Full opinion text
OPINION LACEY, District Judge: The United States sues to foreclose upon two mortgages held by the Secretary of Housing and Urban Development (HUD) on two high rise apartment complexes, Gregory Park Section 1 (GP 1) and Gregory Park Section 2 (GP 2), owned by the defendant Gregory Park, Section II, Inc. (GP II). The Government claims that defendant has defaulted on payments due, has made prohibited advances to affiliates, and otherwise breached the mortgages and other agreements between the parties. Defendant resists, stating it is not in default; that if it is, plaintiff is to blame; and that the Government, in regulating the rent levels in the two buildings, would not allow rent increases in an amount sufficient for defendant to meet its payment obligations and to recover a reasonable return on its investment. By way of counterclaim, defendant seeks an affirmative recovery of a reasonable investment return allegedly denied it by reason of the foregoing. The following constitutes my findings of fact and conclusions of law. Fed.R. Civ.P. 52(a). This court has jurisdiction by virtue of 28 U.S.C. § 1345. This is only one of five related actions presently before the court involving the Padula enterprises. The facts developed in the preliminary stages of these various matters have been introduced into this proceeding largely through extensive stipulations between the parties (paragraphs thereof will be hereinafter referred to as (St. -), and Joint Exhibits (J.E.-)). The Government is seeking to foreclose mortgages held by HUD on each of five buildings (including GP 1 and 2) owned by the Padula-controlled and run companies, and constructed or purchased with HUD’s assistance. These apartment complexes have all been managed by Arthur H. Padula t/a Arthur H. Padula Management Co., and most have been constructed by Arthur H. Padula Construction Corp. (AHPCC), which Mr. Padula owns. The defendant, which owns GP 1 and GP 2, is the wholly owned subsidiary of Mid-Center Redevelopment Corp. (Mid-Center), which in turn is wholly owned by Arthur H. Padula. Mr. Padula is also the President of Mid-Center and the defendant (St. 25), and, as well, of Gregory Park Section 3, Inc. (GP 3), which owns a high rise apartment house across from GP 1 and GP 2. The three together from the Gregory Park complex in Jersey City, New Jersey. GP 3 is also a wholly owned subsidiary of Mid-Center. In addition, Mr. Padula owns two apartment houses in Newark known as the Weequahic Park Tower and the Weequahic Park Plaza (J.E. 64); and through Mid-Center and AHPCC, he caused to be constructed two additional apartment houses in Newark, Zion Towers and Carmel Towers (St. 110, J.E. 21). Finally, Mr. Padula, t/a Arthur H. Padula Management Co., manages the Weequahic Park Tower; the Weequahic Park Plaza; the Zion Towers; the Carmel Towers; until September 11, 1973, GP 1 and GP 2 (St. 29); and, until February 25, 1974, GP 3. HUD holds the mortgages on all of these buildings, except Zion and Carmel Towers. BACKGROUND On June 12, 1961 the Federal Housing Administration (FHA) insured a $5,517,200 loan by the National State Bank of Newark to Gregory Park No. 1, Inc. for the construction of a high rise apartment building located in Jersey City, New Jersey, hereinabove and hereinafter referred to as GP 1. This loan was insured pursuant to Section 220 of the National Housing Act, as amended, 12 U.S.C. § 1715k, to aid in the rehabilitation of blighted areas. See 1955 U.S. Cong. & Admin.News p. 2918. Thereafter defendant GP II, a limited dividend housing corporation, was formed, pursuant to the New Jersey Limited Dividend Housing Corporations Act, N.J.S.A. 55:16-1 et seq. (St. 2), and its Certificate of Incorporation was approved by the Public Housing and Development Authority, Department of Conservation and Economic Development of the State of New Jersey, and filed on October 30, 1964 (St. Ill, J.E. 94). One of defendant’s corporate purposes (Certificate of Incorporation, Art. II, ffiy b and c) was to obtain financing for the construction and ownership of rental housing with the assistance of mortgage insurance under the National Housing Act. Prior to defendant’s incorporation, the FHA, pursuant to 12 U.S.C. § 1715k(d) (3) (A) (i), issued a Project Income Analysis and Appraisal for GP 2 on FHA form 2264, dated August 31, 1964 (St. 113, J.E. 96), revised and reissued on November 23, 1964 (St. 15a, J. E. 9). The amount of mortgage insurance the FHA can issue is limited to a fixed percentage of the estimated replacement cost of the property, which, in the revised form, was set at $7,592,811. The form also included, inter alia, estimates of income, operating expenses (including management fees), and, under the heading “Estimated Replacement Cost”, a section for carrying charges, financing, and Builders’ and Sponsors’ profit and risk. On February 4, 1965, the FHA agreed to insure all advances to the defendant by the State Bank of Albany for construction of GP 2 (St. 16a); and on that same date the State Bank of Albany loaned $6,790,000 to the defendant, taking defendant’s mortgage note (St. 17, J.E. 10) and a mortgage (St. 18, J. E. 11), covering GP 2, and dated February 4, 1965. Also on the same date, defendant entered into a regulatory agreement with the Federal Housing Commissioner (St. 20a, J.E. 15), the defendant agreeing to abide by the restrictions and regulations recited therein in exchange for the FHA’s issuance of mortgage insurance to the mortgagee. The mortgagee, the State Bank of Albany, obtained further security for its loan to the defendant in the form of a security agreement and financing statement covering all personal property of GP 2 (St. 19, J. E. 12, 13, 14). On December 20, 1966 defendant, pursuant to the New Jersey Limited Dividend Housing Corporations Act, entered into an agreement with the City of Jersey City to have GP 2 exempted from all municipal property taxes for 20 years, upon the condition that it pay an annual service charge in lieu of taxes (service charge) within 60 days after the end of each calendar year, which generally equals 15 percent of the gross shelter rents (St. 21a, J.E. 16). This agreement was to result in substantial savings for defendant and relieved it of property taxes equivalent to approximately 30 to 40 percent of gross rents. On January 19, 1967 defendant received a third Project Income Analysis and Appraisal on FHA form 2264 covering GP 2 (St. 115, J.E. 97) but listing no replacement value because it was issued as part of a rental increase authorization, authorized on or about July 21, 1967. In June 1968 the mortgage covering GP2 was assigned to the Comptroller of the State of New York as Trustee of the Common Retirement Fund, and pursuant to an option exercised by that mortgagee in January 1971, it is now held by HUD (St. 22-24). Approximately nine months after defendant gave its mortgage note and mortgage for GP 2, the FHA, on November 2, 1965, issued a Project Income Analysis and Appraisal on form 2264 for GP 1, estimating the replacement cost, before rehabilitation, at $7,061,043 (St. 5a, J.E. 1). Then, on December 30, 1966, defendant entered into an agreement to buy GP 1 from the FHA for $100,000 and a note and mortgage for $6,625,000 (St. 6, J.E. 2). The contract of sale required Mr. Padula to guarantee personally any operating deficits of both GP 1 and GP 2 for a period of two years from the closing, to pledge the stock of GP II and GP 3 as