co-operative v. Johnson, 124 Conn.App. 728, 733 (2010).

EQUITY

“Equity does not necessarily mean full compensation to the plaintiffs.   Equity is [j]ustice administered according to fairness as contrasted with the strictly formulated rules of common law ․ the term ‘equity’ denotes the spirit and habit of fairness, justness, and right dealing which would regulate the intercourse of men with men ․ [e]quity takes into consideration fairness to both the plaintiff and the defendant.”  (Citations omitted;  internal quotation marks omitted.)  Krasowski v. Fantarella, 51 Conn.App. 186, 199 (1998), cert. denied, 247 Conn. 961 (1999).  “It is fundamental that anyone going into equity and asking its aid submits to the imposition of such terms as well-established equitable principles require ․” (Internal citations omitted) Village II Glen Lochen v. Burnham, Superior Court, judicial district of Hartford at Hartford, Docket No. CV 07–4034048, (June 4, 2010, Peck, J.) [50 Conn. L. Rptr. 85].  “As he is seeking equity he must do equity.”  Caramini v. Telegulias, 121 Conn. 548, 553 (1936).

BURDEN OF PROOF

The general burden of proof in civil actions is on the plaintiff, who must prove all the essential elements of their cause of action by a fair preponderance of the evidence.  Gulycz v. Stop & Shop, 29 Conn.App. 519, 523, cert. denied, 224 Conn. 923 (1982).   Failure to do so results in judgment for the defendant.  Id. “ ․ [W]hat is necessarily implied [in an allegation] need not be expressly alleged.”  Pamela B. v. Ment, 244 Conn. 296, 308 (1998).

STANDARD OF PROOF

The standard of proof in summary process actions, a fair preponderance of the evidence, is “properly defined as the better evidence, the evidence having the greater weight, the more convincing force in your mind.”  (Internal quotation marks omitted.)  Cross v. Huttenlocher, 185 Conn. 390, 394 (1981).

FINDINGS OF FACT

The court has weighed all the evidence and assessed the testimony and credibility of the witnesses, and reaches the conclusions set forth herein by a fair preponderance of the evidence.

The plaintiff, Housing Management, LLC, is the duly authorized agent for the record owner of the premises.   In August 2009, the plaintiff and defendant, Carol Schifferling, entered into a lease under the federal Low Income Housing Tax Credit (LIHTC) program.   A tenant's income must fall below a certain amount under the LIHTC program to be eligible for the benefit of the “affordable” rental rate.   If a tenant's income is above the eligibility amount, then the tenant must pay the higher “market” rental rate.   When the defendant took possession of the premises, the plaintiff determined the defendant was entitled to the affordable rate.

The computation of income for LIHTC purposes is governed by 24 CFR § 5.609 (hereafter the “federal regulation”) and Chapter 5 of the United States Department of Housing and Urban Development Handbook 4350.3 (hereafter the “HUD Handbook”).

The defendant, at all relevant times, had net family assets in excess of $5,000.   Defendant's assets include a UBS brokerage account (hereafter the “account”).   The account is not considered an annuity.   The defendant has access to the entire balance of the account.   Currently, the defendant receives monthly payments of $1,600 from the account.

After the defendant took possession of the premises, plaintiff determined the defendant was ineligible for the affordable rate.   Plaintiff concluded, after analyzing Chapter 5–6 Paragraph P, and Chapter 5–7 Paragraph G.2, of the HUD Handbook, it was required to count the defendant's monthly withdrawals from the brokerage account, and the account's annual interest earned at the imputed rate of 2% per year, when computing defendant's income for eligibility purposes.   Defendant disputes plaintiff's interpretation of the handbook.

Plaintiff and defendant agree that the periodic payments received by the defendant from the account are considered income under the federal regulation and Chapter 5 of the HUD Handbook.

In April 2010, plaintiff notified defendant she would be required to pay the market rate, $1,385, when her new lease term began in August 2010.   On or before August 10, 2010, the defendant failed to pay the increased market rental rate.   On August 16, 2010, the plaintiff caused a marshal to serve the defendant with a Notice to Quit possession of the premises on or before August 23, 2010.   Although the time designated in the notice to quit has passed, the defendant remains in possession of the subject premises, and continues to pay the affordable rental rate to the plaintiff.

SUMMARY OF LEGAL ARGUMENTS

The plaintiff's complaint alleges that the defendant failed to pay rent due on August 1, 2010, or within the nine days thereafter.   At trial and in its brief, the plaintiff contends that the defendant was notified by the plaintiff that she did not qualify for the affordable monthly rate rent, and therefore that she must pay the increased market rate when the new lease term began.   Plaintiff further alleges that the decision to increase defendant's rent was based on plaintiff's interpretation of Chapter 5–6, Paragraph P, and Chapter 5–7, Paragraph G.2, of the HUD Handbook.   Plaintiff contends that defendant's failure to pay the market rate when the new lease began, even though defendant continued to pay the affordable rate, represents non-payment of rent, and therefore plaintiff is entitled to immediate possession of the premises pursuant to C.G.S. 47a–15a.

