United States v. Mario B. And Joseph L. Capano

OPINION OF THE COURT

BECKER, Circuit Judge.

Equity skimming is the practice of diverting revenues generated by mortgaged property in default to purposes other than property maintenance or mortgage payments. This case presents the question whether a federal criminal statute, 12 U.S.C. § 1715z-4(b) (1982), which -proscribes equity skimming from federally-assisted multifamily housing projects, applies although the mortgagor did not receive an extension of time to cure the default or a modification of the mortgage terms. We hold that it does not, and we therefore will affirm the judgment of the district court *123which dismissed the indictment on this ground.

I.

This criminal prosecution arose out of the financial difficulties of Golden Acres Apartments, an 88-unit apartment project built in 1973 and 1974 in Claymont, Delaware. The initial financing for the project included a HUD-insured mortgage of approximately $1.4 million. This mortgage went into default in May 1976, and in September 1976, the mortgage was assigned to HUD and thereafter was held by HUD under the provisions of the National Housing Act, 12 U.S.C. § 1713(g) (1982). The indictment alleges that from on or before February 1977, through December 1981, the appellees, Mario and Joseph Capano, owned all stock in Golden Acres, Inc., the ■developer and sponsor of the project.

The indictment further states, and it is uncontested by the parties, that from May, 1979, through December, 1981, the Capanos took more than $300,000 of rental income derived from Golden Acres and diverted it to themselves and other businesses they controlled. The indictment thus charges appellees, Mario B. Capano and Joseph L. Capano, with 110 substantive counts of equity skimming in violation of 12 U.S.C. § 1715z-4(b), and with one count of conspiracy, 18 U.S.C. § 371 (1982). The indictment does not allege that the Capanos ever requested or received an extension of time to cure the default on the mortgage or . a modification of the terms of the mortgage.

The district court dismissed the indictment for two reasons. First, it held that the criminal penalties of 12 U.S.C. § 1715z-4(b) apply only when a multifamily housing project is insured by HUD and held by a third party mortgagee, not when, as alleged in the indictment, the project is security for a mortgage that has been assigned to and is actually held by the Secretary, In the alternative, the court held that, by the terms of the statute, the criminal penalties apply only where the mortgagors had received an extension of time to cure a default or a modification of the terms of their mortgage. Because the indictment did not allege that the Capanos had ever received such an extension or modification, the district court dismissed the indictment for that additional and independent reason.

The United States brought the instant appeal from the dismissal, arguing that the district court’s interpretation of 12 U.S.C, § 1715z-4(b) was incorrect, and that that subsection proscribes equity skimming by any mortgagor whose HUD-held or HUD-insured mortgage on a multifamily housing unit is in default regardless of whether he has received a modification or extension. We have appellate jurisdiction by virtue of 18 U.S.C. § 3731 (1982). Inasmuch as this undertaking involves solely a question of law, our scope of review is plenary. See Tustin v. Heckler, 749 F.2d 1055, 1060 (3d Cir.1984).

II.

Because the district court had two independent reasons for its dismissal of the indictment, we will affirm the district court if we agree with either of its reasons. In the discussion that follows, we assume, without deciding, that the statute applies to mortgages held by HUD and mortgages for which HUD is an insurer.1 We consid*124er only whether 12 U.S.C. § 1715z-4(b) applies to even those who have never received an extension or modification of their mortgages. We look to the language of the statute, its legislative history, and well-accepted canons of the interpretation of criminal statutes.

A. Analysis of the Statute

Because 12 U.S.C. § 1715z-4(b) (hereinafter “subsection (b)”) is opaque and convoluted, and because it refers back to 12 U.S.C. § 1715z-4(a) (hereinafter “subsection (a)”), we will set forth both subsections in full.