security, and to assign to the FHA all dividends from GP 3 for a three-year period for this purpose. FHA, as the seller, disclaimed all representations as to the physical condition or valuation of the building. On February 10, 1967 defendant took title to GP 1 from HUD pursuant to the aforesaid terms and conditions (St. 8), and gave to HUD its mortgage note, mortgage, and security agreement covering GP 1 (St. 9, 10, 11, J.E. 4-7). On the same date, defendant entered into a regulatory agreement for GP 1 with the Federal Housing Commissioner (St. 12a, J.E. 8) and entered into an agreement with Jersey City to have GP 1 exempt from all property taxation for 20 years upon the condition that it pay within 60 days after the end of each calendar year an annual service charge, again amounting to approximately 15 percent of the gross shelter rent (St. 7a, J.E. 3). On September 18, 1970 Mid-Center, AHPCC, and Arthur H. Padula, individually, filed a Petition for Arrangement under Chapter XI of the Bankruptcy Act and Leo Neiwirth, Esq. was appointed receiver (St. 26, 27). The defendant itself was not made a debtor in the Chapter XI proceeding; however, because of the estate’s ownership of the defendant’s stock, Mr. Neiwirth immediately commenced overseeing defendant’s operations, and those of GP 3, and continued to do so until December 18, 1972, when the Plan of Arrangement was confirmed by the bankruptcy court and the debtors were revested with their assets. Mr. Padula continued to act for defendant in a managerial capacity during the term of the Receivership (T. 94) and no action was taken by the Receiver without Mr. Padula’s knowledge and consent. As of the filing of the Chapter XI proceeding, defendant and GP 3 had outstanding and unpaid bills to general creditors of approximately $500,000 (St. 71). Moreover from September 18, 1970 until April 10, 1971 defendant defaulted on the mortgage notes and mortgages held by HUD covering GP 1 and GP 2 by not making a single required payment (St. 35, 70), while it accumulated large sums of cash which were converted to certificates of deposit. On or about November 16, 1970, negotiations with the Government were commenced by Mr. Padula to persuade HUD to forego action on the existing defaults and defer principal payments for one year. Thus, on November 16, in confirmation of an earlier telephone conversation, Mr. Padula wrote to Julian B. McKay, Acting Director, Loan and Contract Servicing Division of HUD, and advised that he, and his related corporations, with the exception of the defendant, had filed a Chapter XI petition, and that the debtors were prepared to submit a plan to the bankruptcy court, to fun’d it, and be discharged on or about December 31, 1970 (St. 31a, J.E. 90). He asked that HUD agree to a workout agreement whereby the amortization and reserve for replacement payments due under the GP 1 and GP 2 mortgages would be waived for one year. Extensive discussions were then held between Mr. Padula and various HUD representatives. Mr. Padula stressed the loss the Government would suffer if forced to sell the buildings after foreclosure, and that foreclosure would mean loss of the property tax exemption from Jersey City. Thereafter, on February 23, 1971 Mr. Neiwirth wrote a letter to Mr. McKay in which he said that, as Mid-Center’s bankruptcy receiver, he was managing the defendant and that on February 9, 1971 the bankruptcy court had approved a Plan of Arrangement (St. 31b, J.E. 24). Mr. Neiwirth advised that Mr. Padula needed $1,500,000 to fund the approved Plan and requested that HUD recast the five mortgages it held on GP 1, 2 and 3 and the Weequahic Park Tower and Plaza by increasing them a total of $1,425,502 and waiving the amortization payments until April 1972. Discussions continued between Mr. Padula and HUD officials until April 1971. On April 1, 1971 Mr. McKay addressed a letter to Mr. Padula questioning his good faith in his offer of November 16, 1970 (J.E. 91). Nevertheless, on April 16, 1971 Robert P. Kalish, the Deputy Director of the Loan and Contract Servicing Division of HUD, wrote to Mr. Padula setting forth the minimum conditions which HUD insisted would be required before it would agree to forebear on foreclosing the mortgages (St. 33, J.E. 26): 1. Delinquent service charges to the date of any Work-Out Agreement must be brought current by a lump sum cash payment. We calculate this figure to be $42,530 as of March 31, 1971. 2. All real estate taxes must be current. 3. All tenants’ security deposits must be fully funded. 4. Commingling of funds among projects or advances to affiliated companies will not be tolerated and a violation of this provision will result in immediate cancellation of the appropriate Work Out Agreement. 5. Gregory I, 031-32007; Gregory II, 035-32015; Gregory III, 031-55017; and Weequahic Towers, 031-00204. A monthly payment for a one year period equal to service charge, tax accrual and interest plus %o of the respective interest delinquency. Beginning the second year, a monthly payment equal to service charge, tax accrual and interest plus a supplemental payment equal to the sum of the respective amortization payment and %oth of the respective interest delinquency. * * * * * -X- Additionally, Kalish’s letter questioned the continuing of Mr. Padula’s management of the projects and said that a full explanation of defendant’s disbursements totalling $359,705 to Mr. Padula’s related corporations now in bankruptcy was in order. By letter of April 24, 1971 Mr. Padula replied to Mr. Kalish, stating in part: 1. Delinquent service charges: We hereby agree to pay a lump sum cash payment computed as of April 30, 1971 on or before May 10, 1971, during which period we presume that you will have prepared the necessary agreements and that they will be approved and executed to everyone’s satisfaction. 2. Real Estate Taxes: All real estate taxes will be current. 3. Tenants security deposits: Tenants security deposits will be fully funded and evidence of same will be made available to you. 4. Commingling of funds: We hereby agree that there will not be any advances or commingling of funds at any time. 5. Gregory I, 031-32007; Gregory II, 031-32015; Gregory III, 031-55017; and Weequahic Towers, 031-0020U: We hereby agree to this payment schedule commencing May 1, 1971. Payments to be made on or before May 10, 1971 assuming all of the necessary documents will have been fully executed. In support of his continued management, Mr. Padula stated that he would not draw any management fees “unless all monthly debt service and the conditions contained above are fully carried out,” pointing out that another management organization would require a fee prior to debt service. Mr. Padula said in explanation of the defendant’s disbursements to his related corporations that of the $183,871 in advances remaining after subtracting the amounts constituting repayment to affiliates, all of that sum was “washed out” due to credits for initial rental fees, and paid or accrued management and insurance fees through September 30, 1970. Finally, Mr. Padula added that he required an additional clause permitting his projects to use “any excess funds over and above those required to pay the debt services agreed upon excluding Weequahic Park Plaza ... to implement the Chapter 11 proceedings.” (St. 34, J.E. 27). After a subsequent meeting on May 27, 1971, Mr. Kalish prepared and signed two Provisional Work Out Arrangements for GP 