Free Proposed Findings of Fact and Conclusions of Law - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS __________________________________________________________________________ APACHE APARTMENTS OF OWATONNA, et al., Plaintiffs, v. THE UNITED STATES Defendant. __________________________________________________________________________ PLAINTIFFS' PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW Pursuant to the Court's Order of December 22, 2005, and Appendix A, paragraph 14, of the Rules of the United States Court of Federal Claims, plaintiffs Apache Apartments of Owatonna, a Limited Partnership, et al., hereby submit their Proposed Findings of Fact and Conclusions of Law. Case No. 96-700C (Judge Block)

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TABLE OF CONTENTS PLAINTIFFS' PROPOSED FINDINGS OF FACTS AND CONCLUSIONS OF LAW.. 1 FINDINGS OF FACT ......................................................................................................... 1 I. THE PLAINTIFFS AND THEIR PROPERTIES. ................................................... 1 A. The Properties................................................................................................ 1 1. 2. 3. 4. 5. 6. 7. II. A. B. III. Apache Apartments (Owatonna)........................................................ 1 Brainerd South.................................................................................... 2 Eagan Gardens.................................................................................... 2 Hopkins Village.................................................................................. 3 Morningside Terrace (Winona).......................................................... 4 Rochester Square................................................................................ 4 Waseca Village................................................................................... 5

THE SECTION 221(D)(3) AND 236 HOUSING PROGRAMS. ........................... 6 Congress Expands Housing Programs to Involve Private Enterprise. .......... 6 HUD Carries Out its Statutory Mandate by Partnering with the Private Sector............................................................................................... 10 Formation of the Partnerships and Development of the Properties............. 13 1. 2. 3. 4. 5. 6. 7. 8. B. Apache Apartments (Owatonna)...................................................... 13 Brainerd South.................................................................................. 15 Eagan Gardens.................................................................................. 16 Hopkins Village................................................................................ 17 Morningside Terrace (Winona)........................................................ 18 Rochester Square.............................................................................. 19 Waseca Village................................................................................. 20 Summary. ......................................................................................... 21

PLAINTIFFS' INVESTMENT IN THE FUTURE. .............................................. 13 A.

Plaintiffs' Plans and Efforts Toward Prepayment. ...................................... 22 Lack of Congressional Foresight Creates a Problem. ................................. 23 1. Congress Enacts Emergency Legislation (ELIHPA). ...................... 23

IV.

ABROGATION OF PLAINTIFFS' PROPERTY RIGHTS.................................. 23 A.

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2. B.

Congress' Permanent Solution: Owners Bear the Burden (LIHPRHA)...................................................................................... 25 The Preservation Process. ................................................................ 27 The Appraisal Process...................................................................... 29 Extension of Affordability Restrictions ........................................... 31 The Sale Process............................................................................... 32

Plaintiffs' "Choices" Under LIHPRHA. ..................................................... 27 1. 2. 3. 4.

C. V. A. B.

The "HOPE" Act. ........................................................................................ 32 The Statutory Restrictions Prevented the Investors from All Seven Properties from Prepaying On Their 20-Year Anniversaries. ..................... 36 Because of Their Inability to Prepay Without Restrictions, Plaintiffs Were Compelled to Accept Worse Alternatives Under the Statutory Restrictions. ................................................................................................. 38 1. The Original Statutory Restrictions Contained in ELIHPA and LIHPRHA, Combined with Plaintiffs' "Buy and Hold" Investment Strategy, Dictated That Some Plaintiffs Would Subject Themselves to Use Agreements. ............................................. 39
The Abrogation of Plaintiffs' Prepayment Rights Dictated Radical Changes to Their Strategy. ................................................... 40

THE IMPACT OF ELIHPA AND LIHPRHA ON PLAINTIFFS......................... 36

2.

CONCLUSIONS OF LAW ............................................................................................... 45 I. II. PLAINTIFFS' CLAIMS ARE RIPE FOR JUDICIAL REVIEW. ........................ 45 PLAINTIFFS SUFFERED A COMPENSABLE TAKING. ................................. 47 A. B. Plaintiffs Had Vested Property Interests Protected By The Fifth Amendment. ................................................................................................ 47 ELIHPA And LIHPRHA Caused A Taking Of Plaintiffs' Right To Prepay Their HUD-Insured Mortgages. ...................................................... 47 1. 2. 3. The Government's Actions Had the Character of a Taking............. 48 Plaintiffs Had Reasonable Investment-Backed Expectations of Prepaying Their Mortgages. ........................................................ 51 Plaintiffs Suffered a Serious Financial Loss Because of ELIHPA and LIHPRHA. ................................................................. 55

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III.

PLAINTIFFS ARE ENTITLED TO JUST COMPENSATION............................ 59 A. B. C. D. E. Plaintiffs Are Entitled To Compensation Based On Their Lost Rental Income. ........................................................................................................ 59 Plaintiffs Are Entitled to Compensation for Everything That They Have Lost..................................................................................................... 60 Plaintiffs' Damages Calculations Are Conservative And Appropriate.................................................................................................. 63 Plaintiffs Are Entitled To Interest. .............................................................. 65 Total Damages............................................................................................. 66

CONCLUSION ................................................................................................................. 67

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TABLE OF AUTHORITIES FEDERAL CASES Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470 (1973)..............59, 60 Armstrong v. United States, 364 U.S. 40 (1960) ...........................................................................47 Bass Enters. Prod. Co. v. United States, 381 F.3d 1360 (Fed. Cir. 2004).....................................51 Bay-Houston Towing Co. v. United States, 58 Fed. Cl. 462 (2003) ..............................................45 Boling v. United States, 220 F.3d 1365 (Fed. Cir. 2000)...............................................................60 Branch v. United States, 69 F.3d 1571 (Fed. Cir. 1995)................................................................46 Brown v. United States, 73 F.3d 1100 (Fed. Cir. 1996).................................................................61 Cienega Gardens v. United States, 33 Fed. Cl. 196 (1995), reversed on other grounds, 194 F.3d 1231 (Fed. Cir. 1998) ........................................................................................6 Cienega Gardens v. United States, 38 Fed. Cl. 64 (1997).............................................................13 Cienega Gardens v. United States, 67 Fed. Cl. 434 (2005).......................................................................................48, 50, 52, 54, 55, 56, 60, 63, 64, 65 Cienega Gardens v. United States, 265 F.3d 1237 (Fed. Cir. 2001) .............................................46 Cienega Gardens v. United States, 331 F.3d 1319 (Fed. Cir. 2003)..................................................................26, 47, 48, 49, 50, 51, 52, 53, 54, 55, 60 Conant v. United States, 12 Cl. Ct. 689 (1987) .............................................................................45 Devon Energy v. United States, 45 Fed. Cl. 519 (1999)................................................................45 Dolan v. City of Tigard, 512 U.S. 374 (1994) ...............................................................................49 Eyherabride v. United States, 345 F.2d 565 (Ct. Cl. 1965)...........................................................60 Gulf Power Co. v. United States, 998 F. Supp. 1386 (N.D. Fla. 1998), aff'd, 187 F.3d 1324 (11th Cir. 1999) ............................................................................................................57 Huntleigh USA Corp. v. United States, 63 Fed. Cl. 440 (2005) ....................................................49 Independence Park v. United States, 61 Fed. Cl. 692 (2004)..................................................59, 65

