Franconia Associates v. United States and Grass Valley Terrace v. United States

The Supreme Court unanimously ruled that property owners could sue the government for changing the rules on their low-income housing loans. The Court decided that a 1987 law restricting loan prepayments was a "repudiation" (a signal of a future broken promise) rather than an immediate breach of contract. This means the six-year deadline to sue only begins when the government actually rejects an owner's request to pay off their loan early.

This case protects people and businesses that enter into long-term deals with the government. It ensures they are not barred from court just because the government passed a law years ago that might eventually break a contract. For rural housing developers, it means they can still seek compensation if the government prevents them from exiting low-income housing programs.

Under the Housing Act of 1949, the government gave low-interest loans to developers to build affordable housing for the elderly and poor. When Congress later passed the ELIHPA law to keep these properties in the program longer, it effectively changed the terms of those original deals. This case clarifies how the legal system handles situations where the government uses its legislative power to back out of its financial obligations.

In a 9-0 decision, Justice Ruth Bader Ginsburg wrote the majority opinion, joined by Chief Justice Rehnquist and Justices O'Connor, Scalia, Souter, Kennedy, Thomas, Stevens, and Breyer.

“ELIHPA's enactment qualified as a repudiation of the parties' bargain, not a present breach of the loan agreements.”

The deadline to sue the government for a contract breach starts when the government actually fails to perform its duty, not necessarily when it passes a law saying it will do so later.

The Supreme Court reversed the lower court's decision and sent the case back for further proceedings. This allows Franconia Associates and other property owners to move forward with their lawsuits to prove the government owes them damages. The ruling sets a precedent that will help other contractors who face similar legislative changes to their government agreements.

They sued because their original loan contracts allowed them to pay off their mortgages at any time to leave the low-income housing program. A new law passed by Congress in 1987 took away that right by adding strict new conditions for prepaying those loans.

A repudiation is a statement that a party will not follow through on a future obligation, while a breach is the actual failure to do the work when it is due. The Court held that the law was a repudiation, so the owners weren't harmed until they actually tried to prepay and were denied.

The government argued that the six-year limit to sue started in 1987 when the law was passed, which would have made the 1997 lawsuits too late. The Court disagreed, ruling that the six-year clock only starts when a borrower's prepayment tender is actually dishonored by the government.

These programs primarily affect private nonprofit entities that build housing for the elderly and low-income families in rural areas. The ruling ensures these developers can hold the government to the financial terms they originally agreed upon when they built the housing.

The Court reasoned that the government's promise was an obligation to accept prepayment when offered, not just an obligation to allow the right to prepay. Therefore, the contract is only broken when the government refuses to accept a specific payment and release its control over the property.