1 and GP 2 which had a two-year term running from May 1971 to April 30, 1973, forwarding them to HUD’s Newark Area Office for submission to Mr. Padula (St. 38). When he received these agreements, Mr. Padula called' Mr. Kalish, stating the agreements were in error in that they had discussed a five-year term. I credit the testimony of Mr. Kalish who stated that, although the agreements called for a five-year payment plan to cure the delinquencies, they were initially to run for only two years; that although the delinquencies would not be cured by that time, HUD would then have had an opportunity to evaluate the defendant’s progress under the agreements, and if dissatisfied, avail itself of its foreclosure remedy then and there. However, he said, Mr. Padula had thereafter called requesting a five-year term to assist him in funding the Plan of Arrangement in the bankruptcy court, stating that the bankruptcy court and creditors would not be satisfied with a two-year plan but wanted assurance that HUD would not foreclose before 1976. Mr. Padula also stated to Mr. Kalish that the success of the Plan in the bankruptcy court depended upon his ability to use moneys generated in excess of the payments required for the workouts to implement the Chapter XI. Mr. Padula requested permission to make the desired changes in the agreements and Mr. Kalish assented. Mr. Padula then amended the agreements by extending them until April 30, 1976 and by adding the following to paragraph 4 of each agreement: “Any excess funds over and above those herein required may be used to implement the Chapter 11 proceedings”. Mr. Padula then executed the agreements, dating them June 22, 1971, and returned them to Mr. Kalish by letter of June 21, 1971 (St. 39, J.E. 30, 31 and 32). Mr. Kalish received the amended agreements and accepted the changes (St. 40). Thus, under the terms of the Provisional Work Out Arrangements, HUD agreed to take no action on defendant’s default until April 30, 1976, provided that the defendant complied with the following conditions: 1. On or before the 10th of each month commencing May, 1971 and continuing through April, 1976 there shall be submitted: A. A monthly payment during the first year equal to service charges, tax accruals, current interest plus %oth of the outstanding interest delinquency through April 30, 1971. B. A monthly payment during the second year equal to [all items listed in 1A] plus a supplemental payment equivelent [sic] to the regular monthly amortization installment. C. An accounting of all cash receipts and disbursements for the previous month on forms prescribed by the Assistant Secretary for Housing Management. ■»**** * 4. It is further understood that there will be no commingling of funds among the projects or advances to affiliates and any violation of this provision will result in the immediate cancellation of the Agreement. Any excess funds over and above those herein required may be used to implement the Chapter 11 proceedings. (J.E. 31, 32) ACTS OF DEFAULT In seeking foreclosure the Government claims that defendant has breached its obligations under the workout agreements. Among the acts claimed to constitute breach are defendant’s alleged failure to pay appropriate tax accruals (i. e., service charge in lieu of taxes) commencing October 1972; its transfer of over $395,000 to the Chapter XI debtors in December 1972, claimed to constitute a prohibited advance to affiliates; numerous other advances to affiliates; a failure to file timely monthly reports with HUD; and, beginning in May 1973, the failure to make amortization payments as required by paragraph IB of the workout agreements. A. Failure To Pay Tax Accruals (Service Charge In Lieu of Taxes) On October 13, 1972 HUD made final payment to the City of Jersey City under a “Memorandum of Understanding” between Jersey City and Mr. Padula settling the amounts due from defendant for 1971 under the service charge in lieu of taxes. Although demands were thereafter made by HUD of defendant to reimburse it for the payment, and to increase monthly escrow payments for service charge accruals to cover the 1972 payments, defendant made no such payments. The defendant contends that the payments made by HUD were not due to Jersey City at the time they were paid by HUD, therefore rendering it a mere volunteer. Defendant also contends that HUD had sufficient escrow money on hand to cover the required payments, and thus did not have to advance HUD’s funds therefor. For the issues thus raised to be properly understood, they must be placed in their appropriate factual background. As previously noted, defendant entered agreements with Jersey City exempting its buildings from all municipal property taxes for 20 years upon the condition that it pay an annual service charge in lieu of taxes ($24,272.39 for GP 1 and $46,638.19 for GP 2, or 15 percent of the annual gross shelter rent of each project, whichever was greater). Accordingly, each project was to pay, in equal quarterly installments, one-fourth of the minimum amount, and submit an accounting of the project’s income and expenses within 60 days after the end of the calendar year. If the accounting required the payment of an additional amount (15 percent of the gross shelter rents), the payment was to accompany the accounting. Thus, under these agreements, the final payment of the annual service charge in lieu of taxes for 1971 was to be made no later than the beginning of March 1972. On February 10, 1972 Mr. Padula wrote Jersey City regarding the 1971 service charge. He requested correction of what he said was an improper assessment and a current statement of Government payments toward the 1971 service charge. Attached were copies of previous bills indicating originals had been sent directly to HUD in Washington (J.E. 106). On March 10, 1972 Mr. Padula explained, in a letter to Mr. Kalish, that the Comptroller in HUD (who was servicing the mortgages on GP 1 and 2) was escrowing too much money for the service charges on GP 1 and GP 3, and was $21,789 short on GP 2. He suggested paying the GP 2 shortage with the excess funds accumulated in the GP 3 escrow account which would still leave a $25,496 surplus in GP 3. He further suggested a return of those funds to GP 3 and proposed new monthly escrow figures (J.E. 107). Mr. Padula then had a meeting on May 19, 1972 with Mr. Joseph F. Cahill, Director of Finance of Jersey City, concerning the specific amounts due on defendant’s service charges, sewage and water bills. Mr. Padula’s post-meeting letter to Mr. Cahill, dated May 22, 1972, indicated that the bills thereafter were to be sent directly to him for approval and he would then forward them to HUD with a recommendation for payment (J.E. 108). On June 8 and 9, 1972 Jersey City auditors visited the defendant, and Mr. Padula then sent a letter to Mr. Kalish, dated June 15, 1972, informing him of the foregoing and stating that when Jersey City made its final determination of the amount due, he, Padula, would then recommend payment in full by HUD (J.E. 109). Finally, on August 7, 1972 Mr. Padula entered into the aforementioned “Memorandum of Understanding” with Jersey City settling the amount due for the 1971 service charge. This “Understanding” stated that the 1971 net service charge due from GP 1 was $71,072 and from GP 2 $98,075.40; that the 1971 service charge was “due and owing”; that the arrears outstanding for water and sewage charges was $53,273.