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Kaiser Aetna v. United States, 444 U.S. 164 (1979)......................................................................60 Kimball Laundry Co. v. United States, 338 U.S. 1 (1949) ................................................55, 59, 60 Kirby Forest Indus., Inc. v. United States, 467 U.S. 1 (1984) .......................................................64 Library of Congress v. Shaw, 478 U.S. 310 (1986).......................................................................64 Loveladies Harbor, Inc. v. United States, 28 F.3d 1171 (Fed. Cir. 1994).........................51, 54, 61 McKart v. United States, 395 U.S. 185 (1969) ..............................................................................45 Narramore v. United States, 960 F.2d 1048 (Fed. Cir. 1992) .................................................57, 58 Nollan v. Cal. Coastal Comm'n, 483 U.S. 825 (1987)...................................................................49 NRG Co. v. United States, 24 Cl. Ct. 51 (1991) ............................................................................53 Palazzolo v. Rhode Island, 533 U.S. 606 (2001) .....................................................................44, 45 Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104 (1978)...............................................47 Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922)..........................................................47, 49 Prudential Ins. Co. of Am. v. United States, 801 F.2d 1295 (Fed. Cir. 1986) ...............................50 Rose Acre Farms, Inc. v. United States, 373 F.3d 1177 (Fed. Cir. 2004) .....................................55 Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) .....................................................................53 Seaboard Air Line Ry. v. United States, 261 U.S. 299 (1923).......................................................65 Seiber v. United States, 364 F.3d 1356 (Fed. Cir. 2004) ...............................................................55 Suitum v. Tahoe Reg'l Planning Agency, 520 U.S. 725 (1997) ...............................................45, 56 Tahoe-Sierra Preservation Council v. Tahoe Reg'l Planning Agency, 535 U.S. 302 (2002)......................................................................................................................................62 Tulare Lake Basin Water Storage Dist. v. United States, 61 Fed. Cl. 624 (2004) ........................65 United Nuclear Corp. v. United States, 912 F.2d 1432 (Fed. Cir. 1990) ......................................53 United States v. Gen. Motors Corp., 323 U.S. 373 (1945) ......................................................50, 60 United States v. Miller, 317 U.S. 369 (1943).................................................................................61

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Whitney Benefits, Inc. v. United States, 30 Fed. Cl. 411 (1994)....................................................65 Whitney Benefits, Inc. v. United States, 926 F.2d 1169 (Fed. Cir. 1991) ................................45, 57 Williamson County Reg'l Planning Comm'n v. Hamilton Bank, 473 U.S. 172 (1985).......................................................................................................................................44, 45 Yuba Natural Resources, Inc. v. United States, 821 F.2d 638 (Fed. Cir. 1987) ............................59 Yuba Natural Resources, Inc. v. United States, 904 F.2d 1577 (Fed. Cir. 1990) ..........................59 STATE CASES Claytor v. Roanoke Redevelopment & Housing Auth., No. CL02000186-00, 2004 WL 2085353 (Va. Cir. Ct. Jan. 30, 2004)......................................................................................62 FEDERAL STATUTES 12 U.S.C. § 1401 et. seq...........................................................................................................26, 61 12 U.S.C. § 1713(d) .........................................................................................................................8 12 U.S.C. §§ 1715l, 202(a) (6).......................................................................................................25 12 U.S.C. § 1715l(d)(3) ...................................................................................................................7 12 U.S.C. § 1715l, note..................................................................................................................24 12 U.S.C. § 1715z-1.................................................................................................................7, 8, 9 12 U.S.C. § 4101(a) (1994)................................................................................................26, 33, 34 12 U.S.C. §§ 4102, 4103, 4107......................................................................................................27 12 U.S.C. § 4103..........................................................................................................28, 29, 30, 32 12 U.S.C. § 4106............................................................................................................................31 12 U.S.C. § 4107(b) ...........................................................................................................27, 30, 31 12 U.S.C. § 4108......................................................................................................................27, 28 12 U.S.C. § 4109............................................................................................................................31 12 U.S.C. § 4110............................................................................................................................32

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12 U.S.C. § 4110............................................................................................................................29 12 U.S.C. § 4112................................................................................................................29, 30, 31 12 U.S.C. § 4115............................................................................................................................31 24 C.F.R. § 221.524(a) (1970).......................................................................................................12 24 C.F.R. § 221.529 (1970) ...........................................................................................................12 24 C.F.R. § 236.309(a) (1970).......................................................................................................12 24 C.F.R. § 248.101, et. seq...........................................................................................................27 24 C.F.R. § 248.105 .......................................................................................................................27 24 C.F.R. § 248.111 .....................................................................................................27, 28, 29, 30 24 C.F.R. § 248.131(b) ..................................................................................................................30 24 C.F.R. § 248.135 .......................................................................................................................27 24 C.F.R. § 248.141(a)(1)..............................................................................................................28 24 C.F.R. § 248.145 .......................................................................................................................29 24 C.F.R. § 248.157 .......................................................................................................................29 24 C.F.R. § 248.201, et. seq...........................................................................................................27 42 U.S.C. §§ 1472(c), 1437f ..........................................................................................................24 125 Cong. Rec. 18204 (1979) ........................................................................................................12 STATE STATUTES Minn. Stat. § 322.01 (1932) .....................................................................................................13, 14 Minn. Stat. § 323.08.......................................................................................................................13 MISCELLANEOUS Cranston-Gonzalez National Affordable Housing Act, Pub. L. No. 101-625, tit. VI, 104 Stat. 4249 (1990) ..............................................................................................................26