The defendant's answer asserts multiple special defenses:  that the plaintiff refused to accept rent from the defendant in August 2010;  that plaintiff misinterpreted the HUD Handbook when it found defendant ineligible for the affordable rent, and instead should have computed defendant's income using the federal regulation;  and, assuming plaintiff correctly interpreted the HUD Handbook, defendant was still entitled to occupy the unit under Internal Revenue Code § 42(g)(2)(D).  At trial and in its brief, the defendant argues that the federal regulation governs the determination of an individual's income for affordable rate eligibility purposes, and that the HUD Handbook is merely advisory.   Defendant concludes that the correct amount of rent, at the affordable rate, was timely tendered to the plaintiff in August 2010, and therefore the defendant should remain in lawful possession of the premises.

DISCUSSION

The ultimate issue in this case is whether plaintiff's interpretation of the HUD Handbook is fair and reasonable, while also following the law and agency guidelines.   The parties dispute how the interest earned by defendant's account should be treated;  plaintiff argues that it is included in the computation of annual income (along with the periodic payments received from the account), based on Chapter 5–6, Paragraph P, and Chapter 5–7, Paragraph G.2, of the HUD Handbook;  defendant argues that the greater amount between the interest earned and periodic payment received should be counted, but never both, according to 24 CFR § 5.609.

1. The HUD Handbook and the Federal Regulation

The defendant argues that the federal regulation is where the computation of income for LIHTC eligibility purposes should begin and end, with the HUD Handbook merely providing advice.   It is noteworthy that neither party cites case law directly on the issue of a conflict between the handbook and the federal regulation.   Plaintiff fails to cite any cases, while the defendant cites two cases:  Loschiavo v. City of Dearborn, 33 F.3d 548, stating that federal regulations carry the force of law, and Fairmont Heights Associates, L.P. v. Greystone Servicing Corp., 2007 WL 2491907 (D.Conn.), explaining that the HUD Handbook is advisory, and neither carries the force of law, nor creates any specific legal duty.

Defendant cites the prior case law in an effort to clear up a “perceived inconsistency” between the handbook and federal law.¹  The Court, however, does not find such an inconsistency between the two.   On the contrary, the handbook recites the federal regulation, almost word for word, in Chapter 5–7F.1.²

When net family assets are more than $5,000, annual income includes the greater of the following:  a. Actual income from assets;  or b. A percentage of the value of family assets based upon the current passbook savings rate as established by HUD. This is called imputed income from assets.   The passbook rate is currently set at 2%.

While the federal regulation states:

(b) Annual income includes, but is not limited to:  ․ (3) Interest, dividends, and other net income of any kind from real or personal property ․ Any withdrawal of cash or assets from an investment will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested by the family.   Where the family has net family assets in excess of $5,000, annual income shall include the greater of the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook savings rate, as determined by HUD.3

The handbook contains the federal regulation;  it does not conflict with it.

Defendant also points out that the handbook designates 24 CFR § 5.609 as the “key regulatory citation pertaining to Section 1:  Determining Annual Income.” ⁴  Assuming, arguendo, that the federal regulation represents the only acceptable means of determining an individual's income for LIHTC eligibility purposes, then the HUD Handbook is rendered obsolete, aside from Chapter 5–7F.1. The Court does not find that 24 CFR § 5.609 is the only means of computing annual income, merely because the handbook refers to it as the key “citation.”

The defendant's finances presented a unique situation for the plaintiff, when determining her eligibility for the affordable rate.   According to the handbook, “[i]n all instances, owners are expected to make a reasonable judgment as to the most reliable approach to what the tenant will receive during the year.   In many of these challenging situations, midyear or interim recertifications may be required to reflect changing circumstances.” ⁵  HUD contemplated that a property manager would have to use a different approach from 24 CFR § 5.609 when computing income, based on the tenant's financial situation.

The Court agrees with the defendant that 24 CFR § 5.609 is important, and carries with it the force of law.   The Court also takes no issue with defendant's argument that the HUD handbook is intended to be advisory.   However, the Court is unmoved by defendant's arguments.   The HUD Handbook, Chapter 5, created and published by a federal agency, is intended to assist the public in determining “the amount of a family's income before the family is allowed to move into assisted housing and at least annually thereafter.” ⁶  As explained more fully below, plaintiff used the handbook for its intended purpose, as a guide in determining the defendant's annual income.