-28; and that a resolution would be presented to the Jersey City Municipal Council abating taxes improperly assessed on one of defendant’s parking lots (J.E. 38). Defendant now would construe this “Understanding” as not requiring the 1971 charges to be paid until Council passage of the abating resolution. This interpretation is contrary to the words used by the parties. Nothing in this agreement conditions the payment of the 1971 service charge (and the outstanding arrearages for water and sewage charges as of July 26, 1972) upon the passage of a municipal resolution that would result in a credit of $2,539.61 and $2,480.34 for two payments made on an improper assessment. Even if the agreement were less clear, I would have to reject defendant’s interpretation in view of the conduct of the parties both before and after execution thereof. First, the agreement calls for the payment of the water and sewage charges outstanding as of July 26, 1972, which are of course independent of the service charge. Second, the original agreement called for the service charge for 1971 to be payable in full by February 28, 1972. This fact was recognized by Mr. Padula in his letter of February 10, 1972 (J.E. 106). Throughout his discussions concerning the final amounts due, Mr. Padula stated that as soon as the final amount was established, he would approve it and forward the billing to HUD recommending payment. This in fact was done. On August 29, 1972 Mr. Padula sent a copy of the “Memorandum of Understanding” to Mr. Kalish with a cover letter stating in reference to the settlement of Jersey City taxes: I am happy to report pursuant to many conferences held with the new Director of Finances [of Jersey City], Joseph F. Cahill, all of these matters have been resolved in writing. All of the outstanding bills have been procured and I recommend payment of the same forthwith by the government. Accordingly, I enclose herewith two duplicate copies of the agreement and the bill for your appropriate action with my recommendation that you pay the same immediately to avoid cancellation on the part of the City of Jersey City which would expunge the tax abatement agreements and leave us at the peril and mercy of a general taxpayer facing 30 to 40 per cent of our income in taxes. (St. 43, J.E. 37). [emphasis supplied] Thus Mr. Padula specifically recommended that the amount due be paid by HUD “forthwith” and “immediately”. Absent is a suggestion that payment should be withheld until the passage of a parking lot resolution by Jersey City. Nor did defendant subsequently object or claim that these funds were not due when the Government advanced these moneys and asked for reimbursement. Only after commencement of the instant action did defendant advance its strained interpretation, one I find contrary to law and against the weight of evidence evincing the intention of the parties, and accordingly I reject it. A month after receiving Mr. Padula’s urgent request to make payment, HUD, on September 29, 1972, advised him by letter that it was necessary to advance $78,000 of its own funds to pay the 1971 water, sewage, and service charges for GP 2, that this money would have to be repaid, and, in addition, that during the next three months, the escrow payments would have to be increased to pay for the 1972 annual service charge (due by March 1, 1973), as estimated based on the actual payments for 1971. HUD further advised that although the escrow for GP 1 was sufficient to pay the 1971 charges, monthly escrow payments would likewise have to be increased for 1972 (St. 46, J.E. 40). On October 13, 1972 HUD paid Jersey City all the payments set forth in the “Memorandum of Understanding”. (St. 47). Mr. Padula was again advised, by letter of November 1, 1972 (J.E. 41), of the need to reimburse HUD for the aforesaid advances and to increase defendant’s monthly payments to cover the 1972 service charge escrow. The letter concluded: You should receive the November 1, 1972 billings very soon. As we have previously indicated, our review of your monthly accountings shows that you have sizable amounts in cash and in certificates of deposit, so that you should have no difficulty in meeting these increased payments. Beginning in January of 1973, the amounts required for taxes will be based on estimates of amounts due for the calendar year 1973. Those estimates will be based on the actual amounts paid for 1971 and due for 1972. The defendant indeed had accumulated $225,000 in certificates of deposit which it was holding. However, it obviously intended to preserve this fund intact for funding the Chapter XI Plan, and, as will appear, in little more than a month GP II’s cash and certificates of deposit would be turned over to the debtors’ estate. Thus, it failed to respond to HUD’s demand for reimbursement for its advances, and did not increase its monthly payments to cover the increased escrow requirement. However, although HUD had believed that it had not received any payment whatever for November 1972, this belief was apparently the result of a bookkeeping error, as evidenced by the cancelled checks for that month. Defendant, however, does not contend that the November remittance included the demanded increase. On December 13, 1972 HUD, reflecting increased urgency, sent Mr. Padula a telegram advising once again of the defendant’s deficiencies, and demanding payment by December 31, 1972. The telegram further warned “your failure to remit checks by December 31, 1972 will terminate work-out arrangements and result in serious consequences” (J.E. 42). Notwithstanding the fact that the defendant at this time possessed substantial funds in the form of certificates of deposit to help satisfy its obligations to HUD, Mr. Padula replied by letter dated December 16, 1972, stating that it was impossible to comply with HUD’s demand until the Chapter XI proceedings had been “disposed with.” The letter also stated that: By letter dated April 24, 1971, we agreed to restore the escrow accounts which has been done and is represented in certificates of deposit totaling $275,000.00, which is being held by the Receiver and which will not be disturbed in the bankruptcy plan. (J.E. 43). Amazingly, having thus stated that the escrow accounts were protected by the certificates of deposit, on the very next day (December 17, 1972) defendant transferred $253,000, including $225,000 in certificates of deposit, to the Chapter XI debtors’ estate (St. 53, 78). These transfers were made to fund the Plan of Arrangement which was confirmed on December 18, 1972. In fact, the Chapter XI Receiver testified that, in the period from the confirmation of the Plan until the end of December, $395,898.37, or almost 100 percent of the defendant’s funds, was transferred to the debtors’ estate to fund the Plan. Unaware of the transfer, on December 22, 1972 HUD responded by telegram to Mr. Padula’s letter of December 16: Your tax escrow accounts depleted by payments due Jersey City per your agreement. HUD advanced approximately $80,000 cash. Other material in your letter irrelevant. Amounts stated in our telegram 12/15/72 are due under terms of work-out arrangements and must be paid before 12/31/72. (J.E. 44) An additional telegram was sent on January 18, 1973 stating if the amounts due were not received by January 31, 1973, without further notice foreclosure proceedings would be instituted (J.E. 46). Mr. Padula responded by letter dated January 24, 1973 asking that foreclosure