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H.R. Conf. Rep. No. 100-246, 1987 U.S.C.C.A.N., 100th Cong., 1st Sess., v.5, 3317, 3489......................................................................................................................................25 H.R. Conf. Rep. No. 104-384, 104th Cong.,1st Sess. at 47 (1995) ...............................................34 H.R. Rep. No. 90-1585, reprinted in 1968 U.S.C.C.A.N. 2873 ..................................................8, 9 H.R. Rep. No. 100-122(I), 1987 U.S.C.C.A.N., 100th Cong., 1st Sess., v.5, 3317, 3351....................................................................................................................................23, 24, 25 H.R. Rep. No. 1585, 90th Cong., 2nd Sess., reprinted in 1968 U.S.C.C.A.N. 2873, 2896....................................................................................................................................8, 9 Housing Act of 1954, Pub. L. No. 83-560, 68 Stat. 590, 601 (1954) ..............................................6 Housing Act of 1961, Pub. L. No. 87-70, tit. I, § 101(a)(6), 75 Stat. 149, 150 (1961)...............................................................................................................................................7 Housing and Community Development Act of 1987, Pub. L. No. 100-242, tit. II, 101 Stat. 1877 (1988).....................................................................................................................24 Housing and Urban Development Act of 1968, Pub. L. No. 90-448, 82 Stat. 476, 498 (1968)........................................................................................................................................7 Howard D. Cohen & Taylor Mattis, Prepayment Rights: Abrogation by the LowIncome Housing Preservation and Resident Homeownership Act of 1990, 28 Real Prop. Prob. & Tr. J. 1, 33 (1993) .....................................................................................................6 Housing Opportunity Program Extension Act of 1996, Pub. L. No. 104-120 ("HOPE") .......................................................................................................................................32 H.R. Conf. Rep. No. 101-943 at 461, 1990 U.S.C.C.A.N. 101st Cong., 2d Sess., at 6166..........................................................................................................................................29, 30 Pub. L. No. 90-448, sec. 201(a), § 236(j)(5)(A), 82 Stat. 476.........................................8, 9, 11, 12 Pub. L. No. 90-448, tit. II, sec. 201(a), § 236(g) ...................................................................8, 9, 10 Pub. L. No. 100-242, tit. II, 101 Stat. 1877, § 261 (1988).............................................................25 Pub. L. No. 100-242, Tit. II, 101 Stat. 1877, § 261 (1988) ...........................................................61 Pub. L. No. 104-120, 110 Stat. 834 .........................................................................................32, 33 Pub. L. No. 104-204 (H.R. 3666) ..................................................................................................33

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Pub. L. No. 105-276, § 219, 112 Stat. 2461, 2487 (1998).................................................34, 35, 61 S. Rep. No 101-316, 1990 U.S.C.C.A.N., 101st Cong., 2d Sess., v.8, 5763, 5793 .......... 26, 27; 48 S. Rep. No. 281, reprinted in 1961 U.S.C.C.A.N. 1923, 1926........................................................7

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FINDINGS OF FACT I. THE PLAINTIFFS AND THEIR PROPERTIES. 1. Plaintiffs are owners of real estate located in Minnesota on which they operate

multifamily apartment complexes. Plaintiffs are Minnesota limited partnerships created in the 1970s and 1980s for the purpose of developing and/or operating, for profit, the properties at issue. A. The Properties. 1. 2. Apache Apartments (Owatonna).

The Apache Apartments of Owatonna property, previously owned by Apache

Apartments of Owatonna, L.P., is made up of two buildings, with 11 units per building. The buildings are located at 216 & 236 12th Street NW, in Owatonna, Minnesota. The property lies on the north side of Owatonna, in a strictly residential part of town. The property is located near two parks, three schools, and is less than a mile from fire and police stations. 3. Owatonna is located 65 miles south of Minneapolis. Owatonna is the largest

town in Steele County, which is a fertile agricultural region. While farming and agricultural businesses make up much of the market, Owatonna is also the home to many companies. There is a large industrial park on the western edge of town. Owatonna's major businesses include Federated Insurance, Viracon (a window manufacturer), and Cabela's (an outdoor store). Due to its proximity to the Minneapolis/St. Paul area, many Owatonna residents work in the Minneapolis metropolitan area. 4. The property itself is composed of 4 one-bedroom units, 14 two-bedroom

units, and 4 three-bedroom units. The buildings are 2½-story walk-ups, constructed of

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concrete and brick. Each apartment has oak cabinets, oak woodwork, oak trim, and Andersen windows. There is brick veneer on the exterior, a handicap-accessible ramp, and there are 3 handicap units in the apartments. All of these "extras" were paid for by Plaintiffs. The purpose was to ensure that the buildings were as well-built as possible, with going to market always in sight. Each building also has its own laundry, social room, and heat plants. The grounds are landscaped with a hard-surfaced parking lot. There are swing sets and a sandbox located outside. 2. 5. Brainerd South.

Brainerd South Apartments is located at 1969-1987 South Seventh Street in

Brainerd. The two buildings are garden apartments, with two stories above grade and one below. They house 60 units: 36 one-bedrooms and 24 two-bedrooms, and the apartments are only a few miles from downtown shops and other businesses. 6. Located 125 miles northwest of Minneapolis and St. Paul, Brainerd is home to

a variety of businesses. Ranging from forestry, retail, and government agencies, these businesses also support the many tourism opportunities found in northern Minnesota. The local school district and regional government facilities make up the two largest employers in Brainerd. 3. 7. Eagan Gardens.

The Eagan Gardens property is located at 4110-4130 Rahn Road in Eagan.

The complex is made up of two buildings, with 144 total units: 42 one-bedroom apartments; 84 two-bedroom apartments; and 18 three-bedroom apartments. Between the two buildings, there is a two-level parking ramp for residents. The outside of the buildings is a combination

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of siding and stucco. The grounds include a playground, barbeques, basketball court, and tennis court. 8. Eagan is located on the other side of the Minnesota River from Minneapolis

and St. Paul, about 15 miles from each downtown. Eagan Gardens was built around the time the Highway 77 bridge was built over the river, bringing great expansion to the Eagan area. It is now a very affluent community and is home for many people who want to be close to Minneapolis and St. Paul without living in the city. The amount of available land and access to the downtowns attract many residents and developers to the city of Eagan. Many people also work in Eagan itself. There is a large industrial park and Eagan is home to large businesses such as West Publishing's corporate headquarters and Blue Cross-Blue Shield of Minnesota. Eagan Gardens is in a prime location between Interstate 35E and Highway 77, located in the heart of the suburb, near entertainment and shopping areas. 4. 9. Hopkins Village.