§ 1715z-4 Modifications in terms of insured mortgages covering multifamily projects
Requests for extensions to cure defaults or for modification of mortgage terms; regulations
(a) The Secretary shall not consent to any request for an extension of the time for curing a default under any mortgage covering multifamily housing, as defined in the regulations of the Secretary, or for a modification of the terms of such mortgage, except in conformity with regulations prescribed by the Secretary in accordance with the provisions of this section. Such regulations shall require, as a condition to the granting of any such request, that, during the period of such extension or modification, any part of the rents or other funds derived by the mortgagor from the property covered by the mortgage which is not required to meet actual and necessary expenses arising in connection with the operation of such property, including amortization charges under the mortgage, be held in trust by the mortgagor and distributed only with the consent of the Secretary; except that the Secretary may provide for the granting of consent to any request for any extension of the time for curing a default under any mortgage covering multifamily housing, or for a modification of the terms of such mortgage, without regard to the foregoing requirement, in any case or class of cases in which an exemption from such requirement does not (as determined by the Secretary) jeopardize the interests of the United States.
Violations and penalties
(b) Whoever, as an owner of a property which is security for a mortgage described in subsection (a) of this section, or as a stockholder of a corporation owning such property, or as a beneficial owner under any business organization or trust owning such property, or as an officer, director, or agent of any such owner, (1) willfully uses or authorizes the use of any part of the rents or other funds derived from property covered by such mortgage in violation of a regulation prescribed by the Secretary under subsection (a) of this section, or (2) if such mortgage is determined, as provided in subsection (a) of this section, to be exempt from the requirement of any such regulation or is not otherwise covered by such regulation, willfully and knowingly uses or authorizes the use, while such mortgage is in default of any part of the rents or other funds derived from the property covered by such mortgage for any purpose other than to meet actual and necessary expenses arising in connection with such property (including amortization charges under the mortgage), shall be fined not more than $5,000 or imprisoned not more than three years, or both.

Subsection (a) states that the Secretary of HUD cannot extend or modify a mortgage on a multifamily housing unit2 except *125in conformity with regulations that she or he promulgates, and that those regulations shall, among other things, prohibit equity skimming.3 The regulations can be found at 24 U.S.C. § 207.256b (1985). Not wishing to bind the Secretary unduly, Congress included an “escape clause” in subsection (a): in cases where the regulations would “jeopardize the interests of the United States,” the Secretary could extend or modify a mortgage without regard to the regulations.

Subsection (b) provides for criminal sanctions against those who hold “property which is security for a mortgage described in subsection (a)” if the property holder violates “a regulation prescribed by the Secretary under subsection (a);” or, although he is exempt from subsection (a)’s regulations by virtue of the explicit escape clause, or is “not otherwise covered,” by the subsection (a) regulations, engages in equity skimming.4 The result of subsection (b)’s classificatory system is that all those whose property is security for a mortgage described in subsection (a) and who equity skim, are culpable under criminal subsection (b).

It is undenied that the defendants equity skimmed. Therefore, the question in this case is what is meant by “mortgage described in subsection (a).” The question is difficult to answer, for subsection (a) does not describe any mortgages; rather, it places certain limitations on the extension or modification of defaulted mortgages on multi-family dwellings in which HUD has a financial interest.5 Allowing for this imprecision, the parties put forth two meanings that strike us as most .reasonable. The government argues that the phrase “mortgage described in subsection (a)” refers to all mortgages on multifamily housing in which HUD has a financial interest, i.e., ones for which permission of the Secretary would be required before there could be an extension or modification of the mortgage. This reading of the statute would encompass Golden Acres and thus subject the Capanos to criminal liability for their actions. The Capanos argue that “mortgage described in subsection (a)” refers to all mortgages on multifamily in which HUD has a financial interest and which have received an extension or modification. Under this reading, the Capanos would not be culpable.

Given the imprecision just referred to in the language of subsection (b), the “plain meaning” of the words of the statute does not direct a result. Thus, we must consider other aspects of the statute, in particular its structure. In this regard, two points are of special relevance. First, § 1715z-4 does not purport to deal with all aspects of the behavior of defaulted mortgagors but only with the extension or modification of defaulted mortgages. Section 1715z-4’s title states explicitly that it concerns “[mjodifications in terms of insured mortgages.” This suggests that subsection (b) is similarly limited to instances of mortgage modification or extension, otherwise *126the title would be inaccurate. See Brotherhood of Railway Trainmen v. Baltimore & Ohio R. Co., 331 U.S. 519, 521, 67 S.Ct. 1387, 1388, 91 L.Ed. 1646 (1947) (court may refer to statute’s title as an aid in interpretation of ambiguous statutes).

Second, subsection (a) does not come into play unless a mortgage extension or modification is at issue, for subsection (a) is exclusively concerned with these matters. As subsections (a) and (b) were part of the same legislative enactment and were clearly intended to be read together, it follows that subsection (b) should not have a significantly greater scope than subsection (a). This implies that the Capanos’ interpretation of subsection (b) is more convincing, for under the government’s interpretation, a person could be criminally liable for actions under subsection (b) even though the civil requirements of subsection (a) are inapplicable.6

While we could rest on this statutory analysis, confident that the Capanos’ reading of the statute, while not the only plausible reading, is nonetheless the better one, we turn now to the legislative history, for it supports that reading.