proceedings be held in abeyance in that, inter alia, defendant had “lived up to all of the terms and conditions [of the workout agreements] except the matter of the tax escrows which I can adjust by April 30, 1973” (J.E. 47). No checks were ever forwarded by the defendant to cover the delinquencies, but instead it continued to remit checks of $37,829.13 for GP 1 and $45,915.62 for GP 2 from January to June 1973 (J.E. 62, 63). Defendant argues that in view of the fact HUD extended defendant’s exemption from making amortization payments, HUD knew defendant lacked funds to meet the increased escrow requirements and accordingly the agency acted unreasonably in refusing to entertain any alternative plan to extend further the period of time for making payments. This is a specious contention, considering the large sums of cash defendant accumulated and then transferred to the Chapter XI debtors in defiance of HUD’s repeated demands. Defendant’s failure to satisfy its obligations under the workout agreements simply cannot be justified upon the grounds of insufficient revenues. Defendant doggedly argues next that HUD was not obligated to make the payments to Jersey City to protect its security because under New Jersey law, although a specific statute creates a prior municipal lien for property taxes, N.J.S.A. 54:5-1 et seq., no statute creates such a lien for a service charge in lieu of taxes. Although defendant’s narrow construction of the New Jersey Tax Sale Act, N.J.S.A. 54:5-4, is very questionable, especially in view of N.J.S.A. 54:5-3, which provides for liberal construction of the Act, it is unnecessary to construe the statute. The fact is that HUD properly acted in making the payments to Jersey City under its agreement with defendant. Paragraphs 3 and 5 of both mortgages covering defendant’s property (J.E. 5, 11) provide as follows: 3. That the Mortgagor will pay all ground rents, if any, taxes, assessments, water rates and other governmental or municipal charges or impositions to the extent provision therefor has not been made by monthly payments as hereinbefore provided before the same become delinquent or subject to interest or penalties, and in default thereof the Mortgagee may pay the same. All such sums so paid by the Mortgagee plus any sums which the mortgagee had advanced to pay mortgage insurance premiums or fire and other hazard insurance premiums not provided for by monthly payments hereunder, shall be added to the principal of this mortgage, shall bear interest at 5% per centum from the date of the advance and shall be due and payable to the Mortgagee upon demand. •5fr # # 5. That the Mortgagee may, at its option, advance and pay any sum of money that in its judgment may be necessary to perfect title to the mortgaged premises in the Mortgagor, so as to make this a first lien upon the premises above described, or to preserve the security intended to be given by this mortgage, and all such sums shall be added to the amount of said note and secured by these presents, payable on demand, [emphasis supplied] Under the terms of paragraph 3, HUD was certainly justified in paying the service charges to Jersey City, especially in view of Mr. Padula’s “recommendation.” Even if these charges were not finally due at the time paid, there was at least a sufficient question to cause HUD, in its judgment, to reasonably believe that such moneys should be paid, in reliance upon the terms of paragraph 5. Defendant’s sole argument under the agreement is that the charges were not due when paid. As I previously stated, I reject defendant’s interpretation of the “Memorandum of Understanding” and find that the charges were in fact due and owing when paid by HUD. Additionally, I find that, even ignoring HUD’s payment of the 1971 service charge, defendant was obligated under paragraph 1A of the workout agreements to make, and failed to make, monthly payments that included service charge accurals. Beginning in October 1972 defendant failed to submit sufficient payments to cover the accruals for the 1972 service charge in lieu of taxes. Since the purpose of establishing the escrow account was to periodically accumulate sufficient funds to enable HUD to pay service charges when due, it is no defense to defendant’s failure to make proper escrow payments for 1972 to say that the final adjustments of these taxes is not due until February 28, 1973. Finally, defendant now claims that HUD had sufficient moneys in its possession to pay the 1971 service charges due to Jersey City for GP 1 and GP 2 out of the escrow surplus for GP 3. However, throughout the period beginning when Mr. Padula was advised by HUD of the amount of Government funds it had to advance to pay the 1971 charges, and continuing throughout HUD’s demands for repayment and threats of foreclosure, Mr. Padula had never responded by advising of a sufficient surplus in GP 3’s escrow account. Moreover, it is of incidental interest that defendant has not offered any evidence to establish that at the time HUD advanced its own moneys there was in fact a sufficient surplus in the escrow account of GP 3 to cover the amounts due. What is in the record is Mr. Padula’s letter of February 10, 1972 (J.E. 107) stating the respective positions of the escrow accounts for GP 1, 2 and 3, with his computation of the 1971 charges, and illustrating a surplus in GP 3 to cover the deficit in the escrow account of GP 2 for the service charge in lieu of taxes. But, as admitted by defendant’s accountant, this letter made no reference to water and sewage charges which were also paid by HUD and charged against the tax escrow accounts (T. 417-18). Thus defendant has not even shown that the escrow accounts as of February 10, 1972 were sufficient to also cover the water and sewage charges. More importantly, as stated, the evidence does not establish defendant’s contention that the GP 3 escrow account was sufficient to cover HUD’s advances in September and October 1972. Accordingly, for the reasons stated, I find that the defendant has breached the escrow provisions of the workout agreements and is in default under the mortgages. B. December 1972 Transfers To Chapter XI Debtors The Government also claims defendant has defaulted on its mortgages by the conceded advancing of $395,898.37 to the Chapter XI debtors, in December 1972, in violation of paragraph 4 of the workout agreement which prohibits commingling of funds among the projects and advances to affiliates, but permits “[a]ny excess funds over and above those herein required” to be used to implement the Chapter XI proceedings. Defendant attempts to justify these transfers on two grounds: First, it is claimed that this sum partially represents management fees owed to Arthur H. Padula, a debtor; and second, the remainder is, under workout agreements, “excess funds” permitted to be used in the Chapter XI proceedings. With respect to the management fees, it is argued that Mr. Padula was owed such fees as had accrued but were unpaid during the Receiver’s administration. Thus it is contended that when Leo Neiwirth, Esq., the Receiver, assumed Mr. Padula’s management contract with the various buildings, including GP 1 and GP 2, as an asset of the Chapter XI debtors, he did not take all management fees owed Mr. Padula under the contract. Mr. Padula now claims he was justified in withdrawing these “accrued but unpaid” fees when the Receiver’s administration terminated and the debtors were revested with