The Hopkins Village apartments are located at 9 Seventh Avenue South, near

Main Street in downtown Hopkins. The building has 11 floors and 161 total units: 130 onebedrooms and 31 two-bedrooms. The first level of the building contains retail space that is leased out. One former use of the retail space was a day care facility. There is a parking lot next to the building for resident use. Also outside, there are sitting benches and a playground area. There are restaurants, shopping (both small shops on Main Street and a large mall, Ridgedale Center), a grocery store, and a park within a short distance of the building. A fire station, police station, and schools are also less than a mile away. 10. Hopkins is an inner-ring suburb and was one of the first towns settled after

Minneapolis, as the rail line went from downtown Minneapolis to the west. Hopkins became
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a hub in the western suburbs (it is only 15 miles out of downtown Minneapolis) and has always been a bedroom community for many people who commute to downtown Minneapolis. Due to its great access to other towns, many large grocery stores (Rainbow Foods, Super Valu, and Red Owl, when it existed) have built large grocery distribution centers in Hopkins. The largest employers in Hopkins are Super Valu and Honeywell. In addition, there has always been a large elderly population in Hopkins, and this is one need that Hopkins Village helped to meet. 5. 11. Morningside Terrace (Winona).

Morningside Terrace is located at 1116 Sugar Loaf Road in the town of

Winona. The building contains 54 units, consisting of 39 one-bedrooms and 15 twobedrooms. There are laundry facilities on each floor, and there is a playground and gas grills outside. The apartment building sits on a hill, near Lake Winona, the Mississippi River, and Highway 14. 12. Winona is located 130 miles southeast of the Twin Cities. It is a very old town

­ it was settled in 1851. Winona is home to many manufacturing, retail, and agricultural businesses. It is also home to two four-year, higher-educational facilities ­ Winona State University and St. Mary's University. Its proximity to the Mississippi River and scenic bluffs overlooking the river provide numerous recreational activities for the residents of Winona. 6. 13. Rochester Square.

The Rochester Square Apartments are located at 310-320 31st Street NE in

Rochester. Consisting of two buildings, there are 104 total units: 12 studio apartments, 38 one-bedrooms, and 54 two-bedrooms. Each building is a 2½ story L-shaped building, with
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flat roofs and cedar siding. The complex has a recreation room and each building has its own central laundry facilities. Outside, there are swings, slides, picnic tables, and gas grills. 14. Rochester is located 80 miles southeast of the Twin Cities and has experienced

extensive growth in the last 20 years. Its population now exceeds 90,000, and it is the major population center in the region. There are many agricultural areas surrounding the city, but it is most famous for its large employers. Rochester is home to an IBM facility and the Mayo Medical Center. Comprised of the Mayo Clinic, St. Mary's Hospital, and Rochester Methodist Hospital, the Mayo Medical Center is a world-renowned health-care facility and Rochester's largest employer. 7. 15. Waseca Village.

The Waseca Village apartments are made up of a single, 48-unit building. The

building is located at 1301 NW 2nd Street in Waseca. The property lies on the north side of Waseca, in a residential area of town. The property is also located near the high school and shopping areas. The property itself is composed of 12 one-bedrooms, 30 two-bedrooms, and 6 three-bedrooms. The buildings are made of brick veneer and stucco siding. Like the Apache property in Owatonna (as the owners were the same), there is oak woodwork, oak trim, oak doors, and Andersen windows. Also as in Owatonna, these extras were paid for by the owners and shows their intent to go to market. There are laundry facilities, a social area, and a small office inside. Outside the building, there is a playground. 16. Waseca is located 65 miles south of Minneapolis. Waseca is home to two

large industrial areas and is home to many companies for its size. Its major businesses include Brown Printing, Birdseye, and Itron (formerly E.F. Johnson). Waseca has an 82-acre park system for its residents in addition to two lakes. There are two public schools, one
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parochial elementary school, a junior high, and a senior high in town. The closest larger towns are Owatonna (15 miles) and Mankato (25 miles). II. THE SECTION 221(D)(3) AND 236 HOUSING PROGRAMS. A. 17. Congress Expands Housing Programs to Involve Private Enterprise. For decades, Congress sought to provide low-income housing primarily by

subsidizing projects developed, owned, and managed by local government public housing authorities. See generally, Belden & Wiener, HOUSING IN RURAL AMERICA 114 (1999). During the 1960s, however, Congress enacted a series of housing programs designed to encourage private investors to construct, own, and manage federally assisted housing units for low- and moderate-income residents. See Cienega Gardens v. United States, 33 Fed. Cl. 196, 202-04 (1995), reversed on other grounds, 194 F.3d 1231 (Fed. Cir. 1998). These programs encouraged individual owners, partnerships, and other entities from the private sector to develop the housing with the promise that they could end their participation in the housing programs by prepaying their Government-insured mortgage loans after twenty years, and thereafter earn conventional investment returns on their properties. See Howard D. Cohen & Taylor Mattis, Prepayment Rights: Abrogation by the Low-Income Housing Preservation and Resident Homeownership Act of 1990, 28 Real Prop. Prob. & Tr. J. 1, 33 (1993). New private owners would then take their place. (Id.) 18. As one of the first examples of this approach, Congress in 1961 amended the

National Housing Act of 1949 to open the previously-enacted Section 221(d)(3) program1 to

The 221(d)(3) program, which provided mortgage insurance and below-market interest rate loans to owners, was created in 1954. See Housing Act of 1954, Pub. L. No. 83-560, 68 Stat. 590, 601 (1954). As originally enacted, however, the program was open only to nonprofit organizations and public housing authorities. (Id.)
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private investors. Housing Act of 1961, Pub. L. No. 87-70, tit. I, § 101(a)(6), 75 Stat. 149, 150 (1961) (codified as amended at 12 U.S.C. § 1715l(d)(3)). In expanding the 221(d)(3) program, Congress observed that the legislation would have the benefit of shifting some of the costs of the government's housing program to private industry: Perhaps the most significant reason that previous proposals to establish a moderate-income housing program have not been favorably received by the Congress is that the majority of those proposals would have placed sole responsibility for such a program on the Federal Government. The moderateincome housing program which would be provided by this bill is designed to enable private enterprise to participate to the maximum extent in meeting the housing needs of moderate-income families. S. Rep. No. 281, reprinted in 1961 U.S.C.C.A.N. 1923, 1926 (emphasis added); id. at 1926 (program broadened "to obtain maximum participation by private enterprise . . . ."). 19. Congress further expanded the opportunities for private investors to participate