B. Legislative History

Section 1715z-4 was enacted as § 302 of the Housing and Urban Development Act of 1968, Pub.L. 90-448, 82 Stat. 506. The provision generated no discussion on the floor of either house of Congress. The only evidence of congressional intent is the House Report. Fortunately, the Report is explicit on the point at issue here.

The Report’s discussion of § 1715z-4 reads in its entirety as follows:

Section' 303 of the Bill would add a new section 239 to the National Housing Act to require that any request for the extension of time for curing a default on an FHA-insured multifamily mortgage, or a modification of the terms of such a mortgage, be approved by the Secretary of Housing and Urban Development in accordance with regulations prescribed by him. During the period of modification or extension any rents or other funds (such as security deposits) derived from the mortgaged property in excess of that needed to meet operating expenses would be required to be held in trust by the mortgagor and distributed only with the consent of the Secretary.
This section is designed to discourage distribution of rental income of multifamily projects to stockholders of a mortgagor corporation or individual owners where such income should be used to meet mortgage payments. Where it is thought that a mortgaged property probably will not generate enough income to meet mortgage payments, there is a temptation for the owners to divert funds received from rentals to their own *127use and to allow the mortgage to go into default in order to recoup their investment in the project and even to show a profit in the investment.
Civil actions have generally proven inadequate as a means of discouraging such actions or of recovering all diverted funds. Section 239 [§ 1715z-U] would provide criminal penalties for such willful diversion of funds by a mortgagor or a stockholder, director, officer, or agent of the mortgagor during the period in which the time for curing a default has been extended or the terms of the mortgage modified. The maximum penalty would be a fine of not more than $5,000 or imprisonment of not more than 3 years, or both.
The Secretary in his regulations could provide for granting consent to an extension or modification of a mortgage in any case or class of cases without regard to the requirements of the regulations where he determined such action would not jeopardize the interests of the United States. However, in the case of such exempt mortgages, the knowing and willful use, or authorization of such use, of any part of the rents or other funds derived from the mortgaged property for any purpose other than to meet actual and necessary expenses (including amortization) while the mortgage is in default would carry a similar penalty.

H.R.Rep. No. 1585, 90th Cong., 2d Sess., reprinted in 1968 U.S.Code Cong. & Ad. News at 2873, 2906 (emphasis supplied). There is no indication or suggestion that the emphasized portion of the third paragraph was intended to be merely illustrative; to the contrary, its tone is definitive. It is thus a fair implication from that portion that subsection (b) was intended to prohibit equity skimming only when a defaulted mortgage had been extended, not when there had been no such extension.

Despite this evidence, the dissent argues that the broader language in the second quoted paragraph — “[the statute is] designed to discourage distribution of rental income of multifamily projects to stockholders of a mortgagor corporation or individual owners where such income should be used to meet mortgage payments” — should take precedence and guide our interpretation. Dissent at 134. We cannot agree. Although the second paragraph is broadly worded, the other three paragraphs are carefully circumscribed; they deal exclusively with mortgage extension or modification. To read the second paragraph literally, as the dissent does, would be contrary to the intention of Congress as expressed in the whole of the quoted section of the Committee Report and especially in the emphasized portion of the third quoted paragraph.

That the Secretary of Housing and Urban Development has read the legislative history as have we strengthens our position. In a letter from John W. Kopecky, Acting Associate General Counsel, to William D. Ruckleshaus, Assistant Attorney General, dated December 4, 1969, the Secretary’s counsel stated that “the legislative history indicates the [sic] the criminal penalties under Section 239(b) [subsection (b) ] apply only to willful diversions during the period in which the time for curing the default has been extended or the mortgage is under modification.” Although the Secretary’s interpretation is not binding on this court, it is surely probative. See, e.g., United States v. Rutherford, 442 U.S. 544, 552, 99 S.Ct. 2470, 2475, 61 L.Ed.2d 68 (1979); Wilshire Oil Co. of Texas v. Board of Governors of the Federal Reserve System, 668 F.2d 732, 735-36 (3d Cir.1981), cert. denied, 457 U.S. 1132, 102 S.Ct. 2958, 73 L.Ed.2d 1349 (1982).7,8