their assets. The parties have stipulated that during the Receiver’s term, from September 18, 1970 until December 18, 1972, the Receiver claims to have deducted management fees of $85,005 from GP 1 and $86,428 from GP 2 (J.E. 56); however, defendant’s accountant, from an examination of defendant’s books and records, states that only $72,476 and $77,188, respectively, were deducted from GP 1 and 2 (St. 66). The parties have not assisted the court in reconciling these differences. Assuming defendant’s figures to be correct, however, an additional $66,896 is claimed by defendant to have been owing from it to Mr. Padula (T. 409-15). The Government disputes the “management fee” theory. It argues that Mr. Padula cannot, after the Chapter XI, disavow or separate himself from the acts of his own Chapter XI Receiver performed during the period of the Receiver’s administration. Mr. Padula’s claims for additional fees, it states, should have been made in and to the bankruptcy court. The Receiver, it is noted, testified that at the confirmation of the Plan he verified that all management fees properly due to Mr. Padula for the period of his administration had been deducted and paid to the Chapter XI estate (T. 435). The entire discussion of management fees, however, is inconsequential on the issue of default, even accepting defendant’s theory in its entirety, since defendant must also justify the remaining $339,000 transferred from defendant to the Chapter XI from December 17, 1972 to December 31, 1972. Defendant, continuing to speak through Mr. Padula, its principal, contends that these moneys are “excess funds” which were permitted, under the workout agreement, to be used to implement the Chapter XI proceeding. At trial defendant labored to establish a special meaning for the words “excess funds” as they appear in paragraph 4 of the workout agreement. Sought was Mr. Padula’s interpretation of these words, as a party to the agreement, as well as that of defendant’s accountant, as an expert. Since defendant did not establish that these words, as used by the parties, were given a specialized usage requiring expert aid to determine their meaning, and since the accountant did not purport to render an accounting interpretation of these words, but only offered his own interpretation, resting upon their context within the agreement, I barred his testimony. Compare Carter Oil Co. v. McCasland, 190 F.2d 887, 891 (10th Cir. 1951). See generally 7 Wigmore, Evidence § 1955, at 85-86 (3d Ed. 1940). The workout agreement does not simply refer to the words “excess funds”, but rather to excess funds over and above those funds needed to satisfy defendant’s obligations under the workout agreement. Thus, under the agreement, the defendant could use GP II moneys to implement the Chapter XI proceedings, provided these moneys were not needed to satisfy existing obligations to the Government under the workout agreement. I find this meaning of this clause in the agreement to be quite clear, requiring no parol evidence to illumine its meaning, and to be the only one of which it is susceptible. On the last day of trial, counsel for defendant offered on argument a new and unique interpretation of the “excess funds” clause: the clause incorporated a periodic concept; and periodically, without requiring any segregation among the assets of defendant, certain funds became “excess” and could be later applied to the Chapter XI notwithstanding the existence, at the time of such application, of outstanding obligations to HUD under the workout agreement. He suggested that the funds that had accumulated prior to the execution of the workout agreement, as a result of defendant’s failure to make any payments to the Government on its mortgages from September 1970 to April 1971, became “excess funds” upon the execution of the agreements; and, for the first time, without briefing, argued that at the end of defendant’s subsequent fiscal years, i. e., September 30, 1971 and September 30, 1972, additional “excess funds” were created (T. 375-76, 381-82). Analytically, as I shall show, this theory is full of holes. Moreover, it is unsupported by any testimony I can credit. It is evident to me that no such meaning was contemplated by the parties to the agreements (T. 385-89). As noted, too, there had been no special segregation of funds or establishment of an appropriate account on the books of the defendant regarding such excess funds. Instead, these funds were maintained partially in certificates of deposit, and partially in the defendant’s general cash account, without any special designation (T. 383). Most significantly, this interpretation is belied by a plain common sense reading of the clause in the agreements : the determination of whether excess funds exist can only be made .at the time a transfer to the Chapter XI proceedings is to be made, here, December 18, 1972. Only then can it be determined whether all of defendant’s obligations to HUD under the workout have been satisfied, and if excess funds exist. At the time the workout agreement was executed, defendant, through Mr. Padula, intended to use the funds accumulated as a result of non-payment to HUD as a source of the moneys for implementing the Chapter XI Plan. In the agreement HUD did not demand repayment from these funds, in a lump sum, of the amounts past due. However, what HUD did demand, was that before these moneys could be transferred to the Chapter XI, the defendant be current on its obligations under the agreement. If the transfer had been made at the time the agreement was executed, or on September 30, 1971, assuming defendant was current in its obligations, it would have been a proper transfer under the agreement. Instead, the transfer was made in December 1972, at a time when, as I have previously found, defendant has been in default on its obligations with respect to making proper payments for the 1972 tax accruals, and repaying HUD for its advances on the 1971 service charge. Thus the December 1972 transfers were not sanctioned by the last sentence in paragraph 4 of the workout agreement. Next I must determine whether the December 1972 transfer was an improper “advance” to an affiliate under the first sentence in paragraph 4 of the workout agreement. It is interesting to note that Mr. Padula at trial refused to give any characterization of the transfer other than to call it the “use of excess funds” (e. g. T. 291, 293, 299). He denied that it was a loan, an advance, an intercompany exchange (T. 293), or a dividend to GP II’s stockholder, Mid-Center (T. 298). Although I regard it as of no weight in this proceeding, the Receiver had testified before me in another proceeding that he considered the transfer as a loan from the defendant. Defendant did not at the time of trial (February 1974) have prepared financial statements for the year ending September 30, 1973. However, GP 3 financials were available; and its contribution to the December 1972 transfers was listed as “Advance to the Chapter XI Receiver” accompanied by a footnote stating that although the amounts transferred were listed as a current asset, collection cannot be presently evaluated. Defendant did not contend that its transfer would not be similarly treated. I do, therefore, find the transfer in question to be an advance to an affiliate, within the proscription of the workout agreement, and thus another act of default since not justified under the “excess funds” clause of paragraph 