in the government's housing programs in 1968 by enacting the Housing and Urban Development Act of 1968, Pub. L. No. 90-448, 82 Stat. 476, 498 (1968) (codified as amended at 12 U.S.C. § 1715z-1). In passing this statute, Congress stated in its "Declaration of Policy" that in administering the programs therein, "there should be the fullest practicable utilization of the resources and capabilities of private enterprise . . . ." (Id. § 2; see also id. (finding that "there exist in the public and private sectors of the economy the resources and capabilities necessary to the full realization of" national housing policy goals).) One of the key programs created by the 1968 statute was the Section 236 program, which provided a combination of mortgage insurance and interest rate subsidies to public and private owners. (Id., tit. II, § 201.) 20. In the legislative history to the 1968 statute, Congress echoed the cost-related

concerns expressed in connection with the 1961 statute, finding that progress toward housing
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goals "has been repeatedly interrupted by periods of tight money and budgetary pressures on the Federal Government." H.R. Rep. No. 90-1585, reprinted in 1968 U.S.C.C.A.N. 2873. In the same vein, Congress stated that "the bill continues the emphasis of recent years of increased reliance on private sponsorship under our housing programs and participation by private enterprises in the financing and production of housing." (Id. at 2874 (emphasis added).) Congress also noted that, while the 221(d)(3) program had been successful, it had "the limitation of depending on direct Federal lending . . . to support its 3-percent mortgages." (Id. at 2894.) The 236 program was designed to replace the 221(d)(3) program to an extent in order to address these financing and budgetary concerns. (Id. at 2873, 2894.) 21. The Section 236 program also provided other direct financial benefits to the

government. First, the Government earns insurance premiums for the mortgages it insures under the program. See generally 12 U.S.C. § 1713(d) (authorizing collection of premiums). In addition, any rents collected from the properties that exceeded the basic rent "would be returned to the Secretary for deposit in a revolving fund for the purpose of making other interest reduction payments." H.R. Rep. No. 90-1585, reprinted in 1968 U.S.C.C.A.N. at 2894.2 The statute further stated that any surplus monies from this revolving fund could be put into investments by the agency. Pub. L. No. 90-448, tit. II, sec. 201(a), § 236(g) (Codified at 12 U.S.C. § 1715z ­ 3(b)) ("Moneys in such fund not needed for current

The statute also permitted properties in the program to be built with commercial space for rental, provided that the facilities would "contribute to the economic feasibility of the project." Pub. L. No. 90-448, sec. 201(a), § 236(j)(5)(A), 82 Stat. 476. The income from any such commercial facilities "would be used to reduce the cost of operating the project . . . ." H.R. Rep. No. 1585, 90th Cong., 2nd Sess., reprinted in 1968 U.S.C.C.A.N. 2873, 2896.

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operations may be invested in bonds or other obligations of the United States or in bonds or other obligations guaranteed as to principal and interest by the United States."). 22. The 1968 law also made mortgage insurance available to nonprofit

organizations seeking to purchase a 236 project from a private owner. H.R. Rep. No. 901585, 90th Cong., 2nd Sess., reprinted in 1968 U.S.C.C.A.N. at 2895-96. In describing this provision, Congress acknowledged that part of the incentive for private investors to enter into the Section 236 program would be the ability to liquidate the value of the asset through a sale. (Id. (noting that provision permitting sale of properties would be "especially useful in connection with the goal of attracting large amounts of private-equity money into the provision of low and moderate income housing through the establishment of national partnerships (proposed by title VIII of the bill).) It will give the limited-dividend mortgagor a ready means of disposing of his project, thereby making his investment more liquid and attractive.") (emphasis added).3 23. In furtherance of its efforts to reach out to private investors, the 1968 statute

also created the "National Housing Partnerships" program. Pub. L. No. 90-448, tit. IX, § 901, 82 Stat. 476. The "Statement of Purpose" introducing this program stated: The Congress . . . declares that it is the policy of the United States to encourage the widest possible participation by private enterprise in the provision of housing for low or moderate income families. The Congress has therefore determined that one or more private organizations should be created to encourage maximum participation by private investors in programs and projects to provide low and moderate income housing. (Id. (emphasis added).) This "partnership approach" to carrying out the government's

housing programs was confirmed in the statute's legislative history. H.R. Rep. No. 1585, The "Title VIII" referenced in this quotation became Title IX (discussed further below) in the statute as enacted. Pub. L. No. 90-448, tit. IX, § 901.
9
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reprinted in 1968 U.S.C.C.A.N. 2873, 3049 (Statement of Rep. Windall) (explaining that the program is "designed to encourage a partnership approach among interests in the private sector at the national and local level, in order to encourage low-income housing"). B. 24. HUD Carries Out its Statutory Mandate by Partnering with the Private Sector. The Secretary of HUD was charged with entering into contracts and issuing

rules and regulations necessary to carry out the Section 236 program. Pub. L. No. 90-448, tit. II, sec. 201(a), § 236(h). Pursuant to this authority, HUD prescribed six standard contract documents to effectuate each transaction: · · · · · · 25. A Commitment for Insurance of Advances ("HUD Commitment") issued by HUD to each owner; A Mortgagor's Certificate issued by each owner to HUD in response to the HUD Commitment; A Mortgage Note or Deed of Trust Note entered into by each plaintiff and its lender pursuant to the HUD Commitment ("Note"); A Mortgage or Deed of Trust entered into by each owner and its private lender pursuant to the HUD Commitment ("Mortgage"); A Regulatory Agreement entered into by each owner and HUD; and A Contract of Insurance entered into by HUD and each lender, evidenced by HUD's endorsement of the Note. Under the Regulatory Agreement, owners were subject to numerous

restrictions on the use of their properties, including (i) to construct and maintain housing in accordance with HUD specifications; (ii) to rent only to HUD-approved low-and moderateincome tenants; (iii) to charge only HUD-approved rents; and (iv) to maintain cash reserves to self-insure against mortgage default. Chief among the programs' restrictions was an investment return limitation, which provided that owners could earn no more than an annual return of six percent on their investment. Thus, owners were limited to a return of six