*128C. Principles for the Interpretation of Criminal Statutes

When construing statutes, courts must, of course, give effect to the will of Congress. We would be less than honest, however, if we did not admit that in some cases we cannot determine that will with certainty, and statutes are therefore sometimes left with ambiguity. It is well-settled that where a court’s interpretative effort fails to eliminate ambiguity in the meaning of a criminal statute, the residual uncertainty will be resolved in favor of lenity. See, e.g., Dowling v. United States, — U.S. —, —, 105 S.Ct. 3127, 3131-32, 87 L.Ed.2d 152 (1985); Liparota v. United States, — U.S. —, —, 105 S.Ct. 2084, 2087, 85 L.Ed.2d 434 (1985). See also Lewis v. United States, 445 U.S. 55, 65, 100 S.Ct. 915, 920, 63 L.Ed.2d 198 (1980) (touchstone of lenity principle is statutory ambiguity); Smith v. Williams, 698 F.2d 611, 613 (3d Cir.1983); United States v. Marino, 682 F.2d 449, 454 & n. 4 (3d Cir.1982). Of course, the federal courts must not use this canon of statutory construction to defeat the congressional purpose in creating a federal crime. United States v. Turkette, 452 U.S. 576, 586-87 & n. 10, 101 S.Ct. 2524, 2530-31 & n. 10, 69 L.Ed.2d 246 (1981). The rule “ ‘comes into operation at the end of the process of construing what Congress has expressed, not at the beginning as an overriding consideration of being lenient to wrongdoers.’ ” Russello v. United States, 464 U.S. 16, 29, 104 S.Ct. 296, 303, 78 L.Ed.2d 17 (1983) (quoting Callanan v. United States, 364 U.S. 587, 596, 81 S.Ct. 321, 326, 5 L.Ed.2d 312 (1961)).

This rule does not stem from a societal compassion for potential criminals. Rather, the rule expresses the conviction that potential criminal defendants must be accorded fair notice of the proscribed conduct. See McBoyle v. United States, 283 U.S. 25, 27, 51 S.Ct. 340, 341, 75 L.Ed. 816 (1931) (Holmes, J.). It is further intended to ensure that Congress, not the courts, defines the scope of prohibited conduct. Dowling, supra, 105 S.Ct. at 3132 (“Due respect for the prerogative of Congress in defining federal crimes prompts restraint in this area, where we typically find a narrow interpretation appropriate.”). Cf Garcia v. United States, — U.S. —, —, 105 S.Ct. 479, 490, 83 L.Ed.2d 472 (1984) (Stevens, J., dissenting) (“Every increase in the power of the federal prosecutor moves us a step closer to a national police force with its attendant threats to individual liberty. For that reason, I believe we have a special obligation to make *129sure that Congress intended to authorize a novel assertion of federal criminal jurisdiction”)

Both purposes underlying the rule of lenity are served here by our narrow construction of subsection (b). We have argued above that the narrow construction is the more plausible one, supported by the statutory language and context. Even those who disagree must admit that the broader interpretation is not clearly correct, and that subsection (b)’s ambit is ambiguous and open to debate. The Capanos, and any others in their position, were thus without clear guidance on the contours of the criminal law. Moreover, our interpretation leaves it for the Congress, not the courts, to extend the federal criminal sanction. This is as it should be, for Congress is the appropriate forum for the extension of the criminal law. See Garcia, supra, (Stevens, J., dissenting). The rule of lenity thus directs us to construe the statute in the Capanos’ favor.

D. The Logic of the Limitation

The government’s final argument is that limiting subsection (b) to extensions and modifications of defaulted mortgages is simply illogical because equity skimming is as objectionable when there has been no extension or modification as when there have been such alterations. The dissent, too, takes up this line of argument. See Dissent at 132. The argument is unpersuasive, however; indeed, it suffers from illogic.

We concede that equity skimming is objectionable regardless of whether an extension or modification has been granted. Thus, the Capanos’ conduct is nothing we condone.9 That does not imply that there is anything illogical about the limited applicability of subsection (b). Congress may have wished to outlaw equity skimming in certain cases because of limited funds for enforcement, or because it felt that an appropriate quid pro quo for a mortgagor’s benefit from an extension or modification of his mortgage would be that he would run the risk of criminal prosecutions if he skimmed equity. In either case, the limitation is not illogical.

Certainly Congress could have proscribed equity skimming on all multifamily mortgages over which federal jurisdiction might be exercised (it could have done so on all such mortgages period, for that matter), but that is of no consequence. We are concerned with what Congress did, not with what it might have done. Cf. Sitkin Smelting & Refining Co. v. FMC Corp., 575 F.2d 440, 447 (3d Cir.1978); Seaboard Supply Co. v. Congoleum Corp., 770 F.2d 367, 368 (3d Cir.1985) (“Although the activity was reprehensible and probably violated state civil and criminal law, we agree that the scheme did not come within the scope of the antitrust laws.”). It is not for the courts to create a crime where Congress has not.10

*130III.