2. Plaintiff's Interpretation of the HUD Handbook

Plaintiff's determination that defendant's annual income rendered her ineligible for the affordable rate was a reasonable judgment, under the circumstances.   First, plaintiff looked at Chapter 5–6, Paragraph P, entitled “Withdrawal of Cash or Assets from an Investment”:

“The withdrawal of cash or assets from an investment received as periodic payments should be counted as income.  * *Lump sum receipts from pension and retirement funds are counted as assets.   If benefits are received through periodic payments, do not count any remaining amounts in the account as an asset.   See Paragraph 5–7G.2 for guidance on calculating income from an asset.* * ”

Clearly, the monthly payments received from the account by the defendant are counted as annual income.   The last sentence of Paragraph P states that Paragraph 5–7G.2 should be reviewed for “guidance on calculating income from an asset.”   The defendant's brokerage account is most certainly an asset, so the plaintiff followed the handbook's advice.

Chapter 5–7G. details various ways to calculate income from specific types of assets.   In particular, Paragraph 5–7G.2 refers to annuities, however both sides agree that defendant's account is not an annuity.   Nonetheless, Paragraph 5–6P. directs the plaintiff to the annuities section when computing income from an asset.   Since the defendant received periodic payments from an asset, the brokerage account, it was reasonable that the plaintiff would follow 5–7G.2 for guidance in calculating income.

Chapter 5–7 begins with the statement, “[a]nnual income includes amounts derived from assets to which family members have access.”   5–7A.1 further states that “[a]ssets are items of value that may be turned into cash.   A savings account is a cash asset.   The bank pays interest on the asset.   The interest is the income from that asset.”   5–7G.2c.(1) states, “[w]hen an applicant or tenant has the option of withdrawing the balance in an annuity, the annuity will be treated like any other asset ․ It will be necessary to determine the cash value of the annuity in addition to determining the actual income earned.”   Under 5–7G.2c.(5) “[t]he actual income is the balance in the annuity times the percentage (either fixed or variable) at which the annuity is expected to grow over the coming year.  (This money will be reinvested into the annuity, but it is still considered actual income).”

Based on the handbook's process for determining annual income when periodic withdrawals are received from an asset, leading from Paragraph 5–6P to Paragraph 5–7G.2, the plaintiff was correct in concluding the defendant was ineligible for the affordable rate.

HUD routinely revises and updates its handbooks, and Handbook 4350.3 is no different.   On June 29, 2007, Change 2 to the Handbook became effective, adding Paragraph 5–6P.⁷ On August 1, 2009, Change 3 went into effect, with HUD making no changes to Paragraph 5–6P.⁸ Defendant argues, although Paragraph 5–6P remains in the handbook, “the only conclusion to draw is that [the final sentence of 5–6P] should be part of a future revision of the Handbook by an agency which periodically amends its Handbook.”   HUD has made no such revision, and the Court, like any property manager, must follow the handbook as written.

SPECIAL DEFENSES

The defendant has the burden of proving the allegations in their special defenses by a fair preponderance of the evidence.   Lodovico v. Mihalcik, superior court, judicial district of Hartford at Hartford, Docket No. CV–07–5013991 (2010).   The Court has addressed defendant's second and fourth special defenses in the discussion above.   Defendant has not met its burden of proof as to its first special defense, claiming rent was offered to the plaintiff in August 2010, or its third special defense, based on Internal Revenue Code § 42(g)(2)(D).  Accordingly, the Court takes no action as to those special defenses.

CONCLUSION

The plaintiff properly concluded that the defendant was ineligible for the affordable rental rate.   As a result, the defendant was required to begin paying the increased market rental rate in August 2010.   Defendant's failure to do so represents non-payment of rent pursuant to C.G.S. 47a–15a.

ORDER

The court enters Judgment for possession of the subject premises in favor of the plaintiff, and orders a final stay of execution for the defendant through April 22, 2013, provided the defendant makes one use and occupancy payment of $1,385.00 to the plaintiff on or before April 1, 2013.

By The Court,

Hon. Glenn A Woods

FOOTNOTES

FN1. Defendant's brief, page 4..  FN1. Defendant's brief, page 4.

FN2. “Calculating Income from Assets When Assets Exceed $5,000.”.  FN2. “Calculating Income from Assets When Assets Exceed $5,000.”

FN3. 24 CFR § 5.609(b)(3), emphasis added..  FN3. 24 CFR § 5.609(b)(3), emphasis added.

FN4. HUD Handbook, Chapter 5–3 (emphasis added)..  FN4. HUD Handbook, Chapter 5–3 (emphasis added).

FN5. HUD Handbook, Chapter 5–5C..  FN5. HUD Handbook, Chapter 5–5C.

FN6. HUD Handbook, Chapter 5–1A..  FN6. HUD Handbook, Chapter 5–1A.

FN7. Plaintiff's Exhibit 6..  FN7. Plaintiff's Exhibit 6.

FN8. Plaintiff's Exhibit 7..  FN8. Plaintiff's Exhibit 7.

Woods, Glenn A., J.