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percent on their "initial equity investment," i.e., their down payment on their properties. The amount of the permissible return remained the same over the years regardless of how much equity owners built up in their properties. Consequently, as owners continued to pay down their mortgages and the fair market value of their properties continued to rise, their annual return would represent a smaller and smaller percentage of their equity. 26. Thus, the only cash flow an owner could realize while in the program was

strictly limited to this static six percent annual return.4 This return was not guaranteed, either, as the owner was permitted to draw the funds each year only if the project finances would allow for it, creating the possibility that the owner could go years with no return. 27. The marginal annual cash flow available to owners under the program was

insufficient, by itself, to induce owners to enter into either of the programs at issue. Given the length of the typical loan term under the programs, an owner would be burdened with those restrictions for forty years into the future. As a result, something more was required to attract investors into the programs. 28. Pursuant to the authority delegated to it by Congress, HUD incorporated into

its contract forms a term permitting the owner to prepay its mortgage and thereby terminate its participation in the program after twenty years. This prepayment right was made explicit in the Mortgage Note executed for each property: The debt evidenced by this Note may not be prepaid either in whole or in part prior to the final maturity date hereof without the prior written approval of the Federal Housing Commissioner except where: (1) The prepayment is in The rents paid by tenants would not go to the owner, but rather would be channeled back into the project. Furthermore, as explained above, any excess rents would be returned to HUD, whereupon the agency could use the money either to meet other financial obligations or make investments. See Pub. L. No. 90-448, tit. II, sec. 201(a), § 236(g), 82 Stat. 476.
4

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connection with the release of an individual unit for sale to a lower income, elderly, or handicapped person; or (2) The maker is a limited dividend corporation which is not receiving payments from the Commissioner under a rent supplement contract pursuant to Section 101 of the Housing and Urban Development Act of 1965, and the prepayment occurs after the expiration of 20 years from the date of final endorsement . . . . See Note (emphasis added). The twenty-year prepayment right was also secured by the regulations governing the program, which contained a provision mirroring the contract term quoted above. (Id. ¶ 37; 24 C.F.R. §§ 221.524(a), 236.309(a) (1970); see also id.

§ 236.30(a)(1)(i),(ii); § 207.14 (regulation governing terms of Contract of Insurance, requiring all mortgages insured thereunder to contain a prepayment provision).)5 29. Thus, an owner could free itself from the program's income restrictions and

requirements by exercising its right to prepay after twenty years. (Id.) The Regulatory Agreement provides that the programs' restrictions are binding on the owner only as long as HUD "is obligated to insure a mortgage on the mortgaged property." See 24 C.F.R. § 221.529 (1970). Upon prepayment, an owner could begin not only charging market rents, but actually retaining the income generated by the property (rather than being forced to funnel that income back into the property or to the Government). In this manner, the owner could finally realize the true value of its property on the open market.

5

Potential tax losses may also have been attainable from the properties in the program in some instances, but any benefits attributable to those tax consequences were short-lived, since they ended with the expiration of each project's depreciation schedule. See generally 125 Cong. Rec. 18204 (1979). Moreover, any tax benefits devolve only to the benefit of the owners' partners, not the partnership entities themselves, which are the only parties plaintiff to this action. Thus, the tax implications of the 221(d)(3) and 236 programs provided no long-term benefit to individual partners and no benefit whatsoever to the partnerships themselves, and in fact eventually would become a major financial burden to the partners of owners unable to leave the program through prepayment.
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30.

As a result, the right to prepay and convert to market rents after twenty years

served as a major inducement to attract owners into the program. Cienega Gardens v. United States, 38 Fed. Cl. 64, 75 (1997) ("Cienega III"). In fact, the agency itself, in meetings with industry groups, described the prepayment right as an incentive for owners to enter into the programs. III. PLAINTIFFS' INVESTMENT IN THE FUTURE. 31. In the early 1970s, the owners of each of the seven properties entered into

transactions with HUD and private lenders under the Section 236 program.6 A. Formation of the Partnerships and Development of the Properties. 1. 32. Apache Apartments (Owatonna).

In response to the HUD Commitment, the owners of Apache Apartments

issued a Mortgagee's Certificate to HUD on August 2, 1971. (Pl. Tr. Ex. 003. (G_AP 00140).) 33. Apache Apartments of Owatonna, a Minnesota general partnership, was

created in 1971 for the purpose of developing and operating the Apache Apartments complex. (Pl. Tr. Ex. 1 (P-AP 000572-579).) The partnership was formed pursuant to Minnesota statutory law, which defines a partnership as an association of two or more persons to carry on as co-owners a business for profit. See Minn. Stat. § 323.08, subd. 8 (1932); Minn. Stat. § 322.01 (1932); 36 Dunnell Minnesota Digest, Partnership § 2.01(e)

6

With the exception of Apache Apartments (Owatonna) and Eagan Gardens, all of the properties were planned, developed, and owned by the plaintiffs in this case. The entity that owned Apache Apartments (Apache Apartments of Owatonna, a General Partnership), sold to plaintiff Apache Apartments of Owatonna, a Limited Partnership, in 1984. The entity that owned Eagan Gardens sold to Tonkaway Partnership, which reorganized into plaintiff Tonka Gardens LLC after 1990.
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(1997) ("It is essential that the joint enterprise be for gain or profit ­ in other words, that there be a business enterprise."). In 1984, the general partnership sold the complex to Apache Apartments of Owatonna, a Limited Partnership. 34. HUD issued a Commitment for Insurance of Advance to the partnership and a

private lending institution on June 28, 1971, pursuant to which HUD committed to endorsing for insurance a mortgage in the amount of $344,500. (Pl. Tr. Ex. 002, at P-AP 000101000105.) The partnership then entered into a Mortgage and Mortgage Note with its lender on August 2, 1971, and entered into a Regulatory Agreement with HUD on August 8, 1971. (Pl. Tr. Ex. 002, at P-AP 000121-000127; Pl. Tr. Ex. 002, at P-AP 000118-000119; Pl. Tr. Ex. 004, at P-AP 000003-000017.) The Mortgage provided for a forty-year term and an interest rate of 7%. (Id.) The Mortgage made the partnership liable for the full amount borrowed of $344,500. (Id.) 35. The Mortgage Note also contained the prepayment right, which permitted

prepayment of the Mortgage in full upon twenty years after the date that HUD provided its final endorsement of the note. (Id. at P-AP 000019.) The contemporaneous regulations confirmed this prepayment right. HUD then finally endorsed the Mortgage on September 8, 1973. Thus, under the original contract documents signed among Apache, HUD, and the private lender, the partnership acquired the right to prepay the Mortgage without HUD approval and convert to market rents on September 8, 1993. 36. In forming the partnership, selecting a location, and constructing the property,

the original general partners were careful to ensure they would be in a position to take advantage of the market value of the property immediately upon the arrival of this twentyyear anniversary.
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37.