4 of the agreement. Defendant, through Mr. Padula, alternatively claims authority to transfer to the debtors at least the funds accumulated prior to the execution of the workout agreements, based on an agreement in existence prior to the workout agreements. If in fact the transfers had occurred prior to the execution of the workout agreements, such transfers would have been governed by the regulatory agreements which prohibit distributions of assets or income of the project except from “surplus cash”, as defined in the agreements (J.E. 8,15). I find that to the extent the workout agreements place different limitations upon such a transfer they would control a transfer made subsequent to its execution and during its term. See e. g., United States v. Gilman, 360 F.Supp. 828 (D.Md.1973). It is noted, however, that even under the regulatory agreements, such a transfer would not be considered as having been made from “surplus cash.” It is undisputed that at no time was there a complete segregation of all tenant security deposits held; and, as I have held, at the time of the transfers defendant was not current in its obligations to HUD. Defendant next contends that a default should not be declared because the aforesaid transfers were made by, or by order of, the Receiver; therefore the defendant could not prevent them. By this argument defendant implies the transfers were objected to by it. The facts compel a conclusion to the contrary. Mr. Padula testified that it was not he, but Mr. Neiwirth, who originally made the decision to fund the Chapter XI proceedings with the defendant’s funds, and that this decision was made in February 1971, when he wrote a letter seeking the negotiation of the workout agreements. He stated that Neiwirth “was the Receiver and he was the lawyer and this is what he was going to do” (T. 218). He also testified that he objected to the transfer of GP II funds by Neiwirth to the Chapter XI estate; an estate in which Mr. Padula individually was a debtor and the chief personal beneficiary (T. 195-96). Upon further examination, however, he contradicted his previous testimony and admitted he approved Mr. Neiwirth’s transfer of the funds and that it was in his interest to get the Chapter XI plan confirmed (T. 198-202). He continued, however, to put at Mr. Neiwirth’s door the responsibility for the key decisions in making the transfers. In this connection, he claimed that in November and December of 1972, prior to the transfers, when letters and a telegram from HUD demanding payments due were addressed to him, he brought them to Mr. Neiwirth’s attention. He and Mr. Neiwirth, he said, “discussed every aspect of this” (T. 206). In view of the significant role played by Mr. Neiwirth, according to Mr. Padula, it was inconceivable to me that defendant would not call him as a witness. As defendant’s case moved along at trial, I inquired of counsel whether Mr. Neiwirth would be called. Counsel responded in the negative. The court then called Mr. Neiwirth as its witness, over defendant’s objection. See United States v. Wilson, 447 F.2d 1, 8 (9th Cir. 1971), cert. denied, Polk v. United States, 404 U.S. 1053, 92 S.Ct. 723, 30 L.Ed.2d 742 (1972); Estrella-Ortega v. United States, 423 F.2d 509 (9th Cir. 1970); United States v. Brandt, 196 F. 2d 653, 655 (2d Cir. 1952) (Clark, J.). Mr. Neiwirth’s testimony, it developed, was in direct conflict with Mr. Padula’s on certain significant issues. With respect to the original conception of funding the Chapter XI with GP II funds, as well as the actual transfers, Mr. Padula had endeavored to create the impression that Mr. Neiwirth, as the Receiver, and as an attorney, was the driving force. As to this, and as to the other aspects covered by the testimony of both, I accept and credit Mr. Neiwirth’s testimony and reject Mr. Padula’s. It was Mr. Neiwirth’s recollection that the original concept of using GP II funds for the Chapter XI was Mr. Padula’s idea. He first discussed it with Mr. Padula at the time the workout agreement was negotiated. Mr. Padula had suggested to him that since they were to have a workout agreement, it would be a good idea to insert a paragraph allowing the use of the excess funds for the Chapter XI plan. Mr. Neiwirth had no objection if the Government did not (T. 426). His February 23, 1971 letter to HUD (J.E. 24), which, according to Mr. Padula, was drafted at the time that Mr. Neiwirth, as Receiver, told Mr. Padula “what he was going to do,” was in fact prepared by Mr. Padula himself and signed by Mr. Neiwirth after a few changes (T. 439-40). Mr. Neiwirth’s testimony, rejecting the impression sought to be created by Mr. Padula that Mr. Neiwirth was the moving force, is supported by Mr. Padula’s own initial testimony regarding the negotiation of the workout agreement. Mr. Padula stated he had negotiations beginning in November 1970 and that it was he who had the numerous direct negotiations with HUD. In addition, almost all correspondence in evidence concerning the negotiation of the workout agreement with HUD is directed to or initiated by Arthur H. Padula. Moreover, with respect to the actual transfer of funds, I accept Mr. Neiwirth’s testimony that the decision to transfer funds from GP II was jointly made by Mr. Padula and himself a few weeks before the date of the confirmation (T. 425). Most significantly, Mr. Neiwirth stated flatly and unequivocally that Mr. Padula had never shown him the HUD letters and telegram demanding payment for the 1971 service charge and 1972 accruals. Specifically, he denied being shown the HUD letter to Mr. Padula of November 1, 1972 (J.E. 41) and the HUD telegram to Mr. Padula of December 13, 1972 (J.E. 42). Nor was he shown the HUD telegram to Mr. Padula of December 22, 1972 (J.E. 44), which was at a time when, although the Plan had been already confirmed and the debtors technically revested with their assets,'Mr. Neiwirth had not completed all transfers of funds from GP II (T. 431). He first saw these exhibits one month prior to trial, shown them by Government counsel (T. 431-33). It is clear and I so find that, if he had been given the information contained in the letter of November 1 and the telegram of December 13, a red flag would have been raised as to the propriety of the transfers. He would, I find, have checked with Mr. Padula to confirm whether HUD was owed the amounts claimed and, if so, he would have paid those amounts out of the funds that GP II had accumulated. If there had been a dispute over what was due to HUD, he would have asked Mr. Padula to resolve the dispute, as he had done in the past, and then have made payment of what was owing (T. 432-34, 444). Since Mr. Neiwirth’s testimony is in direct conflict with Mr. Padula’s assertion that these letters had been shown to Mr. Neiwirth, and that they had discussed every detail thereof, I am impelled to make a specific credibility determination in addition to the aforesaid general determination. I find I must accept the testimony of Mr. Neiwirth, the Receiver, and reject that of Mr. Padula, the chief individual beneficiary in funding the Chapter XI plan, and in resisting foreclosure. This finding is based on the demeanor of the witnesses as I carefully observed them testify; my impression that Mr. Neiwirth answered directly and unevasively, as against the evasiveness of Mr. Padula; their relative interests in the litigation; and reasonableness of their testimony in light of the entire record