The structure of § 1715z-4 and its legislative history suggest that § 1715z-4(b) was not intended to proscribe equity skimming except in those multifamily mortgages in which HUD had a financial interest and which had received some form of extension or modification. We note that those disagreeing with our assessment of the structure and legislative history of § 1715z-4 would have to admit, at the very least, that whether , § 1715z-4(b) does extend to situations where the mortgagor has not received an extension or modification is highly ambiguous. In such cases, the lenity principle dictates that we find in favor of the more restrictive reading of § 1715z-4(b).

The judgment of the district court will be affirmed.

. Our assumption is in accord with the only reported case of which we are aware that addresses the question, United States v. Norris, 749 F.2d 1116 (4th Cir.1984), cert. denied, — U.S. —, 105 S.Ct. 2139, 85 L.Ed.2d 496 (1985), which held that the penalty provision applies to skimming from projects subject to mortgages held by HUD, as well as those insured by HUD. HUD itself, although it supports the instant. prosecution, appears previously to have reached the opposite conclusion. A letter dated December 4, 1969, .from Acting Associate General Counsel of HUD, John W. Kopecky, to the Department of Justice stated that ‘ there can be no violation of Section 239 after an insured mortgage has been assigned to the secretary.” Reprinted in Appendix at A53-A54. Additionally, an opinion letter of Tune 10, 1980, from the HUD General Counsel to the Federal Housing Commissioner is in accord: ‘T§ 1715z-4 was] intended as a requirement only in cases where the secretary is not the mortgagee.” Reprinted in Appendix at A25, A47-A48 n. 3. The district court stressed these letters in holding that the *124penalties do not apply to mortgagors under mortgages held by the Secretary.

. Subsection (a) allows the Secretary to promulgate regulations to define “multifamily housing" for purposes of this provision, but HUD has not yet done so. Other HUD regulations define multifamily housing as accommodations designed principally for residential use, conforming to standards satisfactory to the Commissioner of the Federal Housing Administration, and containing at least five rental units. See 24 C.F.R. § 207.24. As no one argues that Golden Acres is not multifamily housing, and as nothing in our decision turns on the definition of "multifamily housing," we assume that the gen*125eral definition of “multifamily housing” may be used here.

. The dissent is therefore incorrect in stating that subsection (a) "unequivocally proscribe[s] the practice of equity skimming from the equity of mortgaged properties.” Dissent at 130. Subsection (a) makes restraint from equity skimming a condition of extension or modification of a defaulted mortgage; it says nothing about defaulted mortgages that have not received extensions or modifications.

. Whereas in the first situation equity skimming is defined by the regulations, in the latter two situations the regulations do not apply; the proscription against equity skimming in these situations is thus quite general and it has been left for the courts to decide in such cases whether a particular use of funds was permissible.

. The dissent ignores this complication, seizing upon the fact that subsection (a) refers to "any mortgage covering multifamily housing,” and concluding without discussion that these mortgages must be the ones “described in subsection (a).” Dissent at 131. But, the mere fact that subsection (a) refers to such mortgages does not mean that those are the ones that it describes. Since subsection (a) is concerned with the extension or modification of defaulted mortgages on multifamily dwellings, it is at least equally plausible — and we shall argue below that it is more plausible — that "mortgage described in subsection (a)” means those mortgages that receive extensions or modifications.

. On behalf of the government’s position, the dissent argues that the Capanos’ interpretation of "mortgage described in subsection (a)’’ would render superfluous the language in subsection (b) referring to "a mortgage not otherwise covered by such regulation.” The dissent argues that

[u]nder the majority’s interpretation, only mortgagors who have received an extension or modification of their mortgages would be liable for criminal penalties. Since all such mortgagors are subject to the regulations of subsection (a), it is hard to imagine who might fit into the category of mortgagors liable to criminal penalties but "not otherwise covered” by the subsection (a) regulations.

Dissent at 132.