If the twenty-year prepayment right was not part of the original deal, the

partnership would not have entered the HUD program. 2. 38. Brainerd South.

Brainerd South, a Minnesota limited partnership, was created in 1971. The

partnership was formed pursuant to Minnesota statutory law, which defines a partnership as an association of two or more persons to carry on as co-owners a business for profit. 39. HUD issued a Commitment for Insurance of Advance to the partnership and a

private lending institution, pursuant to which HUD committed to endorsing for insurance a mortgage in the amount of $827,300. The partnership then entered into a Mortgage and Mortgage Note with its lender on August 12, 1971, and entered into a Regulatory Agreement with HUD on the same date. The Mortgage provided for a forty-year term and an interest rate of 7%. The Mortgage made the partnership liable for the full amount borrowed of $827,300. 40. The Mortgage Note also contained the prepayment right quoted above, which

permitted prepayment of the Mortgage in full upon twenty years after the date that HUD provided its final endorsement of the note. The contemporaneous regulations confirmed this prepayment right. HUD endorsed the Mortgage on October 25, 1972. Thus, under the original contract documents signed among Brainerd South, HUD, and the private lender, the partnership acquired the right to prepay the Mortgage without HUD approval and convert to market rents on October 25, 1992. 41. In forming the partnership, selecting a location, and constructing the property,

the original general partner was careful to ensure it would be in a position to take advantage

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of the market value of the property immediately upon the arrival of this twenty-year anniversary. 42. If the twenty-year prepayment right was not part of the original deal, the

partnership would not have entered the HUD program. 3. 43. Eagan Gardens.

The Eagan Gardens Property was originally developed and owned by Eagan

Green Apartments, a Minnesota Limited Partnership. In June of 1984, the original owners sold Eagan Green to Tonkaway Partnership, a Minnesota General Partnership. This partnership changed the property's name to Eagan Gardens and reorganized itself into Tonka Gardens LLC after 1990. The original Eagan Gardens partnership was formed pursuant to Minnesota statutory law, for the purpose of constructing and operating the project for profit. 44. HUD issued a Commitment for Insurance of Advance to the partnership and a

private lending institution on December 15, 1972, pursuant to which HUD committed to endorsing for insurance a mortgage in the amount of $2,231,800. (Pl. Tr. Ex. 086 (FRC0910203-0910208).) The partnership also entered into a Mortgage and Mortgage Note with its lender and a Regulatory Agreement with HUD on December 26, 1972. (Pl. Tr. Ex. 087 (MIN0090111-90117); Pl. Tr. Ex. 088 (MIN00910019-910028).) The Mortgage provided for a forty-year term and an interest rate of 7%. (Id.) The Mortgage made the partnership liable for the full amount borrowed of $2,231,800. (Id.) 45. The Mortgage Note also contained the prepayment right quoted above, which

permitted prepayment of the Mortgage in full upon twenty years after the date that HUD provided its final endorsement of the note. The contemporaneous regulations confirmed this prepayment right. HUD then finally endorsed the Mortgage on May 30, 1974. Thus, under
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the original contract documents signed among the original owners, HUD, and the private lender, the partnership acquired the right to prepay the Mortgage without HUD approval and convert to market rents on May 30, 1994. 46. In forming the partnership, selecting a location, and constructing the property,

the original general partner was careful to ensure it would be in a position to take advantage of the market value of the property immediately upon the arrival of this twenty-year anniversary. 47. If the twenty-year prepayment right was not part of the original deal, the

partnership would not have entered the HUD program. 4. 48. Hopkins Village.

Hopkins Village Apartments, a Minnesota Limited Partnership, was created in

1971 for the purpose of developing and operating the Hopkins Village Apartments building. (Pl. Tr. Ex. 128 (P-AP 012201-12208).) The partnership was formed pursuant to Minnesota statutory law, for the purpose of constructing and operating the project for profit. 49. HUD issued a Commitment for Insurance of Advance to the partnership and a

private lending institution, pursuant to which HUD committed to endorsing for insurance a mortgage in the amount of $2,231,800. The partnership also entered into a Mortgage and Mortgage Note with its lender and a Regulatory Agreement with HUD on April 9, 1971. (Pl. Tr. Ex. 129 (P-AP 12515-12516); (Pl. Tr. Ex. 130 (P-AP 012220-12231).) The Mortgage provided for a forty-year term and an interest rate of 7%. (Id.) The Mortgage made the partnership liable for the full amount borrowed of $2,231,800. (Id.) 50. The Mortgage Note also contained the prepayment right, which permitted

prepayment of the Mortgage in full upon twenty years after the date that HUD provided its
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final endorsement of the note. The contemporaneous regulations confirmed this prepayment right. HUD endorsed the Mortgage on March 26, 1973. Thus, under the original contract documents signed among the original owners, HUD, and the private lender, the partnership acquired the right to prepay the Mortgage without HUD approval and convert to market rents on March 26, 1993. 51. In forming the partnership, selecting a location, and constructing the property,

the original general partner was careful to ensure it would be in a position to take advantage of the market value of the property immediately upon the arrival of this twenty-year anniversary. 52. If the twenty-year prepayment right was not part of the original deal, the

partnership would not have entered the HUD program. 5. 53. Morningside Terrace (Winona).

Winona Properties, a Minnesota Limited Partnership, was created in 1971 for

the purpose of developing and operating the Morningside Terrace Apartments building. (Pl. Tr. Ex. 286 (G_AP13538-13578).) The partnership was formed pursuant to Minnesota statutory law, for the purpose of constructing and operating the project for profit. 54. HUD issued a Commitment for Insurance of Advance to the partnership and a

private lending institution on August 20, 1971, pursuant to which HUD committed to endorsing for insurance a mortgage in the amount of $780,900. (Pl. Tr. Ex. 289 (GP_1410714111).) The partnership also entered into a Mortgage and Mortgage Note with its lender and a Regulatory Agreement with HUD on September 20, 1971. (Pl. Tr. Ex. 339 (P-AP 008223-8224); Pl. Tr. Ex. 340 (P-AP 008221-8222).) The Mortgage provided for a forty-

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year term and an interest rate of 7%. (Id.) The Mortgage made the partnership liable for the full amount borrowed of $780,900. (Id.) 55. The Mortgage Note also contained the prepayment right, which permitted

prepayment of the Mortgage in full upon twenty years after the date that HUD provided its final endorsement of the note. The contemporaneous regulations confirmed this prepayment right. HUD endorsed the Mortgage on March 15, 1972. Thus, under the original contract documents signed among the original owners, HUD, and the private lender, the partnership acquired the right to prepay the Mortgage without HUD approval and convert to market rents on March 15, 1992. 56. In forming the partnership, selecting a location, and constructing the property,

the original general partner was careful to ensure it would be in a position to take advantage of the market value of the property immediately upon the arrival of this twenty-year anniversary. 57. If the twenty-year prepayment right was not part of the original deal, the

partnership would not have entered the HUD program. 6. 58. Rochester Square.