before me. Mr. Padula’s failure to inform Mr. Neiwirth of HUD’s demands for payment has significant implications bearing not only upon Mr. Padula’s good faith and credibility, but also, substantively, upon his understanding of the workout agreement and defendant’s obligations under it. Based on the record before me, the inference is inescapable that Mr. Padula intentionally withheld this information from Mr. Neiwirth because he feared that disclosure would adversely affect Mr. Neiwirth’s determination of what were “excess funds,” thereby reducing the amount available for transfer and jeopardizing the funding of the Chapter XI Plan. Viewed in this light, I must characterize his responses to HUD’s demands for payment as intentionally misleading, with the similar objective of forestalling any HUD action that would jeopardize the confirmation of the Plan. Indeed, the overall conduct of defendant’s president and beneficial owner also places in proper perspective defendant’s equitable defenses which seek to resist foreclosure based upon, no less, the actions of HUD. As previously mentioned, in response to HUD’s November 1, 1972 letter demanding payment for the 1971 service charges advanced, and for increased 1972 tax escrows out of the “sizable amounts in cash and in certificates of deposit” that defendant had accumulated (J.E. 41), and in response to HUD’s December 13, 1972 telegram demanding payment by December 31, 1972 under threat of termination of the workout agreement (J.E. 42), Mr. Padula had replied on December 16, 1972 that defendant could not comply with the demand until the Chapter XI proceedings had been “disposed with” (J.E. 43). He did not respond that the “sizable amounts in cash” and certificates of deposit were not available for payment to HUD because he considered them “excess funds” under the workout agreement (the position he now takes) and intended to transfer them to the Chapter XI debtors, but instead told HUD the contrary: He stated that he had previously agreed to restore the escrow accounts, that this had been done and was represented by $275,000 in certificates of deposit. He further stated that these funds would “not be disturbed in the bankruptcy plan” (Id.). Thus at the very time he was preparing to cooperate with Mr. Neiwirth in the massive transfer of GP II funds to the debtors’ estate, thus putting them out of the reach of HUD, GP II’s secured creditor, he was assuring HUD that those funds would in fact be available to it, and would “not be disturbed” by the Chapter XI proceedings. Not only did he fail to give HUD such notice of his intended actions so that HUD might take appropriate steps to protect its security, but he intentionally misled HUD so as to prevent such action. Mr. Padula knew his last chance to avoid complete financial disaster was to obtain confirmation and to fund the Chapter XI Plan. To obtain this objective he was willing and ready to go to any lengths. Mr. Padula claims that he had no obligation under the workout agreement to notify HUD of defendant’s intended transfers, that the transfer were actually made by Mr. Neiwirth, and that Mr. Padula was acting under an honestly held belief that defendant had a right to transfer the funds in question. I find that regardless of who signed the checks and actually performed the transfers, Mr. Padula, acting for defendant, was the moving force behind them. Moreover, I reject Mr. Padula’s contention that he acted under an honest belief that the defendant was entitled to make these transfers. Based upon defendant’s response to HUD’s demands for payment out of its accumulated funds, whereby it assured HUD that the certificates of deposit would be available to HUD; Mr. Padula’s concealment (acting for defendant) of HUD’s demands from Mr. Neiwirth ; defendant’s knowledge, again through Mr. Padula, of the massive transfers and other actions, I am led to the inescapable conclusion that defendant’s actions, as perpetrated by Mr. Padula on its behalf, constituted a fraud upon the Secretary of HUD. The transfer of over $395,000 of GP II’s funds to the Chapter XI debtors, based upon these facts, is far more serious a wrong than a mere breach of the workout agreement. Not only were the Government demands for payment refused, but by this act Padula stripped the defendant of almost all cash and denied it the ability to pay its outstanding obligations to HUD, all in order to satisfy his own personal creditors, who were parties to the Chapter XI proceedings, at the expense of HUD. Thus he withdrew money rightfully belonging to HUD and used it for his own personal benefit. Meanwhile, HUD continued in the dark and was completely unaware of Mr. Padula’s activities. On December 22, 1972, after confirmation of the Plan and commencement of the transfer of funds, but before these transfers were completed at the end of December, HUD once again by telegram demanded payment by December 31, 1972, stating that all of the material in Mr. Padula’s December 16, 1972 letter was irrelevant (J.E. 44). This drew a response, dated December 27, 1972, on Mr. Padula’s stationery, written by an assistant, stating that Mr. Padula would be on vacation until January 10, 1973 (J.E. 45). HUD again demanded payment by telegram dated January 18, 1973, threatening foreclosure if payments were not received by January 31, 1973 (J.E. 46). Mr. Padula replied most misleadingly by letter of January 24, 1973. He did not inform HUD that GP II’s funds had been ti'ansferred to the debtors’ estate. He did state that he had deposited $664,000 with the bankruptcy court and that the Judge ordered the Receiver to hold all funds in the custody of the court, “including funds due the U.S. Government . . . .” He further stated that disbursements of these funds would be illegal but that they were being held by the Receiver and earning interest (J.E. 47). The funds due the United States, however, here in fact refer to Padula tax obligations and not moneys due HUD. I find this letter intentionally confusing, an attempt to create the impression that somehow the money due HUD could not be paid as a result of a court order, but that it was accumulating interest and would be eventually available to HUD, although HUD had no claims in the Chapter XI and was not a general creditor of any of the debtors. Despite Mr. Padula’s further obfuscating efforts, however, HUD became aware from an independent source of transfers in excess of $200,000 of GP II funds. In HUD’s letter of February 6, 1973 it showed recognition of the true facts and responded to Mr. Padula’s earlier claim that his inability to raise rents as a result of the guidelines of the Price Commission should be considered in his inability to comply with the workout agreement stating: We do not understand your statements concerning the relationship between rental increases and payments under the Provisional Work Out Arrangements. If you had received additional rental income you would not have been required to make any additional payments under the Work Out Arrangements. The reason you did not comply with the provisions of the Work Out Arrangements is that the excess net income has been deposited with the Receiver for payment to unsecured creditors. The amounts deposited with the Receiver are more than sufficient to have paid the back taxes. If you had received additional amounts of rental income the amount now held by the Receiver would be greater; however, the amount applied on your loans would