That this is incorrect is evident from a brief inspection of the regulations HUD has issued pursuant to subsection (a), 24 C.F.R. § 207.-256(b) (1985). The regulations state that a defaulted mortgagor cannot receive an extension or modification of his mortgage unless he agrees to hold in trust all monies generated by the mortgaged property that are not needed in the operation of the property. Id. The regulations also provide for an exemption decision by the Commissioner of the FHA. Id. Two facts about the regulations are particularly important for present purposes: first, that the regulations distinguish between the’ Commissioner of the FHA and the mortgagee, implying that they are not one in the same; second, that the regulations fall under the subtitle "Rights and Duties of Mortgagee under the Contract of Insurance.” It is a fair inference from these facts that the regulations apply only to HUD-insured mortgages, not HUD-held ones. Since HUD-held mortgages are not specifically exempted from the regulations, however, it must be that they belong to the class of mortgages “not otherwise covered” by the regulations.

. The dissent suggests that inasmuch as HUD supports this prosecution, it has reversed its earlier position which is therefore no longer entitled to deference. In support of this position, the dissent cites Garcia v. United States, 469 U.S. 70, 105 S.Ct. 479, 484-85, 83 L.Ed.2d 472 (1985). The reliance is misplaced, however, Garcia involved the renunciation by the Solicitor General of an interpretation of a criminal statute that he had, in a previous case, stipulated did not reach certain situations. The Supreme Court held that it was not bound by the Solicitor General’s previous interpretation, for ‘"a governmental agency is not disqualified from *128changing its mind’ concerning the construction of a statute.” Id. 105 S.Ct. at 485 (quoting Barrett v. United States, 423 U.S. 212, 223, 96 S.Ct. 498, 504, 46 L.Ed.2d 450 (1976)). The Court also relied upon the fact that the Solicitor General’s previous interpretation had been in the form of a stipulation: "private agreements between litigants, especially those disowned, cannot relieve this Court of performance of its judicial function____ '[Tjhe proper administration of the criminal law cannot be left merely to the stipulation of [the] parties.’ ” Id. (quoting Young v. United States, 315 U.S. 257, 259, 62 S.Ct. 510, 511, 86 L.Ed. 832 (1942).

We do not deny that HUD can change its mind. Nor do we abdicate to HUD our responsibility to interpret the law and weigh the legislative history. We simply believe that an official, interpretive letter from HUD, contemporaneous with the passage of the legislation in question, that was presumably not motivated by any of the strategic or tactical concerns that might underlie a stipulation between parties during the course of a prosecution, is probative of the meaning of that legislation, and is therefore entitled to our most serious consideration. Garcia neither holds nor suggests anything to the contrary.

. In the same letter, immediately after the portion quoted in the text, Mr. Kopecky suggested how subsection (b) might be given a broader scope: "However, in [subsection (b) ] the clause ‘or is not otherwise covered by such regulation’ might be construed to cover any diversion under a project mortgage after default." We do not accept this suggestion. Mr. Kopecky’s observation has nothing to do with the legislative history of subsection (b) which, as he earlier admitted, and as we have shown, suggests the contrary interpretation of subsection (b). There is thus no reason to read "not otherwise covered” as suggested by Kopecky; indeed, his is a rather tortured reading of the phrase. Cf. supra note 6. A second reason to reject this suggestion is that its very difficulty might prevent potential defendants from having fair notice of the meaning of subsection (b). A criminal statute should not be extended through so tortuous a means. See infra Part II.C.

. We note, however, that the Capanos submit that their conduct was not without some redeeming features. Their brief states, and the government does not deny, that the Capanos initially became involved with Golden Acres in their capacities as principals of J.L. Capano, Inc., the general contractor for the project; that at the time of settlement on the mortgage, J.L. Capano, Inc., was still owed some $234,000 on its building contract with Golden Acres, Inc.; that contemporaneous with the settlement, J.L. Capano, Inc., and Golden Acres, Inc., agreed to refinance the outstanding debt, with full payment to be made on or before December 30, 1974; and that as security, the attorney for J.L. Capano, Inc., held the stock of Golden Acres, Inc., in escrow. The Capanos also contend that on January 7, 1975, with the debt remaining unpaid, J.L. Capano, Inc., took possession of the stock of Golden Acres, inc., and assumed operation of the project and that, at that time, the half vacant apartment project was floundering. The Capanos assert that they invested more money in the project in an attempt to protect and ultimately to recoup the sum owed to J.L. Capano, Inc., but that their efforts were not enough to avoid default.

The Capanos' rendition of the background to this case is not part of the record at this stage of the litigation, and accordingly we do not relv on it in deciding the case.

. The lack of a criminal proscription did not leave HUD without a remedy against the Capanos. Indeed, the mortgage was held by HUD, and the agency could have foreclosed or sequestered the rents at any time.