Rochester Square, a Minnesota Limited Partnership, was created in 1970 for

the purpose of developing and operating the Rochester Square Apartments building. The partnership was formed pursuant to Minnesota statutory law, for the purpose of constructing and operating the project for profit. 59. HUD issued a Commitment for Insurance of Advance to the partnership and a

private lending institution, pursuant to which HUD committed to endorsing for insurance a mortgage in the amount of $1,502,700. (Pl. Tr. Ex. 086 (FRC0910203-0910208).) The
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partnership also entered into a Mortgage and Mortgage Note with its lender and a Regulatory Agreement with HUD on October 1, 1970. (Pl. Tr. Ex. 352 (P-AP 008230-8235); Pl. Tr. Ex. 349 (P-AP 008488-8489).) The Mortgage provided for a forty-year term and an interest rate of 8½ %. (Id.) The Mortgage made the partnership liable for the full amount borrowed of $1,502,700. (Id.) 60. The Mortgage Note also contained the prepayment right, which permitted

prepayment of the Mortgage in full upon twenty years after the date that HUD provided its final endorsement of the note. The contemporaneous regulations confirmed this prepayment right. HUD endorsed the Mortgage on December 27, 1972. Thus, under the original contract documents signed among the original owners, HUD, and the private lender, the partnership acquired the right to prepay the Mortgage without HUD approval and convert to market rents on December 27, 1992. 61. In forming the partnership, selecting a location, and constructing the property,

the original general partner was careful to ensure it would be in a position to take advantage of the market value of the property immediately upon the arrival of this twenty-year anniversary. 62. If the twenty-year prepayment right was not part of the original deal, the

partnership would not have entered the HUD program. 7. 63. Waseca Village.

Waseca Village, a Minnesota Limited Partnership, was created in 1971 for the

purpose of developing and operating the Morningside Terrace Apartments building. (Pl. Tr. Ex. 461 (P-AP 000501-511).) The partnership was formed pursuant to Minnesota statutory law, for the purpose of constructing and operating the project for profit.
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64.

HUD issued a Commitment for Insurance of Advance to the partnership and a

private lending institution, pursuant to which HUD committed to endorsing for insurance a mortgage in the amount of $744,500. The partnership also entered into a Mortgage and Mortgage Note with its lender and a Regulatory Agreement with HUD on September 22, 1971. (Pl. Tr. Ex. 463 (P-AP 000464-472).) The Mortgage provided for a forty-year term and an interest rate of 7%. (Id.) The Mortgage made the partnership liable for the full amount borrowed of $744,500. (Id.) 65. The Mortgage Note also contained the prepayment right, which permitted

prepayment of the Mortgage in full upon twenty years after the date that HUD provided its final endorsement of the note. The contemporaneous regulations confirmed this prepayment right. HUD endorsed the Mortgage on May 2, 1973. Thus, under the original contract documents signed among the original owners, HUD, and the private lender, the partnership acquired the right to prepay the Mortgage without HUD approval and convert to market rents on May 2, 1993. 66. In forming the partnership, selecting a location, and constructing the property,

the original general partner was careful to ensure it would be in a position to take advantage of the market value of the property immediately upon the arrival of this twenty-year anniversary. 67. If the twenty-year prepayment right was not part of the original deal, the

partnership would not have entered the HUD program. 8. 68. Summary.

As mentioned above, the twenty-year period during which Plaintiffs' loans

could not be prepaid commenced on the date of "final endorsement" of the Note. The final
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endorsement dates, and corresponding twenty-year anniversaries, for the seven properties at issue are as follows:
Date of Final Endorsement Prepayment Date

Apache Apartments (Owatonna) Brainerd South Apartments Eagan Gardens Apartments Hopkins Village Apartments Morningside Terrace Apartments (Winona) Rochester Square Apartments Waseca Village Apartments

September 8, 1973

September 8, 1993

October 25, 1972

October 25, 1992

May 30, 1974

May 30, 1994

March 26, 1973

March 26, 1993

March 15, 1972

March 15, 1992

December 27, 1972

December 27, 1992

May 2, 1973

May 2, 1993

Plaintiffs always intended to prepay their mortgages and bring their rents to market levels as soon as these twenty-year dates arrived. B. 69. Plaintiffs' Plans and Efforts Toward Prepayment. The partnerships secured the right to prepay after twenty years and intended

from the beginning to exercise that right. 70. The plaintiffs' investment strategy, among other reasons, was a "buy and

hold" approach, whereby the partnerships purchased property with the intention of holding it

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for many years toward the goal of taking advantage of the appreciation in the value of the asset over time. 71. The partnerships understood that the Mortgage Note granted it the right to

prepay after twenty years without HUD approval. The prepayment right was an absolutely critical term of the contracts to the partnerships. 72. In addition, the partners never would have purchased their interests in the

partnerships but for the prepayment right. For those who were not in the project from the beginning, it was also understood that the original general partners would not have entered into the Section 236 program without the right to prepay after twenty years. 73. The partnerships never wavered from their plans to prepay as soon as the

twenty-year anniversaries arrived. 74. The general partner of the partnerships tracked when each property could be

prepaid. Over the years, the partnerships continued to track the prepayment dates meticulously, with an eye toward converting the properties to market as soon as they would be permitted to do so. IV. ABROGATION OF PLAINTIFFS' PROPERTY RIGHTS. A. Lack of Congressional Foresight Creates a Problem. 1. 75. Congress Enacts Emergency Legislation (ELIHPA).

As owners like Plaintiffs neared their prepayment eligibility dates, Congress

realized that many owners would exercise their contractual rights to prepay, resulting in the potential loss of hundreds of thousands of units of government-subsidized housing. H.R. Rep. No. 100-122(I), 1987 U.S.C.C.A.N., 100th Cong., 1st Sess., v.5, 3317, 3351 (foretelling potential loss of 500,000 to 1,000,000 rental units and concluding that there was "no simple

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solution" to this "very serious problem"). To avoid this prospective loss of housing, Congress enacted legislation